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Merritt Personal Lines Manual: Chapter 8 COBRA

If the insured has health insurance through the insured's employer and the insured leaves the job -- whether he or she was fired or quit -- the odds are that the insured will want to keep health coverage for a time.

Under the Consolidated Omnibus Budget Reconciliation Act or COBRA, which is part of a federal law enacted in 1986, the insured has the right to keep the insured's coverage at group rates if the insured loses the insured's group health insurance because of a reduction in the insured's hours of employment or because the insured leaves or losses his or her job -- unless, of course, the insured is fired for gross misconduct. The insured also has the right to continue coverage for his or her spouse and any dependents.

COBRA only applies, however, to employers with 20 or more employees, at least half of the time during the preceding year.

How long the insured can keep the coverage depends on the insured's particular qualifying event -- that is, dying, being fired, quitting. Different coverage periods follow each of these events. If the insured were fired (for anything other than gross misconduct, in which case the insured don't qualify at all), the insured, the insured's spouse and dependent children are entitled to 18 months of continuous coverage. Any other qualifying event entitles you to up to 36 months of coverage, if you decide to pay for it.

If the insured's COBRA coverage is about to expire -- assuming the insured haven't taken another job in the interim that provides group health insurance -- the insured can apply to the insurance company for conversion from COBRA to an individual policy. The insured must do so within 31 days of termination of COBRA.

The company is not obligated to provide the insured with an individual policy, however, if they only sell group insurance.

The insured's former employer will not keep paying for health insurance, either. The insured will have to start picking up the tab. The company can charge the insured 102 percent of what the coverage under the group plan actually costs (the extra 2 percent is an allowance to cover administrative costs).

Rest assured that, even with the two points, this amount is almost always less than what the insured would pay if the insured purchased individual coverage -- and it is often substantially less.

By law, the insured's employer is required to let the insured know about COBRA and what steps the insured must take to retain health insurance coverage. The employer must also break down the costs for various coverages the insured may have, so the insured can choose to continue all or only some of them -- for instance, the insured may decide to keep HMO coverage but give up the vision and dental plan.

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