What Is COBRA Health Insurance?

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COBRA is a law that lets you keep your group health insurncae after you've quit your job, been laid off, gotten divorced, or had other life changes. Image © Westend61/Getty Images

COBRA is the nick-name of the law that allows you to continue your group health insurance when you lose your job, get a divorce, or have another qualifying event. COBRA stands for the Consolidated Omnibus Reconciliation Act.

Why COBRA?

Before the COBRA law, if you lost your job, you also lost your job-based health insurance. If you got divorced, you lost the coverage that was provided through your ex-spouse’s job.

When you lost this job-based coverage, if you had a pre-existing medical problem, you might not be able to find any other health insurance.

Thanks to COBRA, when these things happen now, you’re usually able to continue your current group health insurance coverage for 18-36 months. This gives you time to get back on your feet and figure out what to do.

COBRA doesn’t apply to all types of health insurance, but only to job-based group health plans from employers that have at least 20 employees (state-based continuation of coverage is available in many states for employees who work for smaller companies and don't have access to COBRA).

Also, COBRA doesn’t apply under all situations. In order to be eligible to continue your coverage with COBRA , you must have had a qualifying event. Things like divorce, getting laid off, death of the spouse that provided the group health insurance, and getting too old to qualify for young-adult dependent coverage under a parent’s health plan are qualifying events.

 

Assuming your employer is large enough for COBRA to apply, you'll be eligible to extend your coverage with COBRA If you leave your job voluntarily, or if you're terminated for reasons other than gross misconduct. COBRA also applies if your hours are reduced to the point that you no longer qualify for health insurance coverage from your employer.

Pros and Cons of COBRA Health Insurance

The good thing about COBRA health insurance is that you’ll have the same health insurance you had before. You can keep your same doctor (assuming the plan's network stays the same from one year to the next), and you’ll pay the same coinsurance, deductible, and copayments you would have paid if you had continued to be eligible for the employer-sponsored coverage.

You also have 60 days to decide whether or not to continue your coverage with COBRA. During that time, you can compare the other options that are available to you. If you decide to go with COBRA, you won't have any gaps in coverage - even if you wait until day 59 to elect COBRA, your COBRA coverage will be backdated so that it picks up where your plan would otherwise have ended (you'll be responsible for all COBRA premiums, which you'll need to pay when you decide to continue your coverage with COBRA).

If you're waiting for coverage from a new job or the individual market to take effect, you can hold off on electing COBRA - and paying the full cost of continuing your employer-sponsored plan - during that 60 day window, with the knowledge that if something happens and you need coverage before your new plan kicks in, you've still got the option to enroll in COBRA with seamless coverage.

This only works for 60 days though - if your new plan won't start until later than that, you'll need to fill in the gap with something else, possibly short-term health insurance.

There are a few bad things about COBRA though:

  1. It’s expensive. You’ll pay what you paid before for health insurance (the employee’s contribution to the monthly premium.) Plus, you’ll also pay whatever the employer was contributing to the monthly premium. In addition, you’ll pay a 2% administrative fee. Learn more in "How Much Does COBRA Health Insurance Cost?"
  2. It’s only temporary coverage. Depending on what type of situation qualified you for COBRA, you’ll only have 18-36 months of coverage. After that, you’ll have to get other health insurance.
  3. If the business that sponsors the health plan goes bankrupt, your COBRA coverage ends even if your 18-36 months aren’t up yet.
  4. If you miss a monthly premium payment, you lose your COBRA coverage and you can’t get it back.
  5. You only have a limited amount of time to decide to use COBRA health insurance (the 60 day window described above). If you don’t decide during that window of opportunity, you lose your chance.

New alternatives in the individual market

Prior to 2014, COBRA was often the only viable alternative for people with serious pre-existing conditions who were losing access to a job-sponsored health insurance plan. In the individual market, they were often unable to obtain health insurance because of their medical history, which meant that despite the cost of COBRA, it was the best alternative until they were able to obtain health insurance from a new employer.

That's no longer the case, thanks to the Affordable Care Act. Health insurance in the individual market is no longer medically underwritten, which means that pre-existing conditions are no longer an obstacle for people who need to enroll in coverage. Outside of open enrollment, applications can only be submitted when people have a qualifying event, but loss of employer-sponsored coverage is a qualifying event, even if COBRA is available as well (note that even if you lost your job because of gross misconduct - and are therefore not eligible for COBRA - you've still got a qualifying event in the individual market if your health insurance terminated when you lost your job).

Individual market coverage is more expensive than it was prior to 2014 when medical underwriting was used, but premium subsidies are available in the exchanges to make it more affordable, and Medicaid has been expanded in 31 states and DC, making coverage much more accessible for low-income applicants. 

If you're losing access to an employer-sponsored plan and you've got a chance to elect COBRA, make sure you compare the individual market plans that are available through the exchange in your area. If you elect COBRA, you won't have a chance to switch to an individual market plan until the next open enrollment period, so it's important to make sure that you've compared all your options before making a decision.

Sources: 

United States Department of Labor, An Employee's Guide to Health Benefits Under COBRA. Accessed 5/24/16.

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