For most Americans, the days of staying in a single job over a lifetime are over. According to the U.S. Bureau of Labor Statistics, Americans, on average, will have moved in and out of a dozen jobs by the time they hit their early fifties.
This career mobility means that you’ll likely face gaps in employer-based health insurance plans between jobs or while you’re waiting for your benefits to kick in at a new job.
If you don’t have access to health insurance through a spouse or parent, COBRA continuation health coverage can be a seamless, though not inexpensive, way to bridge these gaps.
Here’s an overview of what you need to know about this type of health insurance.
What You Need to Know
COBRA, a government-mandated program, allows you to continue your workplace insurance for up to 18 months after you leave a job or your hours are cut back.
Under COBRA, your spouse and dependent children are also eligible for coverage through your former employer’s group insurance plan.
COBRA health insurance is often more expensive than other insurance options, because you’ll be paying the full cost of premiums as well as an administrative fee.
Under some circumstances, it may make financial sense to choose COBRA coverage to fill an insurance gap between jobs because you won’t be starting from zero to meet a new annual deductible.
What is COBRA?
Short for “Consolidated Omnibus Budget Reconciliation Act,” COBRA is a government-mandated program. It requires employers to offer a temporary continuation of group health insurance coverage that would otherwise be lost. Under COBRA, this continuation coverage must be offered to workers who were covered by a group health insurance plan. Their spouses and their dependent children are covered, too.
If you elect to enroll in COBRA, you’ll keep the same group insurance plan you already have. That includes medical, dental and vision plans. You’ll be able to see all the same doctors and have all the same benefits, and you won’t be starting over with a new deductible. If you have medical benefits through an employee assistance plan (EAP), those will likely continue with COBRA coverage, and, in many cases, you’ll be able to maintain the benefits of your Health Care Flexible Spending Account (HCFSA).
Your employer, however, will generally not cover any of the costs. You’ll be responsible for paying the monthly health premiums in full, as well as an administrative fee that typically adds another 2% to that cost.
COBRA coverage can be extended under two circumstances
Who Can Sign Up for COBRA Insurance?
Three requirements need to be met for you to be able to sign up for COBRA continuation coverage:
- Your group health plan must be covered by the COBRA law.
- You must have a qualifying event.
- You must be a qualified beneficiary for that event.
Determining Whether Your Health Plan Is Covered by COBRA
In general, any private-sector company that has 20 or more employees is required to offer COBRA continuation coverage. If you work for a state or local government, chances are COBRA applies to your health plan, too. However, it doesn’t apply to group health plans offered by the federal government or by churches and certain church-related organizations.
If you work for a smaller company, you might still be able to get COBRA-like coverage. Many states have laws that require companies with fewer than 20 employees to offer former employees the option to continue their group health coverage. This state-mandated continuation coverage is sometimes called “mini-COBRA.” Your state insurance commissioner’s office will be able to tell you if this coverage is available where you live.
Determining What’s a Qualifying Event
Simply put, a qualifying event is any job change that causes you to lose your employer-sponsored health coverage. That includes quitting your job, retiring or being laid off for any reason other than gross misconduct like stealing or threatening a co-worker. These are qualifying events, as is a reduction in the number of working hours that makes you ineligible for your employer’s health insurance plan.
Determining Who’s a Qualified Beneficiary
Anyone who was covered by your company’s group health plan the day prior to the qualifying event is a qualified beneficiary. That may include your dependent children, your spouse and, in a few states, your domestic partner, as well as yourself, the covered employee. Some employees offer “COBRA equivalent” coverage to domestic partners who were covered under the company group health plan.
How Long Does COBRA Coverage Last?
In general, you’re entitled to 18 months of continuous COBRA coverage, starting from the date of the qualifying event.
Can COBRA Coverage Be Extended?
Yes. There are two situations when COBRA coverage can be extended beyond 18 months:
- In some cases, if any one of the qualified beneficiaries is disabled, everyone in the family is entitled to an 11-month extension, for a maximum coverage period of 29 months. But be prepared for sticker shock: Premiums can be boosted to as high as 150% of their cost during that 11-month extension.
- If a second qualifying event occurs during the first 18 months of COBRA coverage, a spouse or dependent children may be entitled to an extension of their coverage to 36 months. These events include the death of the covered employee; divorce or legal separation from the covered employee; the covered employee, in some cases, becoming entitled for Medicare benefits; or a dependent child turning 26 and losing eligibility for coverage under the group health plan. If you’re the covered employee, though, these extensions are not available to you.
Who Tells the Group Health Plan About a Qualifying Event?
You’ve left your job or had your hours substantially reduced. Now the health plan administrator where you work(ed) needs to be alerted that this qualifying event has occurred. It’s the responsibility of your employer to provide this notification to your health plan within 30 days of your change in job status.
Generally, within 14 days of this notification, the plan administrator must then tell you what your COBRA rights are. This notice will provide all the details on when your current group coverage will expire, what your premiums will cost if you decide to continue that group plan through COBRA, and how to sign up for COBRA insurance.
When it comes to those second qualifying events, things work differently. Here, it’s the responsibility of the qualified beneficiary — which means anyone covered on the plan, not only the covered employee — to alert the health plan of the life-changing event. If you’re a spouse who’s getting divorced from the covered employee or you’re a son or daughter who is losing your dependent status, it’s up to you to provide timely notification of this qualifying event.
You can find details on whom to notify and how to do this in the summary plan description or the general notice that was given to you within the first 90 days of COBRA coverage.
How Do You Sign Up for COBRA Coverage?
You can take some time to consider carefully whether or not to choose COBRA. You’ll have at least 60 days from the day you receive the election notice or from the day your employer-based health insurance plan would end — whichever is later — to elect COBRA coverage. (If you decide you don’t want COBRA, you don’t need to do anything.)
The COBRA election notice will contain all the details on the cost of your premium payments and where they should be sent. Once you choose COBRA coverage, you’ll have 45 days to make the first premium payment. After that, payments will be due every 30 days.
If You Get a New Job or Become Covered Under a Spouse’s Health Insurance Plan, Can You Discontinue COBRA Coverage?
COBRA coverage is a month-to-month plan and you can cancel anytime. Again, refer to the summary plan description or general notice for details on how to submit your termination request. You’ll just want to be sure your new health insurance begins before your COBRA coverage ends.
What Happens If You Get Married or Have a Baby While You’re Getting COBRA Coverage?
Your growing family can be covered under your COBRA plan. While a new spouse will not be considered a qualified beneficiary (and therefore entitled to COBRA continuation rights if you die or the two of you divorce), your newborn or adopted child will have all the rights of qualified beneficiaries.
Is There a Way to Reduce the Cost of COBRA Coverage?
In rare cases, your employer might be willing to subsidize your COBRA premiums. And,
if you’re able to negotiate a severance package with your employer, you might be able to make payment of COBRA coverage for a few months part of your exit deal.
Typically, however, you can expect to pay 102% of the cost of premiums for COBRA continuing coverage (again, that extra 2% is for administrative costs). You can probably find alternative health insurance that’s less expensive. But in some cases, choosing COBRA continuing coverage might make sense, despite the costly premiums.
For example, it could be a good choice if you’re leaving a job and have already hit your deductible or out-of-pocket maximum for the year. In this case, electing to continue your employer-based plan through COBRA until the end of the year or until benefits start at a new job might actually save you money compared to switching to a new, less expensive plan where you’d be starting from zero with a deductible. That’s especially true if you anticipate medical expenses because of an ongoing illness, a pregnancy or that hip-replacement surgery you’re planning to have in a few weeks. If you’re approaching retirement age, choosing COBRA may also be a smart choice to bridge the insurance gap until you become eligible for Medicare at age 65.
Take advantage of the 60-day window you have to elect COBRA coverage and consult a licensed health insurance agent who can guide you in making the decision that’s right for you.