Sign up for COBRA?

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ThinkingRunner
Posts: 87
Joined: Mon Sep 28, 2009 11:11 am

Sign up for COBRA?

Post by ThinkingRunner » Fri Mar 21, 2014 8:03 am

Here's the situation. I'm taking a week's break between jobs -- terminated previous employment last Friday and will begin new employment this coming Monday. Per former employer HR, health benefits lapse on the day of termination. There was no option to sign up for COBRA at the time since enrollment materials are sent by snail mail 1-2 weeks after separation -- I will have new company coverage before I receive these materials. My coverage was through HDHP+HSA for a family of four, and as a Boglehead, I have been max-ing out the latter for the past several years. The new coverage will also be HDHP+HSA. I am in Massachusetts.

My main question is, assuming no unexpected medical issues/claims in the next couple of days, should I sign up for COBRA for the 9 uncovered days when I receive the paperwork? Here are the sub-issues that come to mind if I don't sign up.

1) Will the maximum family contribution to HSA ($6550) be impacted by this brief break in eligible coverage? If so, is it a straight pro-ration, i.e. 356 * 6550 / 365?

2) I understand there are penalties for lack of coverage at the federal (ACA) level and MA-state level. Do these apply to my situation, and if so, how do I figure them?

Based on cost to company, I estimate COBRA for 9 days to cost approximately $250-300. I am thinking it would make sense to sign up retroactively if the tax cost of the reduced HSA contribution (at a marginal fed+state rate of ~40%) and ACA+state penalties exceed this amount. The tax cost is admittedly small, but I have no idea what the penalties would be.

What do Bogleheads think?

Iorek
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Joined: Fri Mar 08, 2013 9:38 am

Re: Sign up for COBRA?

Post by Iorek » Fri Mar 21, 2014 8:25 am

I don't know much about HSAs, but I can tell you that if you have less than a 63 day break in coverage, the break is disregarded for purposes of preexisting conditions exclusion. I would assume it is likewise disregarded for purposes of any individual mandate.

I would not bother purchasing COBRA for the 9 day break. COBRA can be purchased with retroactive effect for 60 days, so in the unlikely event you have significant insurance needs during those 9 days you could always go back and purchase it (and, as noted above, any conditions that arose during those 9 days would have to be covered by your new insurance once you were on that plan).

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Steelersfan
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Re: Sign up for COBRA?

Post by Steelersfan » Fri Mar 21, 2014 8:37 am

Iorek wrote:I don't know much about HSAs, but I can tell you that if you have less than a 63 day break in coverage, the break is disregarded for purposes of preexisting conditions exclusion. I would assume it is likewise disregarded for purposes of any individual mandate.

I would not bother purchasing COBRA for the 9 day break. COBRA can be purchased with retroactive effect for 60 days, so in the unlikely event you have significant insurance needs during those 9 days you could always go back and purchase it (and, as noted above, any conditions that arose during those 9 days would have to be covered by your new insurance once you were on that plan).
+1

ThinkingRunner
Posts: 87
Joined: Mon Sep 28, 2009 11:11 am

Re: Sign up for COBRA?

Post by ThinkingRunner » Fri Mar 21, 2014 12:54 pm

Iorek wrote:I don't know much about HSAs, but I can tell you that if you have less than a 63 day break in coverage, the break is disregarded for purposes of preexisting conditions exclusion. I would assume it is likewise disregarded for purposes of any individual mandate.

I would not bother purchasing COBRA for the 9 day break. COBRA can be purchased with retroactive effect for 60 days, so in the unlikely event you have significant insurance needs during those 9 days you could always go back and purchase it (and, as noted above, any conditions that arose during those 9 days would have to be covered by your new insurance once you were on that plan).
Thanks for the information. I guess it is not worth it to purchase COBRA given that penalties are unlikely.

I'd still be interested in knowing whether I should adjust my HSA contributions to account for the lack of HDHP coverage for these 9 days. Doing it upfront would be easier than taking a distribution of a small overcontribution, and complicating our taxes. Or perhaps it's insignificant enough that no one would care?

guitarguy09
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Joined: Mon Mar 03, 2014 10:16 pm

Re: Sign up for COBRA?

Post by guitarguy09 » Fri Mar 21, 2014 2:01 pm

I will be coming up on a similar situation this summer. I will have about 8 days of "non-coverage" and I also live in MA. That's great if some healthcare issue arose and I could retroactively buy COBRA but what about the MA state and federal taxes depicting a gap in coverage for that 1-2 weeks? Any thoughts on what the implications would be?

Iorek
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Joined: Fri Mar 08, 2013 9:38 am

Re: Sign up for COBRA?

Post by Iorek » Fri Mar 21, 2014 2:19 pm

guitarguy09 wrote:I will be coming up on a similar situation this summer. I will have about 8 days of "non-coverage" and I also live in MA. That's great if some healthcare issue arose and I could retroactively buy COBRA but what about the MA state and federal taxes depicting a gap in coverage for that 1-2 weeks? Any thoughts on what the implications would be?

For federal purposes, a single continuous period of 3 months or less without coverage qualifies for the "short coverage gap" exemption.

http://www.irs.gov/uac/Questions-and-An ... -Provision

seamonkey
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Re: Sign up for COBRA?

Post by seamonkey » Fri Mar 21, 2014 10:39 pm

There is no penalty for a lapse of coverage in MA or federally for that short a time.

And you won't even get COBRA forms for weeks to months after the termination date, by which time you'll have coverage. Occasionally, employers don't start new employees with coverage until a pay cycle or start of month, but even with a multi-week gap, you'll be able to retroactively engage COBRA if needed.

ThinkingRunner
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Joined: Mon Sep 28, 2009 11:11 am

Re: Sign up for COBRA?

Post by ThinkingRunner » Sun Mar 23, 2014 8:41 pm

Thanks all. I believe I found the answer to my HSA contribution question while doing my 2013 taxes.
TaxAct said:
If you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered to be an eligible individual for the entire year. If you had family HDHP coverage on the first day of the last month of your tax year, your contribution limit for 2013 is $6,450 even if you changed coverage during the year. The contribution limit for those with single coverage is $3,250 for 2013.
So, brief breaks in coverage do not appear to impact HSA contribution limits provided you are eligible to contribute (enrolled in a HDHP) on December 1.

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