In this era of large-scale layoffs, most people know all too well what COBRA stands for: expensive health insurance. Workers who leave their jobs can generally continue coverage under their former employer's group health insurance plan for 18 months, but only if they pay the entire premium themselves, plus a 2 percent administrative fee that the employer can and usually does add on. Its high cost explains at least in part why only about a quarter of people who are eligible for COBRA coverage generally take it. However, with February's passage of an economic stimulus plan that subsidizes 65 percent of COBRA costs for up to nine months, an additional 7 million people are expected to sign on.
Companies with 20 or more employees are usually required to offer COBRA, named for the federal Consolidated Omnibus Budget Reconciliation Act of 1986. And many states have so-called "mini-COBRA" laws that make similar benefits available to employees of smaller companies. Also, most state and local government employees are covered under laws similar to COBRA.
Unfortunately, if your company no longer offers a group insurance plan because, for instance, it went out of business, you won't be eligible for COBRA continuation coverage. You may be able to sign up with a spouse's group plan in that case or be eligible for an individual policy that doesn't contain exclusions for pre-existing conditions. Check with your state insurance department to see if you're eligible.
Here are COBRA basics:
COBRA applies not only to employees but to their spouses (and former spouses), dependent children, and certain retirees. Independent contractors who were part of a group health plan also may be eligible for COBRA.
When does COBRA apply?
If you leave your job for any reason other than "gross misconduct," you are eligible for extended coverage. Spouses and dependent children are eligible for COBRA if the employee who had the insurance leaves a job or becomes eligible for Medicare, or if the employee dies or the couple divorces or legally separates. A child also can become eligible if he or she gets too old for dependent coverage under the parent's group plan.
How long does it last?
Generally, 18 months. But family members may get up to 36 months of coverage after a legal separation or divorce, or if the worker enrolls in Medicare or dies. Children who "age out" of their parent's policy can get up to 36 months of coverage as well. In addition, workers who qualify for Social Security Disability may be eligible for up to 29 months of COBRA coverage, though the premium may be even higher than under COBRA.
How much time do I have to decide whether to take advantage of COBRA?
Your employer has 30 days to notify the health plan that a "qualifying event" has occurred that entitles you to COBRA. Within 14 days of being notified, the plan must inform you of your option to elect COBRA. You have 60 days from either the date you get that COBRA election notice or the date you would lose health insurance coverage, whichever is later, to decide if you want COBRA. In addition, the stimulus package that was enacted in February gives workers who lost their jobs after September 2008 another chance to sign up for COBRA if they declined or dropped it at first. (Here are 8 questions and answers about the new COBRA subsidy.)
If you or a family member becomes eligible for COBRA because of divorce or separation or because a child loses status as a dependent under the health plan rules, you must notify the health plan within 60 days of the "qualifying event" if you want to elect COBRA.
If I had family coverage in my previous job, do I have to buy family coverage under COBRA?
No. Each family member can sign up separately. If your children are eligible for a different plan—through SCHIP or Medicaid, for example—you can decline COBRA coverage for them but get it for yourself. Likewise, you could keep your child enrolled in your former plan but sign up for an individual insurance policy, if you wished.
If you have questions, check the Department of Labor's website or call (866) 444-3272.
For tips on making temporary insurance through COBRA more affordable, consider these 4 ways to avoid COBRA's bite.