What you need to know about COBRA

By Posted : 07/01/2014

Emergency room entranceAfter you quit or lose a job, you can temporarily continue your employer-sponsored health insurance coverage through a federal law known as COBRA.

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But here's the catch: You have to pick up the entire tab, plus up to 2 percent for administrative costs. If you're accustomed to the employer paying the premium, then prepare for sticker shock.

Congress passed the Consolidated Omnibus Reconciliation Act two decades ago to give families an insurance safety net. Before then, lots of folks who lost health insurance at work had trouble qualifying for coverage when they tried to buy it on their own. They'd get turned down or face exorbitant premiums if they had health conditions.

Now there are more options under the Affordable Care Act (ACA). But if you really want to keep your employer-sponsored coverage, COBRA lets you do that for up to 18 months, and your spouse and dependents in some cases can stay covered for up to three years.

You can elect COBRA for you and your family if you otherwise would lose coverage because:

  • You quit your job.
  • You were fired, unless it was for "gross misconduct."
  • Your hours were reduced.

In addition dependents can elect COBRA if they lose eligibility for coverage because of:

  • Death of the covered employee
  • Age - an adult child turns 26 and can no longer stay on a parent's plan
  • Divorce or legal separation from the covered spouse
  • Eligibility by the covered employee for Medicare.

The law lets you continue coverage for up to 18 months if you quit or a lose a job or your hours are reduced, and up to three years if the coverage loss was due to other reasons.

Keep in mind that you must be covered by the employer-sponsored plan at the time of your job loss or other event, or you aren't eligible for COBRA.

How it works

COBRA applies to private-sector companies with 20 or more employees as well as state and local governments. Some states also have "mini-COBRA" laws that apply to employers with fewer than 20 workers.

The employer must notify the health plan within 30 days if you lose or quit your job, die or become entitled to Medicare. You must notify the plan, generally within 60 days, if the reason for COBRA eligibility is because of divorce, legal separation or losing dependent status as a child.

The health plan then has 14 days to respond with information about how to elect COBRA, and you and your family have 60 days to decide. Not all of you have to elect COBRA. Even if you waived the option, for instance, your spouse and kids could still elect COBRA, or vice versa.

If you waive COBRA coverage, you can revoke the waiver later - as long as you're still within the 60-day election period. The coverage is retroactive to the qualifying event, as long as you pay the premiums retroactively.

You can also cancel COBRA coverage at any time -- you're not locked into an 18-month commitment when you sign up.

COBRA coverage ends when you reach the end of your coverage period, you stop paying premiums or you become eligible for Medicare. It also ends if the employer goes out of business or stops offering health insurance benefits to workers. If the employer simply changes health plans, you can switch to the new plan like everybody else, but you can't keep the old plan.

Other options

Consider all your options before you elect COBRA coverage. You could find a more affordable deal elsewhere. Here are your choices besides COBRA:

• Buy a health plan through the health insurance marketplace. Losing employer-sponsored coverage entitles you to purchase coverage outside the normal open enrollment period - and there's no question of qualifying. Under the health care reform law, insurers no longer can charge extra or reject your application because of your health. You might also be eligible for financial assistance to purchase a marketplace plan if your income falls below 400 percent of the federal poverty level ($46,680 for an individual in 2014).

• Buy a health plan through an insurance agent, insurance company or website. (See “How to buy an individual health insurance plan.”) You can buy an ACA-compliant health plan with benefits that match those offered in the marketplaces, but you cannot get a subsidy if you buy outside the marketplaces. On the other hand, you may find plans not offered in the marketplaces that offer more convenient networks, your preferred doctors, or benefits that go above and beyond what marketplace plans provide.

• Sign up for coverage with your new employer when you get another job.

• Ask your spouse to add you as a dependent on his or her employer-sponsored plan.

• Check whether your children are eligible for coverage through the federal and state Children's Health Insurance Program, a federal and state health insurance program for low- and moderate-income families.

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