Tips for Understanding COBRA Insurance

COBRA (Consolidated Omnibus Reconciliation Act of 1985) is an Act that regulates that the majority of employers who offer group health insurance plans. Under COBRA, employers are required to provide employees with the opportunity to provisionally continue their group health care coverage if they are unemployed due to a layoff,  termination or some other qualifying change in employment status.

COBRA Provisions

COBRA provides for the provisional extension of group health insurance for selected former employees, spouses, dependent children and retirees at group rates. Eligibility for COBRA benefits are determined by specifically defined events.  The group rates paid by individuals under the COBRA insurance plans are more costly than what active employees of the company pay for their insurance coverage, but COBRA applicants pay less than they would if they purchased individual health care insurance outside of the company.

Qualifying Events for COBRA Eligibility

The following are considered qualifying events that may make an employee eligible for COBRA benefits:

1. The termination of an employee or reduction in hours, including retirement, not due to gross misconduct on the employee’s part.
2. If a covered employee divorces or becomes legally separated from their spouse, they will be eligible for COBRA
3. Retirees and their families are eligible for COBRA if the employer files bankruptcy.
4. If a covered employee dies, the family may be eligible for COBRA

A former employer with more than 20 employees and half of those covered by health insurance through the company is required to offer health care coverage under COBRA for at least 18 months.  The employer is required to inform you of your COBRA benefits in writing upon your release of employment from the company.  You are then given sixty days to from the date of the notice to sign up for the COBRA insurance coverage. When you elect to accept the COBRA insurance coverage, you will have 45 days to pay for your first premium.

COBRA Fees

When you enroll for COBRA benefits, you will have similar health care coverage as what was offered to you through your employer during your employment.  COBRA benefits can be costly.  You will be required to pay the premium that you were previously paying in addition to the amount your former employer was contributing on your behalf.  The former employer can also charge a 2% administrative fee.

COBRA fees range but can get quite costly, especially when you have lost your income and are collecting unemployment.  Often, those eligible to collect COBRA benefits are unable to do so because of the high fees and lack of income.

Once the 18 months of your COBRA insurance has expired, you will be offered the option of converting your insurance to an individual health plan.  This benefit will most likely be quite costly.  COBRA insurance is not required to continue beyond 18 months and there are other options to extend insurance through your previous employer.  It may be a good idea to make an appointment with a broker to discuss your other insurance options.