What Happens to My COBRA When My Ex-Employer Goes Out of Business?
One of the requirements for COBRA Insurance is that there is an active plan available to active employees. If there are no active employees, then there is no active plan.
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UPDATED: Jul 17, 2023
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UPDATED: Jul 17, 2023
It’s all about you. We want to help you make the right legal decisions.
We strive to help you make confident insurance and legal decisions. Finding trusted and reliable insurance quotes and legal advice should be easy. This doesn’t influence our content. Our opinions are our own.
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Sadly, the answer to this is, it will probably go away.
One of the requirements for COBRA Insurance is that there is an active plan available to active employees. If there are no active employees, then there is no active plan. And if there is no active plan, there is no COBRA.
That doesn’t necessarily mean that the insurance coverage stops on the day that the company closes its doors. Even though the business is shut down and there are no longer employees reporting to work for the business of the company, there may still be executives, accountants and HR personnel working on finalizing the shut-down. If the coverage remains in effect to cover these employees as they do the final audits, send reports to the state and the IRS, figure 401k amounts and send roll-over information to the former employees, etc., then the COBRA coverage will likewise continue. But there is going to come a time when the company’s insurance carrier will have to be notified to cancel the company policy, and when that happens, it’s cancelled for everyone– active employees and former employees on COBRA alike. There simply is no way to keep the policy in force after there are no active employees. Cancelling the insurance policy might be the first thing the closing staff does, or it might be the last, but whenever it happens, the COBRA will stop as well.
What happens to health insurance if a company closes?
When that happens, there are a couple of things you can do. You can see whether there is an option to convert your existing policy to an individual policy. Depending on state law and the makeup of your policy, this may or may not be an option. If it is not, you can look into short – term policies or individual policies. If you are married and your spouse has access to coverage, losing your COBRA will be a qualifying event to join that plan. If you have difficulty finding other insurance, you might want to check with a local insurance broker who can help you. But COBRA has its limits, and one limit is when the business closes down or ends.
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Case Studies: What Happens to COBRA When Employers Go Out of Business?
Case Study 1: Alpha Manufacturing
In this case, Alpha Manufacturing, a well-established company in the automotive industry, faced financial challenges and was forced to declare bankruptcy. As a result, the employees who were previously covered under Alpha Manufacturing’s group health insurance plan had concerns about their COBRA coverage.
Unfortunately, since there were no active employees and the company’s insurance policy was canceled, the COBRA coverage for the former employees also came to an end. This left the employees without continued health insurance options.
Case Study 2: Beta Tech Solutions
Beta Tech Solutions, a small startup specializing in software development, encountered severe financial difficulties and had to close its operations. The company had been providing COBRA coverage to its former employees, allowing them to maintain their health insurance.
However, when the company’s insurance carrier was notified to cancel the policy, the COBRA coverage also ceased. As a result, the former employees had to explore alternative health insurance options, such as individual policies or seeking coverage through a spouse’s plan.
Case Study 3: Gamma Industries
Gamma Industries, a large manufacturing conglomerate, went through a merger with another industry leader. Following the merger, the new entity decided to discontinue the previous health insurance plan and implement a new one.
As a result, the employees who were on COBRA from Gamma Industries had to transition to the new plan or seek alternative coverage, as the COBRA coverage was terminated due to the change in the company’s health insurance offering.
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Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.