Is COBRA Health Insurance Right For You?

In 1995, Congress passed the Consolidated Omnibus Budget Reconciliation Act, a law that gives employees the right to continue their group health insurance coverage in the event that they lose their group coverage. Basically, COBRA health insurance allows you to retain your group health insurance in the event that you lose a job with benefits. In other words, it’s a temporary measure to allow you to keep your group coverage until you can find new employment with a new group health plan. There are two big questions to answer when considering COBRA health insurance: how does it work, and it is it right for you?

The first thing you’ll need to figure out is if you’re eligible for COBRA health insurance. There are three criteria used to determine COBRA eligibility:

Plan Coverage: to be eligible for COBRA health insurance, you must be coming from a group health insurance plan held by at least twenty employees working more than six months out of the year. So if you worked for a very small group, or if the vast majority of your co-workers were temporary employees, you may not be eligible for COBRA health insurance.

Qualifying Event: this is the event that happened to cause you to become unemployed. If you leave your job voluntarily, have your hours reduced to part-time status, or become eligible for Medicare, then you become COBRA eligible. If you leave your job involuntarily (you’re laid off, downsized, or fired) then you’re probably still COBRA eligible. The only way you can be fired and not retain COBRA health insurance eligibility is if you’re fired for “gross misconduct,” but neither the actual text of the COBRA law or any court says precisely what that means. If you lost your job because your company went bankrupt or out of business, then chances are you’re not eligible for COBRA. To be eligible for COBRA, the group you’re coming from must remain in force. So if your former employer goes belly-up or just decides to discontinue group coverage, then you will be unable to elect COBRA.

Qualified Beneficiary: You can only go on COBRA health insurance if you were covered by the group health insurance plan the day before the Qualifying Event. If your spouse is the covered individual and you divorce or separate, you may be eligible for COBRA health insurance until you can get on your feet. If your spouse is covered and passes away, you are also eligible for COBRA health insurance.

Once you’ve figured out if you’re eligible, then it’s time for an unfortunate reality check: COBRA health insurance can be extremely expensive. When you have group coverage, your employer pays for a large portion of your monthly premiums (usually at least 75%). However, when you move onto COBRA health insurance, you become responsible for 102% of your premiums. That’s not a typo – you are responsible for the full amount of your health insurance premiums, plus a 2% service charge for administrative costs. COBRA costs can skyrocket quickly, and the sticker shock of the first premium payment can be a very harsh awakening. Your first 102% premium payment will come due 45 days after you first apply for COBRA health insurance. (UPDATE! The recent stimulus package has changed how COBRA payments work. Please see the end of this article for new information)

COBRA health insurance is retroactively effective (meaning, for example, if you get laid off, apply for COBRA, and get approved two weeks later, the effective date of your COBRA health insurance is considered the date of the layoff). This is a great thing, because COBRA is designed to keep you from having a gap in coverage. Not having a gap in coverage means that when you go onto a new group or decide to buy a private health insurance plan you won’t be subjected to a lengthy review of medical records and a series of phone interview – waiting periods that could easily be avoided.

As long as the original group policy stays in force, you can stay on COBRA health insurance for up to eighteen months, although there are a few exceptions. If, for instance, you become disabled during this initial eighteen month period, you can extend the coverage under OBRA (a sister law to COBRA) for an additional eighteen months, bringing your total time of coverage to thirty-six months.

That, in a nutshell, is how COBRA health insurance works. Now, how do you know if it’s right for you?

If you have any sort of significant pre-existing medical condition, then COBRA health insurance is probably a good bet. Things such as diabetes, cancer, or heart disease can make finding private health insurance a nightmare – most private health insurance plans just won’t accept that level of risk. Groups, however, give insurance companies a way of balancing out that risk with a pool of healthy individuals, and so they’re better able to extend comprehensive benefits to people with these conditions. COBRA health insurance is just an extension of your group health insurance, so your benefits under COBRA will probably be better than anything you can find in the individual market. Still, it doesn’t hurt to check – if you just want to know what your options look like with a certain condition, contact me using the link at the top of this and every page and I’ll let you know.

If you don’t have a pre-existing condition, then your best bet is to check out your options in the private market. The private health insurance world is a little different than the world of groups, but I do my best to walk you through it over at this article: Private Health Insurance When You’re Unemployed.

The bottom line is this: COBRA health insurance is fantastic if you’ve just lost your job with benefits and you need health insurance for a pre-existing medical condition. However, if you’re generally in good health, chances are your options in the private health insurance market are going to be better than what you could find with COBRA health insurance.

If you have any questions or concerns about COBRA health insurance, please use the contact link at the top of this page to send me an email and I’ll do anything I can to help. If your needs are more urgent, or if you just want to hear my happy voice, then feel free to call me at 404-660-1020, anytime!

UPDATE: COBRA UNDER THE NEW STIMULUS PACKAGE

Since the recent stimulus package passed, the way COBRA is funded has changed dramatically. Now, if you’ve lost your job between September 1, 2008 and December 31, 2009 and are eligible for COBRA health insurance, you’re only on the hook for 35% of the costs of your health insurance instead of 102%. The other 65% is still paid for by your employer, who is reimbursed in the form of payroll tax credits. This subsidy is available for the first nine months of eligibility, so after that things go back to the 102% mark.

The COBRA subsidy applies to group health insurance plans, as well as group dental, vision, and HSAs. FSAs are excluded from the subsidy.

This means COBRA coverage can be more affordable for folks using it as a temporary form of health insurance while between jobs. COBRA is still not a long-term solution, and it’s still a very good idea to compare the quality and cost of reduced-cost COBRA coverage with private health insurance plans.

For an official rundown of the COBRA changes, have a look at this extremely comprehensive look at the COBRA changes. If you have any questions that neither this article nor that page can answer, please feel free to contact me and I’ll help you in any way I can.

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