What is COBRA Insurance and a Critical Warning to Know

Are you about to lose your job and access to health insurance? Are you unsure of when your insurance runs out? Or has the Human Resources department handed out a pamphlet on COBRA? Understanding how you will have access to health insurance is critical to your financial decision making in the coming months. Dealing with unemployment is bad enough, but going without health insurance can destroy your finances overnight if you end up in the hospital.

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What is COBRA Insurance?

What exactly is COBRA health insurance and how does it work? COBRA coverage is given that name due to the legislation that created this health insurance option: the Consolidated Omnibus Budget Reconciliation Act of 1985. The legislation requires employers that offer group health insurance to allow employees the option of temporarily continuing their insurance if they lose coverage due to being laid off or terminated.

Who is Covered by COBRA Coverage?

COBRA coverage options do not qualify just employees. The insurance option is extended to the spouse and dependents as well.

How long your COBRA option lasts depends on what qualifying event happens:

  • 18 months for employee, spouse, and dependents if loss of coverage is due to lack of hours or termination
  • 29 months for employee and qualified beneficiaries if they become disabled within the first 60 days of COBRA coverage
  • 36 months for spouse and dependents if loss of coverage is due to employee’s death, a divorce or legal separation, or a few other qualifying events

Warning: Not All Companies Must Provide COBRA Access

As critical as health insurance is you would think COBRA would be required for all employers. However, that’s not true. This is critical information if you think you would be eligible for COBRA insurance coverage when it turns out that you do not. (You would need to acquire insurance on the healthcare marketplace as soon as possible in that case.)

What employers don’t have to provide COBRA insurance?

  • Small Employers: If an employer normally employs less than 20 employees on an average day during the previous calendar year, that company is entirely exempt from the COBRA legislation.
  • The Federal Government:┬áStrangely enough the Federal government is not impacted by the COBRA legislation in 1985. However, a separate piece of legislation offers similar coverage requirements.
  • Certain Church Employers:┬áSpecific insurance plans for church employers are exempt from the legislation.

To see if your employer provides COBRA coverage, simply check in with your Human Resources or Benefits department.

How Expensive is COBRA Health Insurance?

When your employer provides a group health insurance plan to its employees, it normally picks up all or part of the cost of the insurance plan for the employee. Instead of paying $1,000 per month for insurance you end up paying $200 per month. When you engage your COBRA health insurance option the employer is no longer going to subsidize your health insurance so your cost is substantially higher. Exactly how much more expensive your COBRA plan will be to your subsidized employer health plan depends on your specific situation, but expect a much higher cost each month. However, even expensive COBRA insurance is better than going without insurance at all.

Does Medicare Impact COBRA?

Medicare can play an interesting role in allowing certain qualified beneficiaries to receive COBRA insurance. If the covered employee becomes eligible for Medicare, a qualified spouse or qualified children will be allowed to extend their insurance coverage through COBRA.

How Long Do You Have to Decide on COBRA?

There are a few complications to electing COBRA insurance. How long you have to elect coverage is dependent upon who is electing coverage and why the need for COBRA coverage came about.

Here are a few timelines to consider:

  • Employers must notify plan administrators of a qualifying employee change within 30 days of the change.
  • Qualified beneficiaries must notify plan administrators within 60 days after divorce (or legal separation), or if a child no longer qualifies as a dependent.
  • After the plan administrator receives notice of a change, a notice must be sent out to the employee within 15 days.
  • After receiving notice, you have 60 days to claim COBRA coverage.
  • After claiming coverage, you have 45 days to make your initial premium payment.
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About the Author

By , on Jan 31, 2012
Kevin Mulligan
Kevin Mulligan is a debt reduction champion with a passion for teaching people how to budget and stay out of debt. He's building a personal finance freelance writing career and has written for RothIRA.com, Discover Bank, and many others.

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Leave Your Comment (5 Comments)

  1. Jerry says:

    Most people do not know that this insurance is available to them when they leave a job. It can lead to peace of mind but find out what your premium is because it can be a shock if you aren’t aware of it!

  2. Pinyo says:

    @Jenna – I think the new law allows most college grads to remain under their parent’s insurance up to 25 or 26 (I am not sure).

    There is also a provision that allows for COBRA coverage up to 36 months after graduation (but I think this might be unnecessary now with the new provision).

    @Retirebyforty – That’s usually the cheaper option if you have a chice.

    @Monica – I was looking at COBRA when I switch job and decided to go without any coverage for 2 months. Although it was avaialble, it was very expensive.

  3. Monica says:

    We had to go on COBRA when I left my job in August to help run our business. It is a huge expense in our budget, but we had to have it because we are a family of five. It actually turned out to be about the same price as private insurance, which itself is ridiculously overpriced as well. Thanks for informing people about the specifics of COBRA because there are a lot of misconceptions about it.

  4. Thanks goodness I will be able to jump on the wife’s health plan. COBRA would be a lot more expensive that that option.

  5. Jenna says:

    Aren’t college graduates covered by COBRA too?

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