11 Things You Should Know About Cobra Health Insurance

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What you don't know about COBRA could come back to bite you.

If you've lost or left a job and have employer-sponsored health insurance, you'll likely be offered something called COBRA. This extends your employer-sponsored health insurance for a period that typically lasts 18 months.

Here are 11 things you should know about COBRA coverage:

1. What is COBRA?

COBRA is a federal law designed to let you pay to keep you and your family on your employer-sponsored health insurance for a limited time after your employment ends or you otherwise lose coverage.

2. What does COBRA stand for?

COBRA is an acronym for the Consolidated Omnibus Budget Reconciliation Act, the federal law that also amended ERISA to enable temporary health insurance for people who have lost or left their jobs. The law took effect in 1985.

3. Who is eligible for COBRA?

People who qualify for COBRA include employees who have voluntarily or involuntary lost their jobs, had their work hours reduced, are transitioning between jobs, or have experienced a life-changing event such as a death or divorce. This coverage is available to covered employees, their spouses, their former spouses, and their dependent children. Each year, about 3 million individuals and families use COBRA benefits.

4. How will you learn about your COBRA eligibility?

You'll receive a letter from the employer or the health insurer outlining your COBRA benefits.

Greg Szymanski, HR director at Seattle-based real estate developer Geonerco Management, warns that the six-to eight-page letter can be difficult to understand “because it contains all manner of mandatory government language." If you're having trouble deciphering that language, contact the employer's HR department or the insurer.

5. Which employers are required to offer COBRA?

Generally, COBRA requires that group health plans sponsored by employers with at least 20 employees (in the previous year) must offer employees and their families the opportunity to temporarily extend their health insurance in circumstances like the ones outlined above. State and local government agencies also fall under the COBRA umbrella. Some states have COBRA-type laws that apply to employers with fewer than 20 employees.

6. Which employers are not affected by COBRA?

The law does not apply to health insurance plans sponsored by the federal government, churches, and certain church-related groups. However, federal employees are covered by a law similar to COBRA.

7. How much does COBRA cost?

The cost depends on how much insurance coverage you received from your previous employer. If you decide to accept COBRA coverage, you'll pay up to  102 percent of the insurance premiums, including the portion that your employer used to pay. In 2012, the average COBRA premiums for a family plan totaled $15,745, plus the 2 percent fee.

For some, the steep increase in financial responsibility that accompanies a COBRA plan is not always realistic—especially when unemployed. The Affordable Care Act marketplace offers alternative coverage options that can be “a lot cheaper, particularly with tax credits,” says Ivan Williams, GetInsured’s senior policy analyst (GetInsured is a contracted agent licensed to sell HCC Life Insurance Company’s Short Term Medical policies).

8. What sort of benefits will you get under COBRA?

Once you choose COBRA coverage, you retain the same rights as an employee who remains with the employer sponsoring the insurance, Szymanski says. “That means that you must go through open enrollment, which may change insurance companies, benefits offered, pricing and coverage," he says.

9. What are some alternatives to COBRA?

If you reject COBRA coverage, your health coverage options include your spouse's health insurance plan, the federal government's health insurance marketplace, your state's health insurance marketplace, the government-backed Medicaid program, or a short term medical policy designed for gaps in health coverage. These alternatives may or may not cost less than COBRA coverage, so it pays to weigh all of your options.

One option that Szymanski doesn't recommend: skipping health insurance altogether. “Electing to go uninsured is almost always a very unwise decision, with lots of potentially catastrophic downsides and very little upside," he says.

10. What if you change your mind and decide you want COBRA?

If you are entitled to elect COBRA coverage, you must be given an election period of at least 60 days. If you decline COBRA coverage during the normal 60-day decision period, you must be allowed to rescind your coverage waiver. However, you must reverse your decision during that period, and your final decision will become permanent after the 60-day window closes.

11. What happens if you miss a COBRA payment?

Szymanski cautions that you must pay premiums (usually via monthly checks sent by regular mail) in a timely manner (often a grace period of 30 days) or your coverage will be canceled.


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