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If a company goes out of business, are the employees eligible for COBRA
even though there is no longer a health insurance policy for the company?
In most cases, no. Under the Consolidated Omnibus Budget and Reconciliation
Act of 1985 (COBRA), workers who lose their jobs may have the right to continue
group health care coverage under their employers' plans. Unfortunately,
however, if the company goes out of business and no longer has a group health
insurance policy in force, then COBRA coverage is no longer available. One
possible exception: union employees who are covered by a collective bargaining
agreement may be entitled to COBRA coverage if the agreement provides for
a medical plan.
The good news is that employees who are not eligible for group coverage
under COBRA may still be able to obtain group health insurance elsewhere.
For instance, they may find a new job with an employer who provides health
insurance or may be eligible for employer-sponsored coverage through a family
member's employer-sponsored plan. And, under the Health Insurance Portability
and Accountability Act of 1996 (HIPAA), the health coverage they had through
their former employer may "count" towards reducing or eliminating
any pre-existing condition exclusion that might apply when they seek group
health insurance with another employer.
In addition, there are other sources of health insurance at opposite ends
of the price spectrum: low-cost or no-cost health insurance coverage through
a public program sponsored by their state's unemployment office or more
expensive individual health insurance that can be purchased through insurance
companies.
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