Most employees who leave a job can extend their health coverage through a federal program called COBRA, the Consolidated Omnibus Budget Reconciliation Act. But COBRA does not cover employees when a company has gone out of business--an increasingly common fate for dot-coms struggling through a market downturn.
"When a company goes bankrupt themselves, that's an instance when COBRA isn't offered," said Tim Morris, benefits specialist for outsourced human resources provider ProBusiness. "If they're out of business, they offer no (health) plan."
That has got Karl Idsvoog worried about his two children.
"If I tell Adam to get off his Rollerblades, that's when he would tip over on his bike," said Idsvoog, a former managing producer for APBnews.com. The online crime news service recently announced that it had run out of money and is currently looking for investors while operating on a limited basis. "I hope nothing happens, but that's basically life in America."
Idsvoog said he has until the end of the month before health insurance covering him, his wife and their two children runs out.
Not all employees at defunct dot-coms lose their benefits, however. If a company that went out of business had outsourced their benefits and payroll services, then employees could use COBRA through the outsourced company. That was the case with Toysmart, which laid off 110 employees when it shut down.
Industry analysts say there will be increasing consolidation, layoffs and outright failures this year.
"Venture capital is drying up for the business-to-consumer companies, and now that they're in the third and fourth rounds of funding they may be left out on an increasingly shaky limb," said Bill Battino, global leader of e-business strategy at PricewaterhouseCoopers.
While many will find new employment, those who are not able to will face paying for expensive independent health insurance. HMO coverage for a family of four through Blue Cross of California, for example, costs more than $5,000 a year.
"One of the things employees don't appreciate is what health benefits are worth," Idsvoog said.
COBRA protects people who leave a job or who lose coverage because of reduced work hours, allowing them to maintain group rates for a limited period of time. Companies with 20 employees or more are required to offer the program.
And while many think of dot-com employees as being young and healthy, many are starting families or are engaged in rigorous outdoor sports such as mountain biking and snowboarding.
A broken leg can cost $950 in hospital bills without insurance, compared with $100 with a PPO plan through Blue Cross, a Blue Cross representative said. Or for childbirth, doctor bills can run around $3,000 to $4,000, and the delivery itself can run $5,000 to $7,000 without insurance.
"When you take a job with a start-up, you know there's a certain amount of risk," Idsvoog said. "(Going out of business) goes with the territory, but it's never fun."