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Understanding COBRA Insurance Can Be a Lifesaver

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Losing your job can feel like the rug is being pulled out from under you, but thanks to a federal law commonly known as COBRA health insurance, one thing that you may not be losing is your health insurance.

So, what is COBRA insurance? COBRA coverage is meant to cover you when you lose your employer-sponsored health insurance due to a handful of specific reasons — for a price.

You can purchase COBRA healthcare if you lose your employer’s insurance because you lost your job or quit or your hours were reduced to a point that you were no longer eligible for subsidized coverage. COBRA insurance can also come into play if you become Medicare eligible but your family still needs coverage.

Your spouse or eligible dependents can also use COBRA health insurance in the case of a divorce or if the covered employee died.

So, what is COBRA?

COBRA health insurance was written into the 1986 federal law called the Consolidated Omnibus Budget Reconciliation Act, which is where the acronym COBRA comes from.

The COBRA law lays out your eligibility for coverage, among many other details.

Because COBRA insurance rules are governed by federal law, you are notified of your eligibility for COBRA coverage through a six-page letter with dense legal language. Make sure you don’t just toss it aside because there are deadlines and real repercussions for handling COBRA wrong. If you have any questions about how to sign up for COBRA, reach out to your former employer’s human resources office for an explanation in plain English.

The COBRA law doesn’t apply to all companies – just businesses with more than 20 employees, though some states have provisions that expand COBRA eligibility to employees at smaller companies, called mini-COBRA plans. It’s best to ask if you have any questions about your COBRA eligibility.

How does COBRA work?

The easiest way to answer how does COBRA insurance work is to point to the previous health coverage you had while employed — just more expensive. 

COBRA health insurance is literally allowing a former employee to purchase their old health insurance even though they are no longer with their former company. Employees have to pay the full cost of the insurance through COBRA, where in the past the employer subsidized a portion of the coverage.

COBRA eligibility applies to your health insurance only. The COBRA law does not apply to life insurance, disability insurance or any other coverage type.

To be eligible for COBRA, your employer must notify the insurer about your change in status within 30 days. Then you will have 60 days to decide if you want to use your COBRA healthcare.

The policy can be retroactive, as long as you pay your premiums retroactively – meaning, if you decide on day 45 you want to keep your insurance through COBRA, you pay the premium that you would have paid on day 1 of the change of status, and the coverage will apply as if you never missed a beat.

Make sure you have a good idea of how long does COBRA last. COBRA health insurance typically can extend your coverage for 18 months past your qualifying event. Though in some cases, COBRA coverage can extend for as long as three years.

How much does COBRA cost?

In many cases, even though the employer subsidy is gone, because COBRA insurance is taking advantage of your former employer’s health pool, COBRA insurance can be less expensive than buying an individual health insurance policy. Though it is not always true that COBRA is the least expensive option, so it makes sense to shop around before committing to COBRA healthcare.

Before making a decision about COBRA, it is important to find out how much does COBRA cost. In addition to paying the full cost of COBRA health insurance, the employee could also be charged 2% for administrative fees meaning that the new COBRA insurance cost would be 102% of the total price for the policy, where before the employee may have been paying only 20% of the total price.

Employers often subsidize insurance premiums, to an average of 82% for individuals and 69% for families. That means that if you are accustomed to paying $434 per month for your family’s insurance, through COBRA and without the employer subsidy, that cost could easily jump to $1,739 per month.

A typical COBRA insurance cost runs $15,745 a year for a family.

Are there catches to COBRA insurance?

While COBRA insurance can be a lifeline for families, it is important to break down COBRA insurance rules and understand what it will and won’t cover.

You may be out of luck if the loss of insurance came because  your employer discontinued health coverage altogether — that’s because COBRA coverage only comes into effect if the employer continues coverage.

If that coverage ends for everyone, you will have to look for coverage options elsewhere, such as the Affordable Care Act marketplaces. You should also consider if you are eligible for another subsidized health plan, such as through your spouse’s employer.

You can lose your COBRA health insurance if you miss a premium payment, even by just one day, so make sure to be diligent with your payments.

Simply ignoring the COBRA deadlines and deciding to let your coverage laps could be a costly mistake. That’s because you may have to go uninsured until the next open enrollment period, which could leave you exposed and uninsured for months. You could also pay a higher premium on your next insurance policy because insurers don’t like seeing gaps in coverage and may consider you a higher risk.

With a firm grasp of what is COBRA insurance and how does COBRA work, you and your family can be better protected from life’s uncertainties.

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