How Does COBRA Work?

Posted by Amanda on September 12, 2013

I have been laid off twice in my short, post-college career. It’s not something that I like to advertise, and it does make me feel better knowing that both times the president of the company drafted and signed a letter stating that the circumstances of my lay-off had nothing to do with my performance. For the first job, I was at a start-up company who was funding my salary on a one year grant from the USDA (sadly, I only learned of this when that one year was up). For my second job, the company was bought out by a huge corporation and my position was eliminated completely six months later.

How Does COBRA Work?

Each of these times that I was laid-off, I received information about COBRA in the mail. How does COBRA work? COBRA came from the passage of health benefit provisions in the Consolidated Omnibus Budget Reconciliation Act in 1986. Terminated employees, or employees who lose coverage due to reduced work hours may be able to buy group coverage for themselves and their families for limited periods of time through this program.

In case you are ever faced with deciding whether or not to continue health care coverage through this program, I’d like to discuss a bit about it.

Logistics of the COBRA Program

Due to the passing of the COBRA Act, federal law requires that most health plans give employees and their families the opportunity to continue health care coverage when there is a “qualifying event” that would result in a loss of coverage under the employer’s plan (generally applicable to employers with 20 employees or more, with both full-time and part-time people used in the calculation).

Qualifying Events include:

  • Voluntary or involuntary loss of employment (without gross misconduct)
  • A reduction in work hours

Qualifying Events for spouses of the employee include:

  • Termination of the spouse’s employee for any reason other than “gross misconduct”
  • Reduced hours of the spouse’s employee
  • If the spouse’s employee is entitled to Medicare
  • Divorced or legal separation of covered employee
  • Death of the covered employee

If you are eligible to continue health care coverage through your current or former employer, then your health plan must give you notice stating this. If you elect to continue coverage, which you have 60 days to notify your employer, then it will be the same coverage other participants enjoy.

Length of Time Coverage Can Be Extended

Typically, you can get health care coverage under COBRA for a period of 1-36 months. The length of time
depends on the nature of why you are eligible for coverage to begin with. For example, if your loss of coverage is due to the termination of employment or a reduction in the hours of employment, then coverage generally may continue for up to 18 months. If the case of an employee’s death, divorce, or legal separation, then the spouse may seek coverage for a total of 36 months. Reasons why coverage may be denied for the entire eligible period include if you miss any of the premium payments, a qualified beneficiary becomes covered, a qualified beneficiary becomes entitled to Medicare benefits or if the employer ceases to provide any group health plan for its employees. Coverage may be extended in the case of disability (11-month extensions) or upon a second qualifying event occurring (an additional 36 months can be added).

How Much Does COBRA Coverage Cost?

Generally speaking, each qualified beneficiary will have to pay the entire cost of the health care premiums in order to participate in this program. And sometimes, you may actually pay more, as there is a rule that your cost cannot exceed 102 percent of the cost to the plan for similarly situated individuals who have not incurred a qualifying event.

The initial premium payment must be made within 45 days after the date of the COBRA election by the qualified beneficiary, and there is a minimum 30-day grace period for successive periods of coverage.

In my case, my cost to continue coverage under my former employer’s plan would have been a staggering $415.70. While employed, my company actually covered my premiums so I had no health care costs coming out of my paychecks each month. If I wanted to continue coverage on my dental and vision plans, the cost per month would have been $41.34. Instead of paying these costs, I elected to purchase an accidental-only, temporary health care plan to get me through until I found my next job. My premium cost was approximately $90 per month, with limited coverage for maintenance and preventative care and a high-deductible of $5,000. However, in the event that a catastrophic accident or medical emergency occurred, I would have been mostly covered.

Have you ever found yourself in-between health care plans? Did you elect to use COBRA, or did you purchase a catastrophic health care insurance plan?

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