Health insurance can be a stressful thing… especially if you don’t have it! COBRA, officially known as the Consolidated Omnibus Budget Reconciliation Act of 1985, was created to help workers and families keep their insurance in difficult situations that might cause them to lose it. Not everybody qualifies for COBRA coverage, and it’s not the best choice for everybody who does qualify, but it’s a very important option to understand.
What is COBRA Insurance?
COBRA helps workers and their dependents stay covered by their current medical insurance after events like job loss, divorce, and death. This program doesn’t apply to extremely small businesses or sole proprietorships; only companies with 20 or more employees can offer COBRA.
In order to be eligible for COBRA, you need to meet the following three requirements:
The health plan you have is covered by the COBRA program
You experience a qualifying event, such as:
- Job loss, voluntary departure, or termination (other than for gross misconduct)
- Reduction of working hours
- Divorce
- Death of primary insured
You are the employee impacted by the qualifying event or a direct beneficiary of that employee who was covered by the employer’s plan the day before the event took place.
As long as you meet these three requirements, you can apply for COBRA and maintain your health insurance coverage.
How Does COBRA Insurance Work?
As soon as a qualifying event occurs, and assuming you have access to COBRA through your employer, you’ll receive a COBRA election notice. Your employer is required to notify you of your COBRA options within 30 days of the qualifying event. This notice explains all of the details you need to sign up.
Keep in mind that you have an election period of 60 days from the date when you lose your original coverage or receive your COBRA election notice (whichever comes later). If you fail to elect for COBRA within that two-month period, you may lose your opportunity.
If you are accepted into the COBRA program for termination or reduction in working hours, you can maintain coverage up to 18 months. Other situations allow for longer periods of COBRA coverage.
If a COBRA beneficiary suffers a disability, all people covered by COBRA insurance is granted an extension to 29 months of coverage.
If the worker was eligible for Medicare before the qualifying event like job loss occurred, the COBRA period of coverage extends to a full 36 months from the date of Medicare eligibility.
Should the worker die or file for divorce or legal separation, COBRA offers a maximum 36-month coverage for spouse and dependents.
Some states, such as New York, automatically mandate that COBRA health-care coverage lasts for 36 months. The employer must be based in that state.
The Cost of COBRA
The cost of this coverage isn’t cheap, unfortunately. Basically, with COBRA, you get to keep the health insurance offered by your (or your ex-spouse’s or deceased spouse’s) employer.
Everything stays the same, with one big exception: Instead of the employer paying a percentage – usually the lion’s share – of the monthly premiums, you now pay all of them. In other words, the full cost of the plan falls to you, plus administrative fees of up to 2%. There’s no specific price, but often people find their premiums doubling and even tripling. Most states decree, however, that you can’t pay more than 102% of the actual cost of the insurance.
Weighing Your Options
Due to the high cost of COBRA, it’s worth weighing all of your options before deciding to sign up.
A few other possibilities include:
- Buy your own coverage through the marketplace at www.healthcare.gov. Depending on your tax bracket, you could benefit from significant discounts and deductions.
- Explore your eligibility for Medicaid, which offers free and reduced healthcare for adults and children
- If possible, enroll in your spouse’s or parent’s workplace plan instead (the latter if you’re under 26 year old).
Overall, COBRA is a good fallback. It guarantees the continuation of health insurance during some of the most difficult times of your life. And in many cases, the coverage might be better than anything you can get with an individual insurance plan. But it’s costly and temporary, so explore your eligibility for more affordable and long-lasting options before committing to COBRA.
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