Everything You Need To Know About COBRA Insurance

Health Insurance Online | May 10, 2013

COBRA stands for Consolidated Omnibus Budget Reconciliation Act .  This health benefit passed by Congress in 1986 provides continuation of health coverage that might otherwise be terminated in the event of a job loss (Department of Labor).  With full medical benefits remaining the same as the group plan, individuals and families can save money by staying on a company plan after employment ends.

COBRA is something people hear about all the time, but do not actually research until they’re confronted with a change in their life or career.  That’s what this guide is for!   Explore the great benefits of continuation coverage and learn the ins and outs of what it means to qualify for and accept this coverage.

COBRA Continuation Health Coverage:  Does the business I work for provide this benefit?  Can Anyone Receive This Benefit?

Health care is expensive.  Companies bundle insurance plans to save on the overall costs of employee health care.  If a company is operating a group health plan with 20 or more employees, that company is subject to COBRA.  If you’re an employer, the 20 employees do not all have to be full time.  Part time help is counted toward COBRA as a fraction determined by the number of hours of worked divided by the number of hours considered to be full time.  20 is the magic number.  The US Department of Labor states that if there are 20 employees covered under group health insurance, qualified beneficiaries can receive the group health coverage after a qualifying event if they were covered by said plan on their last day of employment.  Just a quick recap:

Company:  All state and local governments, and companies with 20 or more full time employees, must provide COBRA insurance to qualifying beneficiaries.

Three Types of Qualifying Beneficiaries:

  1. Employee covered by group plan on the day before qualifying event.
  2. Spouse covered by group plan on the day before qualifying event.
  3. Dependent child covered by group health plan on the day before qualifying event.  Children are considered dependent if claimed on your federal income tax form.

Tip:  This only describes who is eligible in the case of a qualifying event.  See the next section and find out if that’s you!

Qualifying Events:  Who is eligible for COBRA?

 Life happens.  COBRA is a safety net for qualifying beneficiaries (explained above) experiencing a qualifying life event.  Qualifying events are easily broken down to include employees, spouses, and children.

Qualifying Events:  If you’re a beneficiary and can answer yes to any of these, you qualify for COBRA Continuation Health Coverage.

 Employee:

  • Did you voluntarily or involuntarily leave your job for reasons other than gross misconduct?
  • Did you have a reduction in the number of hours worked causing loss of insurance?

Spouses:

  • Did your spouse voluntarily or involuntarily terminate their job for reasons other than gross misconduct?
  • Did your spouse have a reduction in the number of hours worked causing loss of insurance?
  • Did your spouse become entitled to Medicare?
  • Did you have a divorce or legal separation with the covered employee?
  • Did your spouse pass away?

Children:

  • Did you lose your dependent child status under the plan rules (no longer claimed on taxes)?
  • Did the covered employee terminate employment voluntarily or involuntarily for reasons other than gross misconduct?
  • Did the covered employee have a reduction in the amount of hours worked causing loss of insurance?
  • Did the covered employee become entitled to Medicare?
  • Did the covered employee have a divorce or legal separation?
  • Did the covered employee pass away?

Hint:  Gross misconduct includes any crime that would cause immediate termination (for example, theft).

I’m a qualifying beneficiary with a qualifying event…now what?

After reading the previous parameters for qualification, you’re most likely a little blinded by the restrictions and red tape.  But hang in there!  If you’re going to lose coverage in the near future, get your ducks lined up and decide if you’re going to use the continuation benefit for you and your family.

Interested?  You must notify the plan administrators within 60 days of the qualifying event and have 45 days after electing COBRA continuation coverage to pay the first premium.  The channel for communicating COBRA interest varies between plans.   In the event of a reduction of hours, firing, or a voluntary exit, the employee will typically meet with Human Resources and discuss COBRA options.  If your place of employment does not have a Human Resources department, contact the health care provider covering you on your last day of employment.

Great, I qualify for COBRA continuation coverage.  How long does it last and when does it start?

COBRA continuation coverage lasts 18 months and is identical to the group health plan provided before the qualifying event.  It begins on the exact date coverage would have been lost.  Coverage, however, is not guaranteed.  You can lose this benefit if:

  • Premiums are not paid on time
  • Employer no longer provides group health plan to current employees (goes out of business).
  • After COBRA election, beneficiary becomes entitled to Medicare benefits.

Divorce:  If, while claiming COBRA continuation benefits, there is a divorce, the divorced spouse that would otherwise lose coverage can remain on the plan for a maximum of 36 months.  If this is the case, contact the plan administrator.  Remember also if you’re using your divorced spouse’s benefit package, you are entitled to COBRA (see qualifying events).

Extensions:  Individuals may qualify for an extension of the continuation coverage if, during the first 60 days, you became disabled.

 

How much does COBRA continuation coverage cost?

Even if you qualify to receive continuation coverage under COBRA, it certainly is not for everyone.  Individuals and beneficiaries are responsible for up to 102% of the total cost of COBRA (the 2% factors in employer administrative fees).  You heard right!  Not only are you responsible for the premium you paid while an employee, but you are now picking up the employer’s share.  That means if you paid $200 a month for benefits and your employer covered the remaining $300, you now owe $500 a month.  A common misconception is that the employer must provide health insurance to the employee upon termination.  Nope.  You pay the way and your benefit is being able to stay on a group plan even though you are no longer employed as a member of the group coverage.

Tip:  If you are healthy, it might not make sense to pay COBRA continuation premiums.  Many states offer individual plans with catastrophic coverage and high deductibles that can give you very basic coverage, but save you a lot of money while you look for work.  These plans will prevent you from losing everything you own to medical bills, but it still might cost you $1,000 if you break your wrist.

Wrap Up

That’s the basic rundown on the COBRA continuation coverage layout, and hopefully you picked up some good information and a couple of helpful tips along the way. While COBRA is not for everyone, it certainly is for some.  If you have a preexisting condition, an individual health plan might cost you thousands of dollars a month, but COBRA can give you other options.  There are a lot of great befits to COBRA coverage; just remember to think through your circumstances before making a decision.

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