The Consolidated Omnibus Budget Reconciliation Act , abbreviated as COBRA, is a federal law that was passed by Congress in 1986 in order to make changes to the Employee Retirement Income Security Act, the Internal Revenue Code and the Public Health Service Act in order to temporarily extend coverage under a job-based group health plan after leaving a place of employment.
COBRA mandates that former employees, retirees, spouses, former spouses and dependent children be offered continuing health coverage after a qualifying event that would have previously made them ineligible. In simple terms, this law gives eligible individuals the right to continue to purchase the same health insurance at group rates for a limited amount of time.
These events disqualify previously eligible people from their group health coverage. For employees, this could mean voluntarily quitting, being fired for reasons other than gross misconduct or experiencing a reduction in working hours. For spouses and dependent children, qualifying events can also include the covered employee’s new eligibility for Medicare, divorce or legal separation, and death.
In general, businesses with 20 or more employees on more than half of all typical work days in the last calendar year are required by law to offer COBRA insurance. In determining the size of the work force, both full and part-time employees are counted. Additionally, in some states, businesses with less than 20 employees are subject to so-called “mini-COBRA” laws.
In group health plans for which COBRA applies, qualified beneficiaries are considered to be individuals who were covered by the company’s group health insurance plan on the day before a qualifying event takes place.
If you choose COBRA insurance, your health insurance coverage should be exactly the same as the group plan enjoyed by current employees and their dependents. As such, your health coverage should remain unchanged from the time before you became eligible for the continuing coverage, including with regards to deductibles and co-pays.
In general, COBRA health coverage lasts for 18 months from the date that you enroll in the program. In special circumstances, if the previously covered employee switches to Medicare, gets divorced or dies, dependents can receive coverage for a period of up to twice as long in duration, about 36 months.
While it is true that COBRA enables you to retain your former employer-based group coverage, your out-of-pocket expenses will be at least 10 times what you used to pay. Once you are no longer entitled to your job-based coverage, your employer will no longer pay the lion’s share of premiums and up-front costs, usually 90% of the total cost of your health insurance. If you choose to keep your old plan, you will now be responsible for 100% of the cost along with a possible 2% administrative surcharge.
There are lots of other options! In fact, losing job-based group coverage makes you eligible for a Special Enrollment Period outside of the regular yearly Open Enrollment Period on the health benefit exchanges. You may find that purchasing a health insurance plan on the marketplace is more affordable than the COBRA continuing insurance offered by your former employer. Other options include buying a plan directly from an agent or insurance company, applying for coverage with a new employer or being added onto your spouse’s job-based plan, if applicable.
While COBRA insurance may not sound like the most affordable choice, it is definitely better than having no insurance at all. It is important to choose your coverage carefully by considering your overall health and personal circumstances. If you have pre-existing medical conditions and allow your health insurance coverage to lapse, your premiums may balloon later on when you apply for a new plan. Those costs could make the COBRA coverage seem like a steal by comparison.
Big life changes are always stressful: losing your job and your paycheck can really turn your world upside down. But, getting sick or having an accident while uninsured is a whole new level of stress. As they say, if you don’t have your health, you don’t have anything!