COBRA Health Insurance: What It Is And What You Need To Know

There’s plenty of worries that come along with separating from a job, some of which include maintaining finances, managing a professional exit, and finding a new position. The last thing that a recently terminated employee wants to panic about on top of all that is continuing to have is health insurance.

Over half of the United States population relies on health insurance provided through their employer’s benefits package, and losing it can put many families in a disastrous position.

Luckily, the Consolidated Omnibus Budget Reconciliation Act (COBRA) offers help in extending coverage when sponsored health insurance is on the chopping block.

What Is COBRA Insurance?

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act, which was drafted in 1985. The act sought to ease the difficulty of losing a job by giving eligible employees the option to resume their health care coverage.

It maintains the same coverage details and plans for both the ex-employee and their family while they get on their feet to find a new job or insurance.

COBRA provides a period of around 18 months for qualifying employees to maintain their health insurance past their termination date. This timeline can sometimes be extended to 36 months in particular situations that require extra help.

While opting for COBRA insurance can give a family breathing room they need to improve their situation, it does have its limitations. There are stipulations for who is entitled to receiving COBRA insurance, and even if you’re eligible, it doesn’t come for free.

The Pros and Cons of COBRA Coverage

Deciding to take on COBRA insurance after leaving your job takes some forethought. Exploring the benefits and downsides of COBRA coverage helps make the choice a little more straightforward.

The Pros:

1. Gives you the chance to keep your current health insurance plan. There are many benefits to staying with your current health insurance provider. Most people choose their medical personnel because they accept their insurance, and it reduces out of pocket costs.

   COBRA continuation allows patients to continue seeing the same doctors, pharmacists, and facilities that they’ve been going to for years, even if their employment situation has changed.

2. Provides eligibility for family members. Another big contributor to the pro’s column of COBRA insurance is that it extends to family members as well. An employee’s spouse or children have the choice to utilize COBRA to extend their health insurance benefits in qualifying events.

   When people get divorced or are in the extremely unfortunate circumstance of having a family member die, COBRA supplies them with assistance by not immediately shutting down their health insurance too.

3. Allows time to find alternative coverage or a new job. One of the biggest benefits of using COBRA insurance after being terminated is that it avoids a lapse in coverage. It’s a risky game for everyone in your family to go uninsured until something is figured out. It could land you with a huge bill if any medical situations happen.

   COBRA allows the recently unemployed the time to find another manner of health coverage or get a new job while still being insured during the process.

The Cons:

1. The premium costs for COBRA are very high. Although COBRA insurance awards individuals with a lot of opportunities, it also presents some troubling aspects. A big con to using COBRA insurance is how much it costs.

   A price tag of 102% on the premium cost of health insurance is no small amount to pay, especially for someone who’s recently been cut from their job.

   Some people take one look at the costs of COBRA insurance and decide that it’s not the right move for them, which is fine since it’s optional.

2. There’s a time limit to receiving it. There’s a pressure to the knowledge that there’s an end to coverage by COBRA insurance. Even though you’re paying a premium on the coverage to keep receiving health benefits, there’s still a limit to how long you can use this resource.

   The time limit placed on the length of time that someone can collect COBRA insurance is a big negative.

3. Not everyone is eligible to receive it. While COBRA insurance tries to make considerations for a wide variety of situations, there’s always someone who slips through the cracks. There can be all the benefits in the world to COBRA. However, if you’re one of the people who are not eligible to receive it, then it doesn’t matter.

   The strict requirements for who can receive COBRA continuation are a massive con for many people who don’t meet them.

Who Qualifies for COBRA Insurance?

Before moving forward with the process of getting COBRA insurance, you have to find out if you’re eligible to receive it. Being offered the option of COBRA continuation coverage relies on several factors of your employment, insurance company, and the event that initiated your departure.

To be eligible for COBRA insurance, you must:

1. Have a health plan that is subject to COBRA. Although it may seem obvious, the first condition to satisfy eligibility is to have a health plan that is subject to COBRA.

   This means that you are provided health insurance by your employer — having at least 20 employees. To receive the benefits of COBRA, your former employer must still exist and have not gone bankrupt.

2. Be a qualified beneficiary. In addition to having an employer-provided health plan, you must also be a qualified beneficiary to receive COBRA insurance.

   In addition to the employee who is directly implicated in the loss of their job, the COBRA standards also apply to their family members.

   Examples of qualified beneficiaries include:

   • The employee themselves who has a sponsored health plan

   • A spouse or an ex-spouse of the employee

   • A dependent of the employee

   • An independent contractor that still receives health benefits through the employer

   • A retiree or their family (sometimes)

3. Have left your job for a reason that qualifies? Once you’ve concluded that you meet the requirements for COBRA to this point, evaluate your reason for leaving the job. The final qualifier for COBRA insurance is by having an appropriate termination reason.

   Acceptable reasons for termination include:

   • Being laid off

   • Quitting

   • Being fired

   • Having hours cut below the point of receiving health benefits

   • Any alternative form of employment termination

   If the employee is fired from their job for committing a crime at work or any other form of gross misconduct, they are not allowed to receive COBRA insurance.

   Family members receiving health insurance through an employee have a set of approved reasons for receiving continuation coverage.

   Qualifying reasons for a family member to receive COBRA insurance include:

   • The employee was terminated from their job

   • The employee passed away

   • The employee went on Medicare

   • You’re over 26 years old and being removed as a dependent on your parent’s healthcare

The Costs of COBRA Insurance

While COBRA insurance might sound too good to be true up until this point, don’t get too excited until you consider the costs. The way that sponsored health insurance works is that the employer offers group rates to employees and covers a percentage of the premium costs.

For example, a particular employer sponsors a health plan for their employees at 70%. That means the employee is responsible for 30% of the cost. This is no longer the case once the ex-employee switches to COBRA insurance post-termination.

COBRA requires that the individual pays the entire premium that the employer used to help with, as opposed to just the percentage they’re used to paying. In addition to paying the full premium amount, they’ll also be charged a 2% fee to represent administrative charges.

Altogether, an individual who chooses to participate in COBRA insurance should expect to pay 102% of their premium monthly to continue their sponsored coverage.

FAQ About COBRA

1. Will my health plan remain the same under COBRA? If you choose to go with COBRA coverage when you’re losing your health insurance, everything will stay the same in terms of the plan details.

   All the services and doctors that were included in your previously employer-covered medical insurance would remain. However, the direct premium cost to you increases because a portion is no longer covered by your employer.

2. How does the process of electing for COBRA insurance work? Once a qualifying event has taken place, it’s an employer’s responsibility to provide notice about beneficiaries’ rights to COBRA continuation within 30 days of it happening.

   Generally, beneficiaries are notified about COBRA benefits within two weeks of an event taking place. Post-notification, the individual has 60 days to choose whether or not to go on COBRA insurance.

3. If I decide against COBRA coverage, can I change my mind later? A beneficiary is presented with the decision to go on COBRA insurance after a qualifying event has happened.

   If this individual initially responds by refusing COBRA benefits of continuing their health insurance, they are only allowed to change their mind within the original 60 days period.

4. How long after electing for COBRA do I have to pay for it? Once sending a notice that you’ve elected for COBRA insurance, you’re given 45 days to pay the premium.

5. Can COBRA insurance be terminated before the 18-month period? Yes, there are a few reasons why an individual’s COBRA continuation would be overturned. Some of these behaviors involve engaging in misconduct, such as not paying premiums on time or engaging in insurance fraud.

   Other reasons for early termination are more innocent on behalf of the beneficiary, like the ex-employer going bankrupt or finding a new job.

Author

Sky Ariella

Sky Ariella is a professional freelance writer, originally from New York. She has been featured on websites and online magazines covering topics in career, travel, and lifestyle. She received her BA in psychology from Hunter College.