COBRA Insurance Alternatives

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The Consolidated Omnibus Budget Reconciliation Act (COBRA) was passed by Congress in 1986, and has been amended numerous times throughout the nearly three decades it has been in effect. The legislation is primarily known for the health insurance protection it gives workers and their families. According to the U.S. Department of Labor Health Plans and Benefits page, COBRA Continuation Health Coverage allows qualified employees and their families to continue the medical insurance benefits provided by their former employers’ group health plans for a variable period usually 18 months. The original law was considered “landmark” legislation in that it allowed for continuation of medical and health insurance benefits that might have otherwise been terminated. To produce such a sweeping change, amendments to the Employee Retirement Income Security Act, the Internal Revenue Code and the Public Health Service Act were required.

Qualifying Events Allowing Initiation of COBRA Continuation Health Coverage

COBRA Continuation Health Coverage may be available to employees and their families under the following circumstances so insurance coverage is not lost:

  • Voluntary job loss or job change
  • Involuntary job loss, such as a layoff
  • Involuntary job loss, such as being fired or terminated for reasons other than gross misconduct
  • Reduction in the hours worked in order to qualify for health coverage
  • Death of an employee, in which the deceased’s spouse and any children may apply to continue as beneficiaries under the original plan
  • Divorce, in which the nonemployee spouse and any children may apply to continue as beneficiaries under the original plan
  • Retirement of an employee, prior to the time at which he or she would be eligible for Medicare benefits (early retirement)
  • Retirement of an employee into the Medicare system with a spouse and other beneficiaries uninsured without continuation of the employee's health insurance benefits.

Communication of these changes must be provided to the necessary parties. Employees or family members must elect to continue coverage when provided notice by the employer or plan administrator. The specified election time varies according to a 2002 law wherein the reason for the job loss is specified and an employee is granted a second window during which he or she may elect to continue coverage. Finally, former employees or their family members are required to pay  up to 102 percent of the plan cost without the former contribution of the employer toward the cost of the premium. This amount represents the full cost of the premium in addition to a 2 percent administrative fee.

The Lengths of COBRA Continuation Health Coverage

Although the COBRA has helped millions of people to maintain uninterrupted health insurance coverage, it was never meant as a permanent solution to the loss of an employee’s benefits. Rather, it was designed to allow individuals to continue coverage for a temporary period until they were covered under another employer’s policy, individual coverage including  a private short-term health insurance policy, Medicare or another program.

Cobra Coverage Varies

Event Length of Coverage
For individuals who qualify for COBRA continuation health coverage due to voluntary termination of employment, involuntary termination of employment or a reduction of hours the maximum length of coverage is 18 months. This maximum coverage can be extended should the employee become disabled or a second qualifying event occurs that would render the beneficiaries without medical insurance coverage.
COBRA continuations involving Medicare entitlements the maximum number of months the beneficiaries is entitled to continue the coverage is equal to 36 months less the number of months prior that the individual begins Medicare benefits.
All other qualifying events have a maximum benefit length of 36 months.

Important Notes about COBRA Continuation Coverage

  • The U.S. Department of Labor program to review requests to reduce COBRA premiums as mandated under the American Recovery and Reinvestment Act (ARRA) is no longer in effect. According to the DOL website, the subsidy's eligibility period is not over.
  • The Patient Protection and Affordable Care Act (PPACA) of 2010, with changes to continue through 2020, has not discontinued COBRA, extended COBRA coverage periods or reinstated premium subsidies.
  • Many individuals considering COBRA coverage are surprised to discover the cost of their monthly premiums. In the event , you cannot afford the COBRA premium, it is strongly recommended that such individuals purchase an individual or short term insurance policy for themselves and their families.

COBRA was created to give individuals and families the opportunity to retain medical insurance coverage but, depending on the circumstances, alternatives to COBRA may be more affordable. Research your options for health insurance coverage, and determine which option is best for you and your family.

Cobra Alternatives

For individuals who chose not to continue their insurance through COBRA, or find the cost of COBRA prohibitive, short-term medical insurance can be an alternative.  Short-term health insurance provides the opportunity to have coverage for hospitalization and doctor’s visits from one to 11 months in many states and can be a more affordable option to retain health insurance.

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