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Extending Your Health Insurance Benefits With COBRA Coverage

Written by Nickel - 4 Comments

Extending Your Health Insurance Benefits

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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Published on October 24th, 2012
Modified on October 27th, 2012 - 4 Comments
Filed under: Insurance, Working

About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

4 Responses to “Extending Your Health Insurance Benefits With COBRA Coverage”

1
RampantRedsFan Says:
October 24th, 2012 at 3:58 pm
One thing that I was told from an insurance rep friend of mine (please verify this before you use the information) is that you have 60 days to initiate coverage and the coverage will backdate itself to your last day of coverage (likely your last day of work). So if you are taking a short time off between jobs you don’t have to pay the premium unless an event happens.
2
Meg Says:
October 25th, 2012 at 1:34 pm
Young adult children not in school full time are not eligible for parent’s dental plans. We cobra our son’s dental. At $300/yr it is about equal to what he would pay for a couple checkups, cleanings and xrays if he didn’t have it. But it means that if he doesn’t have a plan when the cobra period ends and he can afford to buy one, he would have a better deal because of continuity of coverage. Doing it only to keep options open in a family with inherited very poor teeth.
3
Gertie Says:
October 26th, 2012 at 8:50 pm
As a contractor, I’ve used COBRA 3 times, and am currently using it now. I can offer one clarification to RampantRedsFan’s response above, if it may be of any help to anyone.
Presuming you do meet the standard qualification criteria for COBRA, you DO indeed have 60 days to elect to proceed with it or not, AND if you DO elect it, the coverage is indeed backdated to the end of your prior coverage, which in most cases is the last day of the MONTH you departed, not the actual day…
(This because the employer has already paid for the full month – i.e. if your last day was October 12, then your COBRA coverage would usually begin on November 1 since October has already been paid in full – I’ve never heard of any employer prorating and withholding or asking for reimbursement for the remainder from final pay or anything like that myself – it’s possible I guess, but I don’t personally know of anyone including my frequent-COBRA-user contractor friends, who has experienced that…)
Anyway, yes the elected coverage IS backdated **BUT** you DO have to pay for the gap with your first premium. In the example above, if my last day was October 12, and my monthly premium was determined to be $500, and I waited 59 days and then elected to proceed, my first premium would be for my first month (January) AND the 2 months since my employer-paid coverage ended effective November 1 – so I would have to initially pay $1500, and then $500 each month afterward as long as I wish to keep it – even if I had no health-related incidents. Unfortunately insurance must be paid whether you ever use it or not, and COBRA is no exception – there is no free 2-month COBRA ride. If you end up in the hospital on November 20, you would not be covered unless you still proceeded to elect coverage before January and paid the gap in full. If, after being in the hospital and then deciding on day 59 NOT to elect COBRA (and back-pay the gap) then you are considered “uninsured” and you would be solely responsible for all hospital expenses from your November 20 incident. Gosh, I hope I haven’t made my example too confusing, and hope none of you have that example occur! Best Wishes.
4
Katt Says:
November 8th, 2012 at 2:46 am
I have recently been laid off from my job with the State. I have the option to buy COBRA for 18 months. I have had “family coverage” for years that includes my domestic parter (0pposite sex) and 2 adult children, both under 26.

I was out of work from April to June of 2012 due to unlawful actions of my employer and puchased COBRA at that time under the family plan.

I am NOT allowed to purchase the family plan this time. All family members must purchase individual COBRA plans. This option is too costly.

Family plan COBRA: $1500 mo
Indivdual Plans: myself:$1000, domestic partner:$750
each adult child: $600 or $2950 a month

Going broke for health coverage! Help!!

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