Technically, your employer needs to notify USCIS and revoke your H1B. You better check with your company to see if/when they'd do that. Your H1B is invalid as soon as you lose your job. So if you don't want to take any risks, best bet is to transfer your status to F1 by enrolling in a language school/community college, then transfer your F1 to the master program if you are admitted. Your health insurance has nothing to do with your legal status.