—Photo by Garry Gay/Alamy

When Pete Daly was diagnosed with malignant melanoma in 2002, he had to quit his engineering job during his treatment. He faced more than a loss of income—he lost his health insurance because, like nearly two-thirds of Americans under 65, he was enrolled in a health plan through work.

The Madison, Wis., resident explored his options in the state, county and municipal insurance pool to find his way through the health coverage maze to a happy ending.

If you’re facing a pink slip, you may have to do what Daly did and research the best way to remain covered. Here are several options to consider:

Your spouse’s plan

If your spouse works and has coverage through an employer, ask to be added to the policy. Often, the company picks up part of the tab, making this one of the least expensive options.

Even if the company offers enrollment only at certain times of the year, you should be able to join the plan through what’s known as “special enrollment,” says Amy Turner, special assistant with the U.S. Department of Labor. Just like the birth or adoption of a baby, a spouse’s loss of insurance is considered a “special event” and should trigger an enrollment opportunity.

However, you need to make your request within 30 days of losing coverage, says Kevin Lucia, assistant research professor with the Georgetown Health Policy Institute in Washington, D.C. If you wait, the employer doesn’t have to include you right away.

COBRA

For Pete Daly, the federal law known as COBRA—for Consolidated Omnibus Budget Reconciliation Act—was the key to continuing his coverage.

COBRA requires companies with at least 20 employees to offer workers who are departing (for reasons other than gross misconduct) the option of keeping their group health insurance. Usually, coverage through COBRA extends for 18 months, although it can go longer in certain cases.

If you have ongoing health concerns, like diabetes, you’ll definitely want to consider COBRA, says Phil Lebherz, executive director with the Foundation for Health Coverage Education in San Jose, Calif. The reason? You’re already on the plan, so you don’t have to worry about being turned down for a preexisting medical condition.

There are a couple of facts to keep in mind. You have 60 days to enroll in a plan through COBRA. The time period starts either when you receive notice of your loss of coverage, or the date your coverage stops, whichever is later.

Until recently, your charges under COBRA could be as high as 102 percent of the cost of the plan—the extra 2 percent is allocated to administrative costs. If your employer has been subsidizing your premiums, as most do, the price jump can be eye popping. Consider this: the average annual premium for health insurance for a family of four is $12,680, reports the Kaiser Family Foundation.

However, the American Recovery and Reinvestment Bill of 2009—more commonly called the federal stimulus plan—temporarily changes that. If you’re laid off between Sept. 1, 2008 and Dec. 31, 2009, the government will cover 65 percent of COBRA premiums for you and your family for up to nine months, unless you get a new job with employer-sponsored health care or become eligible for Medicare before then. The subsidy is available to individuals with income up to $125,000, and families with income up to $250,000.

Government Programs

Many people migrate to health insurance programs available through the government.

The federal Medicare program, of course, is available once you reach age 65, but Daly was 10 years away from qualifying. Many states offer their own insurance plans, says Karyn Schwartz, senior policy analyst with the Kaiser Family Foundation, and one of them was the answer for Daly.

As his cancer treatments continued, he realized he would be unable to go back to a full-time position. Daly made a radical career shift, applying for a job as a school crossing guard. Once he was hired, he was eligible for the state’s municipal health insurance program, with his employer covering one-fourth of the premiums. This greatly reduces the risk that his ongoing medical bills could bankrupt his family. Moreover, the part-time schedule lets him easily schedule doctor’s appointments and treatments, so working hasn’t been detrimental to his health.

“It’s really been, for me and my family, the answer,” Daly said.

However, “avoiding a break in coverage by maintaining COBRA was the big thing,” Daly notes. Because he was continuously insured, his new plan kicked in as soon as he was on the job. If he had let his coverage lapse, he may have had to wait for his cancer treatments to be covered.

There are other options for people with children younger than 19—Medicaid and CHIP, the Children’s Health Insurance Program. The programs are administered by the states within broad federal guidelines. While they vary by state, CHIP or Medicaid generally are available to children in families earning up to about 200 percent of the federal poverty level.

If your children qualify, it may make sense to cover them through CHIP or Medicaid and look into other programs for the adults in the household. That’s because the premiums tend to be fairly low, says Schwartz.

Some state insurance programs are not well known, so it pays to do some digging, says the Foundation for Health Coverage Education’s Lebherz. For instance, at least one state will pick up a portion of your premiums if you lost your job because your employer moved to China, he notes.

Private Health Insurance

Another option is buying insurance in the individual market, just as you purchase coverage for your home or car. However, it’s usually most affordable for younger people in good health, says Kelly Fristoe, owner of the Financial Partners insurance agency in Wichita Falls, Texas. In 2005, nearly half of adults without health problems found it difficult to find affordable individual coverage, reports the Commonwealth Fund, a private foundation promoting health care reform.

Annual premiums for individual coverage for people ages 50 to 54 averaged $3,628, rising to $5,090 for those 60 to 64 years old, according to America’s Health Insurance Plans (AHIP), an industry group. Even so, about nine of 10 individuals who apply for individual coverage are accepted, according to a 2007 study by AHIP. A range of plans is available, including high-deductible plans with lower premiums, says Ellen Laden, a spokesperson for insurance provider United Healthcare.

As you review the options, you’ll want to keep a couple of things in mind.

• While you want to make an informed decision, you don’t want to procrastinate. Almost every program has a time limit within which you need to act.

• Do all you can to avoid a lapse in coverage, even for just a few months. Going without, even for a brief period, may mean you’re not covered when a serious accident or illness hits.

Moreover, another federal law—HIPAA, for the Health Insurance Portability and Accountability Act—comes into play. HIPAA requires insurers to cover even preexisting conditions like diabetes as long as you’ve maintained health insurance, generally for at least 18 months and without a gap in coverage of more than 63 days. The insurance can be through an employer, the government, COBRA or an individual policy, says the Georgetown Health Policy Institute’s Lucia.

If you’ve let your coverage lapse too long and you later apply for insurance, the insurer may accept you but exclude any conditions you had at the time of your application—and continue to exclude them from coverage for a year.

Where to get help

The Center for Patient Partnerships at the University of Wisconsin-Madison offers patient advocacy services.

The Foundation for Health Coverage Education offers information on affordability and eligibility for plans across the country.

Health Plan One, a Web-based health insurance brokerage, offers plans from 100 companies.

You can reach find information on COBRA and other regulations online through the U.S. Department of Labor, or you can callthe department’s benefits specialists at 1-866-444-3272 toll-free.

Karen Kroll is a financial writer based in Minneapolis.