What Is COBRA Health Insurance?

COBRA insurance (short for Consolidated Omnibus Budget Reconciliation Act) is actually a Federal law that was put in place back in 1986, which gives workers and their families who lose their health benefits the right to continue group health benefits provided by their group health plan for a limited period of time. Companies with 20 or more employees must, by law, continue to offer group health insurance to former employees and family after voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. While you do have to pay up to 102% of the cost of the health insurance, if you have a pre-existing condition or a family to keep insured, it might be worth the cost until you land another job or find other health insurance options.

I once had the option of buying into COBRA, when I was laid off from an internet company back in 2000. However, when I found out it was going to cost $590 a month for my insurance, I had to pass – after all, I had just gotten laid off, so how was I supposed to pay for it? Luckily I started a new job a few months later and got insurance again (although how much “insurance” insurance actually gives you is definitely in question nowadays) and all was OK. And if I remember correctly, my brother signed up for COBRA back when he lost his last job, and while it was very expensive, he has a pre-existing condition that he needs coverage for – so he didn’t really have a choice in the matter.

If you think you might be needing COBRA insurance or are just curious as to what the details are, here are a few important frequently asked questions to keep in mind:

How does a person become eligible for COBRA continuation coverage?

To be eligible for COBRA coverage, you must have been enrolled in your employer’s health plan when you worked and the health plan must continue to be in effect for active employees.

What are the qualifying events for employees to get COBRA?

– Voluntary or involuntary termination of employment for reasons other than gross misconduct
– Reduction in the number of hours of employment

What are the qualifying events for spouses to get COBRA?

– Voluntary or involuntary termination of the covered employee’s employment for any reason other than gross misconduct
– Reduction in the hours worked by the covered employee
– Covered employee’s becoming entitled to Medicare
– Divorce or legal separation of the covered employee
– Death of the covered employee

What are the qualifying events for dependent children to get COBRA?

– Loss of dependent child status under the plan rules
– Voluntary or involuntary termination of the covered employee’s employment for any reason other than gross misconduct
– Reduction in the hours worked by the covered employee
– Covered employee’s becoming entitled to Medicare
– Divorce or legal separation of the covered employee
– Death of the covered employee

What process must individuals follow to elect COBRA continuation coverage?

Plan participants and beneficiaries generally must be sent an election notice not later than 14 days after the plan administrator receives notice that a qualifying event has occurred. The individual then has 60 days to decide whether to elect COBRA continuation coverage. The person has 45 days after electing coverage to pay the initial premium.

How long does COBRA coverage last?

COBRA lasts for 18 months for the direct employee of the former company, or lasts 36 months for dependents who no longer qualify because of divorce or death of the direct employee.

If I waive COBRA coverage during the election period, can I still get coverage at a later date?

If a qualified beneficiary waives COBRA coverage during the election period, he or she may revoke the waiver of coverage before the end of the election period. A beneficiary may then elect COBRA coverage.

Under the American Recovery and Reinvestment Act of 2009, is there a reduced cost for COBRA?

Yep! The stimulus package temporarily reduces the premium for COBRA coverage for eligible individuals. Individuals who are eligible for COBRA coverage because of their own or a family member’s involuntary termination from employment that occurred from September 1, 2008 through December 31, 2009 and who elect COBRA, may be eligible to pay only 35% of the full COBRA premiums under their plans for up to 9 months. Here is more info on COBRA stimulus benefits.

COBRA is definitely great for those people who otherwise would have trouble getting private insurance on their own, but it is very expensive and has a limited lifetime. After 18 months, you would need to either have another job with insurance or find it on your own. If you are like me and can no longer buy private insurance, COBRA might be a great option. Otherwise, you might be better off going for a private option and save yourself some money. Definitely do the math!

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Comments (5)

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  1. Mike says:

    I have a question regarding this… not so much COBRA, but continuity of coverage, that maybe you can answer.

    If I have a condition that I gained at this job, and I leave here for another position which causes a small lapse in coverage, would the new employer’s insurance be able to deny me coverage for “pre-existing condition”?

  2. david says:

    The short answer is no. Companies with group plans normally cover everyone regardless of pre-existing conditions – its part of how group plans work. There might be a waiting period for coverage of your condition, but normally you will be covered under the new plan.

  3. Mike says:

    Thanks David…

  4. David says:

    To me, COBRA has always stood for “rip-off”. Anyone I have ever known that has looked into it has come away with the fact that it is insanely expensive.

    I know that sometimes job loss is inevitable, but to me, the best option is to avoid getting yourself into a situation where you need it.

    If that is unavoidable, exhaust and research every other option out there before opting for COBRA. I would think you could find something else out there at a more reasonable price.

  5. Mike Macey says:

    You only have 63 days between coverage to be accepted with new insurance. If you do not get coverage, your new insurance company may deny or place a waiver on your pre-existing condition. If you receive either, 42 states have guaranteed issue health insurance plans. Contrary to health care reform claims about lack of coverage for pre-existing conditions, only eight (8) states lack such coverage. where do you live?