Episode 189: September 13, 2010
by Laura Adams
When I say “cobra” do you conjure up a vision of a scary snake being hypnotized by a guy playing a flute and wearing a turban? Well, when it comes to healthcare, COBRA is something very different. In fact, it's what you'll need if you get bit by a snake after you leave your job! In this article I'll tell you who's eligible for COBRA, how to get it, and how to make it more affordable.
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What Is COBRA Health Insurance?
COBRA is an acronym that stands for Consolidated Omnibus Budget Reconciliation Act. Even though the name of the law doesn't mention anything about healthcare or insurance, it provides a temporary continuation of group health benefits that would ordinarily be canceled when you leave a job. COBRA insurance gives you the exact same benefits and choices you had before you left your company.
Who Is Eligible for COBRA Health Insurance?
In order to receive COBRA health insurance benefits, you and your employer must meet certain criteria. Your employer must provide a group health plan and have at least 20 or more employees on the payroll. Employees and independent contractors who participate in a group health plan are eligible for COBRA benefits when they voluntarily leave a job, have their work hours cut so they lose benefits, or are terminated for any reason other than gross misconduct.
Spouses and dependent children of former employees can also receive COBRA benefits when the covered worker:
is eligible for Medicare, or
gets legally separated or divorced.
Additionally, children can receive COBRA benefits when they're no longer a dependent of the covered worker according to the rules of the group health plan.
How Do You Get COBRA Health Insurance Coverage?
In order to receive COBRA coverage, employees must notify their Human Resources department (or the employee who administers health insurance) within 30 days after one of the events that I mentioned, such as a termination or a cut in work hours. Beneficiaries of a qualified worker have up to 60 days to elect COBRA coverage after a qualifying event, such as a divorce.
After you notify your former employer that you want COBRA health coverage, they have to send you an election notice within 14 days. After you receive the notice, you (or your beneficiaries) have up to 60 days to decide whether or not to take the coverage. If you don't make a decision by that time you may lose your right to claim COBRA benefits.
How Long Does COBRA Health Insurance Last?
If you elect to take COBRA, you have to pay the initial premium within 45 days and the coverage begins on the date that your group policy would have otherwise ended. COBRA lasts for a maximum of 18 months in most situations, but could end earlier if:
you don't pay premiums on time;
you become eligible for Medicare benefits; or
your former employer cancels the group health plan.
How Much Does COBRA Insurance Cost?
You may be eligible for a reduction of COBRA premiums if you or a family member were involuntarily terminated from employment through the end of May 2010.
The cost of COBRA insurance can be expensive, because you pay the entire group plan premium, plus a small administrative fee. That can be much higher than the amount you paid when you were an active worker because many employers pay a portion of health insurance premiums for you as an employment benefit. Your first COBRA payment will probably be higher than normal because you must pay premiums retroactively from the date you left the company. COBRA premiums can go up if the cost of the group plan increases, but they're generally fixed for 12 months at a time.
I recommend that you compare the cost of COBRA insurance to a private policy. My husband just changed jobs and has 90 days until he’s eligible for his new insurance benefits. Even though COBRA coverage through his old employer is more expensive than a private policy, we’ve opted for COBRA because it’s so much easier to get. Doing all the paperwork for a new private policy can be a real hassle, especially when we only need it for a few months until his new benefits begin. But if his waiting period was longer, like six months or a year, I’d apply for a less expensive private policy instead. You can get quotes for private health insurance policies at sites like ehealthinsurance.com and netquote.com.
How to Reduce COBRA Health Insurance Premiums
You may be eligible for a big reduction in your COBRA insurance premiums if you or a family member were laid-off at any time from September 2008 through the end of May 2010. As long as you're not eligible for Medicare or for health insurance under any other group plan, the government will subsidize 65% of premiums for up to 15 months. That means you only have to pay the remaining 35% of the cost of COBRA if you were terminated from your job.
If you initially declined to take COBRA coverage, you may have another opportunity to get it and to pay the reduced premium. For more information about the details of the COBRA subsidy program read the COBRA FAQs on the Department of Labor's Web site at dol.gov/COBRA.
A quick and dirty tip is that you should never go without health insurance, if you can help it. Expensive medical bills can bankrupt anyone who isn't prepared for them. So remember that health insurance is critical not only for your physical well-being, but for your personal finances as well.
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