COBRA coverage is expensive, but it provides continuance of your health insurance coverage in the event you lose your job.
If you lose your job or go down to part-time, you may find yourself without benefits, such as health insurance. Luckily, the Consolidated Omnibus Budget Reconciliation Act of 1985 or COBRA, offers the option to continue healthcare coverage.
How Does COBRA Work?
Employers often pay a portion of your health insurance, whether just for you or the whole family. Once you are no longer employed, your employer obviously won’t offer the same benefit. COBRA gives you the option to keep the coverage, but at your expense. In other words, you must cover the entire premium, rather than just the portion your employer isn’t covering.
Typically, when you opt for COBRA coverage, you pay 102% of the premium amount. This covers the administrative cost incurred for providing the health insurance. You typically have up to 60 days to decide if you want to accept the coverage. If you do decide to take it, your coverage date will be retro activated to the date you separated from your employer.
Who Qualifies for COBRA Coverage?
Three things need to be in place in order for you to be eligible or COBRA coverage.
- Your plan must be covered by COBRA. By law, only employers with more than 20 employees must offer it, but there are even a few loopholes around it. Find out if your plan offers it before moving forward.
- There must be a qualifying event. Typically, you must have lost your job for a reason other than gross misconduct. This includes quitting your job (you don’t have to be let go). Other qualifying events include a loss of hours, divorce, and death of the policy holder.
- You must be the policyholder or covered beneficiary before the qualifying event. In other words, you can’t add a spouse that wasn’t on the policy before you lost your job.
How Much Does COBRA Cost?
Every policy will have a different cost. If you aren’t sure of the full cost of your insurance premiums, find out the percentage your employer covers. You’ll then have an idea of the general cost. Most companies, however, also charge an ‘upcharge’ for administrative costs. The average is 2%, but it could vary by company.
How Long Does COBRA Coverage Last?
How long you can keep COBRA depends on the qualifying event that put you here. Most employees that lost their job or lost hours can continue coverage for 18 months after their last day of coverage. This is the same for the policyholder as well as all previously covered beneficiaries.
Other occurrences include:
- If the employee becomes covered by Medicare, the spouse and any covered dependents can maintain COBRA for 36 months
- If the employee and spouse divorce, the spouse and any covered dependents can maintain COBRA coverage for 36 months
- If the employee dies, the spouse and covered beneficiaries can maintain COBRA for 36 months
- If the employer no longer covers dependent children, you could opt for COBRA coverage for that child for 36 months
How Does COBRA Compare to Regular Insurance?
COBRA coverage will be the same as your regular coverage while you were employed. You may have the option to keep other coverage options, such as vision or dental insurance too. If you opt in, you continue the same coverage with the same deductible, co-pays, and maximum out of-pocket amounts.
The largest difference between COBRA and ‘regular insurance’ is the premiums you’ll pay. It may be worth checking the marketplace for other plans just to have something to compare it to. You may find that the COBRA plan costs just as much as regular insurance, but it’s worth checking.
Putting premiums aside, COBRA insurance and regular insurance will have similarities, including:
- A certain deductible
- A specific co-pay amount for each type of medical visit
- Illnesses, procedures, and medical visits that are and aren’t covered
The Pros and Cons of COBRA Insurance
|You keep the same insurance you have and are used to using.||The premiums are usually very high.|
|You don’t have to worry about a lapse in coverage.||It’s only temporary coverage.|
|You don’t have to worry about being denied for a pre-existing condition.||If you move out of state, you’ll likely lose your benefits.|
Since COBRA is costly, you may want to explore your alternatives:
Shop the marketplace at www.healthcare.gov to see what options you have. Make sure you compare the deductibles, premiums, co-pays, and covered services before switching. Don’t just jump at the first policy that has a lower premium. Oftentimes a lower premium means a higher deductible or less coverage.
Become a dependent
If your spouse works for a company that offers group health insurance, you may be able to become his/her dependent. Losing your job is a qualifying event that may allow you to jump on his/her insurance even though it’s not open enrollment.
Apply for Medicaid
Check out the income requirements for Medicaid in your area to determine if you qualify. Even if it’s temporary, it may be a much more affordable alternative while you figure things out.
Does COBRA Automatically Kick In?
You will not be automatically enrolled in COBRA continuation coverage. Instead, your employer must let the plan administrator know of the qualifying event within 30 days of occurrence. Once the plan administrator receives notice, they have 14 days to send you information about your COBRA options. You then have 60 days to decide whether you want to opt in or not. If you do, you must send payment by the due date or risk losing the option to take COBRA coverage.
COBRA may offer you the coverage you need to get through while you look for another job or wait for your new coverage to start. Look at all of your options to make sure you choose the option that makes the most financial sense and provides the coverage you need.