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Understanding COBRA 
 
by Christopher Welsh May 25, 2005

COBRA: it's something nearly everyone has heard of, hardly anyone really understands, and just about everyone is qualified for. This article will explain what COBRA is, who is qualified for it, and what the benefits (as well as the downfalls) of participating in this government-sponsored program are.

What is COBRA?

You’ve heard of it around the water cooler or in your orientation class, and you know enough to realize that when your Human Resource representative refers to COBRA that they aren’t talking about either a snake or a mid-80s Sylvester Stallone movie. Or you may be at the end of your run at your current job, and COBRA is brought up in your exit interview. However you hear about it, COBRA is something you need to know about. It’s a benefit that most working folk are entitled to but few may understand.

First, what COBRA is not: It is not insurance. You may have heard people refer to it as ‘COBRA Insurance,’ but this is a mistake: COBRA (Consolidated Omnibus Budget Reconciliation Act) is a law, a group of health regulations that was passed by Congress in 1986, amending the Employee Retirement Income Security Act, the Internal Revenue Code, and the Public Health Service Act, to provide for continuation of group health insurance for those who qualify and have lost coverage.

Don’t be overwhelmed with all the official names and various Acts. The important thing is to have a good grasp of what COBRA is, how it can benefit you, and how to decide if it’s right for you. Many working Americans today site job security as one of the top reasons they stay with the job they have—and they are not just referring to their paycheck. Those same people have only experienced health care provided by their employer at group rates and would feel vulnerable if they suddenly lost their jobs—and their health benefits.

Who is eligible?

Chances are you are. If you work for a company that employs 20 or more employees, then your company’s health plan falls under COBRA, which takes you most of the way towards eligibility. There are three parts to qualifying for COBRA coverage. (Note: you will notice references to ‘the plan’ throughout this article. Recall that COBRA provides for continuation of benefits under the same plan you had under your employer; as such, many of those plan rules will still apply. At its simplest, COBRA allows you to keep your identical benefits for a while longer, where you might normally not be able to do so.) The three parts to eligibility are:

1. Your employer must offer group health coverage and employ 20 or more workers. This makes the plan fall under COBRA law.

2. You have to be a Qualified Beneficiary; this may seem odd, as mostly when the word ‘beneficiary’ is used one thinks of someone other than oneself. However, in this case, a Qualified Beneficiary refers to the employee, the spouse of the employee and/or the dependent children of the employee. In some cases, retirees and their spouses and dependant children may be considered Qualified Beneficiaries as well.

3. There has to be a Qualifying Event, which is a circumstance that results in you losing your coverage. There are different Qualifying Events depending on what kind of Qualified Beneficiary you are, as outlined below.

Employee

  • Voluntary or involuntary termination of employment for reasons other than "gross misconduct”
  • A reduction in work hours that would result in cancellation of benefits

Spouse

  • If the employee loses coverage for either reason above
  • If the employee dies
  • If there is a divorce or legal separation
  • If the employee becomes eligible for Medicare

Dependent Child

  • Loss of ‘dependant child’ status according to the plan (often when the child is over 19 and not a full-time student; although, even this rule varies from state to state.)

How long does COBRA last?

All right; you have a good idea of what COBRA is and how it works now. The next question is, “how long can I keep this coverage? What if I’m out of work for a long time?” Like the Qualifying Events, it depends on what kind of Qualified Beneficiary you are; but it also depends on the Qualifying Event.

What does COBRA cost?

Brace yourself; you may not be ready for this. COBRA benefits can be continued for 102% of the cost of the group coverage. The 2% is an administrative fee on top of the premium. Before you fish out your pay stub and figure out what 2% is, understand that you are most likely not paying 100% of the premium now, but rather only your portion. Your employer is also paying a portion, which is sometimes 3 to 4 times (or more) what you pay. So 102% means what you pay plus what your employer pays plus two percent. It is not uncommon for an individual with family coverage to go from paying $300 a month to nearly a thousand.

What benefits are covered?

Like most answers to health-benefit questions, this depends. The short answer is, “whatever your employer was offering to you as a full-time employee,” mainly medical (doctor visits), hospitalization (usually rolled into the same health plan as the medical), prescription, dental and vision. The long answer will depend on how your company’s COBRA administrator interprets COBRA and a host of other possible influences. Ultimately, you will need to check with the administrator.

The good news: They have to notify you of your benefits, what is offered to you, and the timing and cost involved.

Is COBRA for you?

As great a benefit as it is (it’s always nice to have options…) COBRA isn’t for everyone. The level of your sticker shock depends on a number of things, such as how much of the benefit was your employer paying for (in my case, most of it), how good (expensive) your insurance is (mine was very good and, consequently, very expensive), and how much you will be able to afford when you find yourself suddenly out of work. COBRA is a great resource; but to determine if it’s for you, consider the following:

  • Are you under a doctor’s care for serious and/or long-term problems?
  • Do you anticipate difficulty in qualifying for individual life insurance or have no option to take insurance through a spouse or a state-sponsored program?
  • Is the COBRA price affordable for you, at least long enough for you to get something less expensive?
  • Do you need to provide for a gap in time while waiting to qualify for a plan that serves you better?

If you answered yes to any of the above questions, then COBRA may be for you. Before you sign up right away, read on about timing and making your first payment; you have 60 days from the date your coverage ended to sign up for COBRA. Once you sign up, your first payment is not due for 45 days from that date. So, in theory, you could continue your coverage without having to pay for it for up to 105 days; just be prepared for a huge bill, as the coverage will be retroactive to the date your old coverage ended.

Where can I learn more?

The information in this article is high-level, but with enough of the details to prepare you for most surprises when dealing with COBRA benefits. The links below provide more information. Read up, get informed and then talk with your company’s COBRA administrator to learn about the specifics of how you can take advantage (or not!) of COBRA.

US Department of Labor

http://www.dol.gov/dol/topic/health-plans/cobra.htm

Centers for Medicare & Medicaid Services

http://www.cms.hhs.gov/hipaa/hipaa1/cobra/

The Consumer Law Page

http://consumerlawpage.com/brochure/cobra.shtml

Cobra Insurance.com (offering COBRA alternatives)

http://www.cobrainsurance.com/COBRA_Law.htm

The Heritage Foundation (offering an opinion on recent COBRA legislation)

http://www.heritage.org/Research/HealthCare/ed040502.cfm


 




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