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I was just perusing my employers HR web page looking for information on our upcoming open enrollment period when I ran across a link to information on COBRA coverage for employees who have separated from their employer. While I’ve never had to use COBRA coverage myself, it’s a valuable option to have.
In case you’re not familiar with the ins and outs of COBRA coverage, I thought I’d compile some of the relevant details here…
For starters, COBRA is short for Consolidated Omnibus Budget Reconciliation Act, which was passed way back in 1986. This law provides for continuation of group health insurance after employment stops (at least for awhile; see below) when it might otherwise have been terminated.
In short, certain former employees and retirees (and their dependents and former spouses) have the right to temporarily continue their coverage at group rates after leaving their job. The downside is that you’re typically responsible for the full cost of this coverage (plus up to 2% for administrative costs), as opposed to just the coinsurance that was previously being taken out of your paycheck.
According to the Dept. of Labor, employers with 20 or more employees in both the public and private sector are typically required to offer COBRA coverage — and to notify their employees of the availability of this coverage.
In order to qualify, you must be losing your benefits due to:
- Voluntary or involuntary termination for reasons other than gross misconduct; or
- Reduction in the number of hours of employment
Spouses can also qualify due to things like divorce or legal separation from the covered spouse or death of the covered employee (in which case the covered employee him/herself would no longer be carrying coverage). Dependent children can extend their coverage if they lose ‘dependent child status’ under the plan’s rules.
The extended coverage typically applies for up to 18 months, though in cases of disability you get an extra 11 months, and in the case of separation or divorce (or loss of dependent child status) the coverage extends for up to 36 months for the affected individual. Employers can, of course, choose to offer coverage for longer, but…
COBRA coverage can be very costly. In fact, many people have no idea just how expensive their health coverage is because they only see their share. But once you realize the full cost, you’ll likely work very hard to find an alternative to paying for it yourself as quickly as possible.
Have you ever used COBRA coverage? If so, please share your experiences in the comments section. Similarly, if you were eligible but decided against it, I’d love to here your reasoning.
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