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.
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
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
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.
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:
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
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.
Voluntary or involuntary termination of employment
for reasons other than "gross misconduct”
reduction in work hours that would result in cancellation of benefits
the employee loses coverage for either reason above
the employee dies
there is a divorce or legal separation
employee becomes eligible for Medicare
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
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.
does COBRA cost?
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
benefits are covered?
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
The good news: They have to notify you of your benefits,
what is offered to you, and the timing and cost involved.
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
you under a doctor’s care for serious and/or long-term problems?
you anticipate difficulty in qualifying for individual life insurance or have
no option to take insurance through a spouse or a state-sponsored program?
the COBRA price affordable for you, at least long enough for you to get
something less expensive?
you need to provide for a gap in time while waiting to qualify for a plan that
serves you better?
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.
can I learn more?
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.