The Consolidated Omnibus Budget Reconciliation Act, also known as COBRA, fills the insurance gap for workers who lose their jobs.
You have a constrained period of time to continue on your old employer’s plan. The only difference—and it’s a big one—is that you don’t receive financial assistance from your previous employment. Otherwise, everything else is the same, including the treatment and perks. All expenses are covered by you.
Despite the fact that COBRA generally has significantly higher expenses than a conventional employer-based health plan, there was a provision in the American Rescue Plan of 2021 to assist people with COBRA for a limited period of time.
The COVID-19 pandemic-related plan covered all COBRA coverage premiums for recently laid-off individuals through September 2021. Members of COBRA plans once more had to cover the full cost of COBRA insurance after September.
How Does COBRA Insurance Work?
The way COBRA insurance functions is the same as that of your previous employer. The insurance provider, benefits, and insurance company are all the same for you. The fact that your company no longer assists you with the expense of health insurance is one significant change. Consequently, you are responsible for paying all expenses, which may be high.
If you formerly worked for a state or local government, or a private company with 20 or more employees, you are eligible for COBRA continuation coverage. However, you might discover that your state offers a COBRA-like statute for smaller businesses.
COBRA Insurance Rules
COBRA is an option for those who have lost their jobs or :
- who were laid off
- who were fired, but not for “gross misconduct”
- who lost health insurance as a result of a job cut
- Lost their coverage due to divorce, a spouse’s passing, or another qualifying event.
How Do You Get COBRA Continuation Coverage?
Within 30 days after your final day of employment, or if you become eligible for Medicare, your employer must inform you or your dependents of how to continue coverage under COBRA. If you pass away, your employer may also inform your spouse about COBRA.
You have 60 days to make up your mind about whether to enroll in a COBRA plan. Even if you opt out of COBRA, your dependents can still approve coverage. As long as it’s within the 60-day term, you can still enroll in COBRA if you originally decline it. Your insurance coverage goes back to the qualifying event, such as your final day of employment.
You must inform your employer within 60 days if a divorce makes you or a dependent eligible for COBRA or if a child turns 26.
COBRA Insurance Cost
You can continue to use your employer’s health insurance through COBRA, but the cost is high. You are responsible for covering the whole cost of the premiums as well as administrative expenses up to 2%. Your former company no longer covers the cost of your health insurance; you are solely responsible.
The average family health insurance plan offered by an employer has premiums of almost $22,000 per year. Typically, an employer pays for more than half of the cost of health insurance. However, since the company does not cover the cost of a COBRA plan, the former employee is responsible for it. That implies a large COBRA premium.
Waiting to determine if you require COBRA coverage within the 60-day window is one economical choice. That way, you can decide whether you need COBRA or if you can find more cheap health insurance coverage without having to pay any premiums.
If you decide you need insurance, you would receive coverage retroactive to the eligibility date, but even if you enroll 60 days later, you would still be required to pay premiums for the whole eligibility period. For instance, even if you enroll on day 59, you will still be required to pay the premiums from all 59 days.
If you need assistance paying your COBRA costs, you might be qualified for a federal income tax credit. According to the U.S. Department of Labor, individuals who lost their jobs due to “negative effects of global commerce” may be eligible for the Health Coverage Tax Credit (HCTC).
If you get benefits from the Trade Adjustment Assistance Program or pension payments from the Pension Benefit Guaranty Corporation, you might also be qualified.
The HCTC covers 72.5 percent of premiums. Pay the remaining 27.5% yourself. If you qualify, you may have to pay premiums that are similar to what you did when you were employed.
How to Sign Up for COBRA Insurance?
Your employer must let you know within 30 days of your last day of work if you are eligible for COBRA. Following that, you have 60 days to decide whether to keep the group insurance coverage under COBRA.
Qualifying for COBRA Health Insurance
Your workplace health plan must be covered by COBRA in order to elect COBRA continuing coverage. That often comprises group health plans supported by employers in the public or private sectors with at least 20 workers. The 20-employee quota is not entirely met by part-timers because they are only considered as a portion of full-timers.
You must also experience a qualifying event, which is a circumstance that resulted in the termination of your group health insurance coverage. For instance, if you lose your job but it wasn’t for egregious misbehavior, you may be eligible for COBRA. If your hours were reduced below what was required for group coverage, you may still be eligible.
Beneficiaries who were eligible for the group health plan the day before the qualifying event but lost coverage as a result of the qualifying event are also eligible for COBRA.
And finally, in order to be qualified for COBRA, you had to be covered by your employer’s group insurance while you were an employee.
How Long Does the COBRA Insurance Last?
While COBRA offers the same advantages as your employer-sponsored plan, the duration of your coverage is only 18 months. The qualifying event, like whether you qualify for COBRA because you were laid off, had a legal separation, or your spouse passed away, determines the precise COBRA eligibility period.
If you or a dependent becomes incapacitated or if you experience another qualifying event, such as the death of your spouse, you may ask for an 18-month extension. In rare situations, COBRA coverage may last an additional 36 months.
You have a full 18 months to revoke your COBRA coverage; you are not required to. Once you are qualified for a different health plan, such as if you find a new job, you should probably stop paying COBRA.
If you don’t make any further premium payments, your COBRA coverage will expire. If your former company discontinues offering group health insurance, a health plan may also terminate your COBRA coverage.
How Does COBRA Insurance Work If I Lose My Job?
You may still be eligible for COBRA insurance even if you quit your job on purpose. After you depart, your premiums will be covered for up to 18 months. As long as you had coverage while you were employed, your dental and vision insurance is also covered. Some states allow you and your dependents to have 36 months of medical coverage (but not dental or vision).
How Does COBRA Work If I Get a New Job?
You could have the choice to enroll in the group health plan offered by the new company after accepting a job offer instead of keeping your COBRA coverage.
If you have the choice to join in a new group plan, it will typically make more financial sense for you to do so rather than continuing COBRA insurance because COBRA is typically much more expensive.
If you have access to another group health plan, you are also no longer eligible for COBRA, unless the new plan doesn’t provide coverage at a level that is equivalent to your COBRA plan. But keep in mind that COBRA ultimately runs out, so if you don’t enroll in a new plan in time, your coverage may disappear. You can purchase an individual policy from the health insurance marketplace if your employer doesn’t provide a group health plan.
What Does COBRA Insurance Cover?
If you choose to sign up for COBRA insurance, the level of protection you receive is the same as what was offered under your prior plan. However, if any modifications are made to the terms of the employer’s group plan, your current COBRA coverage might also be subject to such modifications.
Additionally, if you have a child while getting continuing coverage, whether natural or adopted, the child is immediately regarded as a qualifying beneficiary.
How Do I Cancel COBRA Coverage?
COBRA happens to be a month-to-month plan. Therefore, you can simply cease paying the premiums if you want to terminate it. Your coverage will end for non-payment if you do this. You won’t get into problems, and your credit won’t be harmed, so don’t worry.
As an alternative, you can seek cancellation of your coverage in writing from your previous employer or the plan administrator. Your former employer should send you a letter after it is terminated verifying that the coverage was ended. A genuine coverage certificate for the time you had COBRA coverage will subsequently be given to you.
Takeaways
- You are permitted to continue using your former employer’s health insurance plan under COBRA for a minimum of 18 months.
- When you have COBRA, your former company no longer contributes to the cost of your health insurance, therefore you are responsible for paying the full amount.
- After quitting your work, you have 60 days to decide if you wish to purchase COBRA insurance.
- Other less expensive alternatives to COBRA include enrolling in your spouse’s health plan or purchasing a plan through the health insurance exchange.