COBRA Health Insurance & Alternatives

Recently lost or left your job with an employer that offered group health coverage? Or maybe you’ve fallen below your employer’s minimum threshold number of hours worked per week.

We understand that losing your job is stressful—and the subsequent termination of your employer-sponsored health insurance coverage is even moreso. But don’t fret—you’re not alone.

According to the Commonwealth Fund, more than half of Americans under 65 years obtain health coverage through an employer. Luckily, you can get a temporary continuation of your employer-sponsored health coverage—that might otherwise have been terminated—through COBRA (Consolidated Omnibus Budget Reconciliation Act), typically at your own expense — and for a limited period.

Read on to learn more about how COBRA health insurance works, how much it costs, how to get it, and some of its alternatives.

What is COBRA Insurance?

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) mandated the ability to continue health insurance coverage for employees and their dependents in the event they lose their job or experience a reduction of work hours below a certain threshold. Your dependents may include current spouses, separated spouses, and dependent children below 26 years of age.

If you become ineligible to receive health insurance benefits, your employer may terminate payment of its share of health insurance premiums. In this event, COBRA lets you and your dependents hold on to the same insurance for a limited period—provided you’re willing to pay for it out-of-pocket.

What Does COBRA Insurance Stand For?

COBRA isn’t a health insurance plan per se, but rather a law that typically applies to all group health insurance plans that are provided by private-sector employers with at least 20 full-time employees or by local and state governments.

COBRA defines a group health plan as any arrangement that an employer sets up or maintains to offer employees or their families with medical care—whether it’s offered through insurance, out of the employer’s assets or by a health maintenance organization. COBRA doesn’t apply to plans sponsored by churches, the federal government, or some church-related organizations.

How Does COBRA Insurance Work?

COBRA insurance extends your existing health plan coverage when the employer’s plan ends. Group health coverage would otherwise be lost as a result of certain qualifying events, including:

• The death of a covered employee
• Job loss or reduction in work hours for other reasons besides gross misconduct
• A covered employee’s legal separation or divorce
• A covered employee becoming eligible to Medicare
• A child who losing their dependent status

Your employer must notify you or your plan dependents of the COBRA option within 30 days of your final employment date or if you become eligible for Medicare. Your employer may also inform your spouse about COBRA if you pass on.

You have a 60-day period to decide if you still want to sign up and carry on your health insurance coverage under COBRA. If you fail to sign up, your health coverage will terminate the day your employer’s plan coverage ends. You should also notify your employer within 60 days if you or a dependent becomes eligible for COBRA due to a divorce or if your child turns 26.

COBRA allows your dependents to approve coverage even if you decline it. And even if you initially rejected COBRA, you can take advantage of the program at a later date provided your still within the 60-day window. Your insurance company, employer, or both should provide information on COBRA coverage. Your provider should also include COBRA continuation coverage rights information in your plan documents when you first enroll.

Your COBRA coverage will end automatically if you don’t meet your premium obligations or any other fees for the coverage. Coverage may also end if you get comparable health coverage through a new job.

Be sure to read your plan’s fine print to get the most of COBRA insurance. Your insurance carrier may provide guidance if you have any questions.

On Average, How Much is COBRA Insurance?

COBRA lets you retain your employer’s insurance—but that comes at a cost. While the cost of COBRA insurance varies by plan, it shouldn’t exceed—on average—100% of the premium that enrolled employees pay. This cost includes your premium plus a two percent administration charge.

The continuation coverage premium is typically more expensive than the amount an active employee should pay since the employer pays part of the cost of coverage. COBRA coverage lasts for a limited period of time, so you should mostly consider it as a short-term option to bridge a coverage gap.

How to Get COBRA Insurance

While you’ll probably have cheaper alternatives—like taking advantage of the special enrollment period for job loss to purchase coverage in the Health Insurance Marketplace—it’s still a good idea to consider COBRA. Here’s how to get COBRA if you lose your employer-sponsored health insurance — step by step.

1.       Identify Your Qualifying Event

You’re eligible to retain your health coverage for up to 18 months if you’ve left your job or had your work hours reduced for a reason other than gross misconduct. The only caveat, however, is that the employer-sponsored health plan must be active for all current employees. If it’s not—whether the business suspended the coverage benefit or shut down completely — you can’t elect COBRA.

2.       Wait for an Election Notice

Your former employer should notify the health plan’s insurance carrier of a qualifying event—in this case, termination or reduced work hours—within 30 days. The plan administrator then has 14 days to send you a notice with details about your coverage, how much it will cost, and where you should send the paperwork. You can contact the insurance company or health plan administrator directly if you’re not patient enough to wait for the letter.

3.       Elect Coverage Within 60 Days

You have 60 days to elect COBRA coverage after receiving a notice from your insurance carrier. Your spouse or dependents will also be covered under COBRA if your plan covered them while you worked at the company. The instructions in the notice will help you elect coverage.

4.       Make Your Payment Within 45 Days

Although you shouldn’t send any payment with your election form, you’re required to make your first premium payment within 45 days after the date you submit  your election form. You’ll be retroactively covered if you pay in full and on time. You may also lose all COBRA rights if you don’t make any payment within that time frame.

The COBRA plan may designate premium due dates for your successive periods of coverage, but must allow for the option to make monthly payments as well as a 30-day grace period for payment of any premium.

How Long Can You Keep COBRA Insurance?

You can keep COBRA insurance for 18 or 36 months from the date of your qualifying event. The length of the period depends on the type of qualifying event that grants the COBRA rights. However, a plan may offer longer coverage periods beyond the maximum period mandated by law.

Terminated employees and those with reduced hours are entitled to up to 18 months of coverage. A qualified beneficiary who is disabled in the first 60 days of COBRA coverage received a maximum of 29 months of continuation coverage. The Social Security Administration (SSA) must determine the disability.

Divorced spouses, widows, spouses of retirees or employees who lose coverage because of Medicare eligibility as well as dependent children who are no longer eligible get up to 36 months of coverage.

What Are the Best Alternatives to COBRA Continuation Coverage?

While may already qualify for COBRA continuation coverage, you should also consider other health coverage options at your disposal. There may be more generous or more affordable coverage options for you and your dependents including:

• • Your spouse’s health plan. Losing your job-based health insurance coverage is considered as an event that qualifies for special enrollment in the Health Insurance Marketplace. The special enrollment period gives you time to join a health plan at your spouse’s employer. The Marketplace provides one-stop shopping to identify and weigh private health insurance options. 
  • Health plan through the ACA exchanges. You can find tax credits or subsidized ACA (Affordable Care Act) plans to help pay for coverage if your income falls below 400% of the federal poverty level. You may not get this benefit from individual plans not sold through the exchange.
  • A short-term plan. You can now enroll into a short-term plan that lasts a year, with the option to request renewals.

• Independent health insurance. This alternative may be an excellent option if you don’t fulfill the income requirements needed to get premium assistance for an ACA plan but are looking for a more comprehensive plan than what’s provided in a short-term plan. You can buy an individual health insurance plan from a private insurance carrier outside of the Affordable Care Act.

• Medicaid or Children’s Health Insurance program (CHIP). Check the Marketplace to find out whether you qualify for low-cost or free coverage from Medicaid or the Children’s health Insurance Program. You can apply and enroll in these coverages at any time of the year. Coverage begins immediately if you qualify.

If you or a dependent elects for COBRA coverage, you’ll have another opportunity to request special enrollment in a Marketplace plan or group health plan if you have a new special enrollment event.

You must also ensure your doctors accept the insurance option you choose, and that the plan covers your prescriptions. After comparing costs, including premiums and out-of-pocket fees, you can figure out whether COBRA health insurance is your best option.