It’s not a snake, but the high cost of COBRA health insurance can make it feel like one!
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act.
It is a law that was passed by Congress in 1986. COBRA provides you the option to continue your current healthcare plan (i.e. your former employer’s group health insurance) at the group rate that your former employer pays. COBRA enables you to continue to go to the same doctors, receive the same prescriptions, and be treated at the same hospitals you’re accustomed to.
The most important feature of COBRA health insurance is that if you have a pre-existing medical condition (e.g. diabetes) you do not have to worry about qualifying for a new plan.
In addition, because of the tremendous variety in health coverage options, COBRA provides the ease of having access to plan that you are already familiar with, saving you the time of evaluating and enrolling in a new health insurance plan.
According to various surveys, anywhere between 25% and 50% of people who are eligible for COBRA sign up under the plan. COBRA coverage generally lasts for 18 months, with extensions available in certain instances.
Note: You will also be eligible for COBRA if you have had your work hours reduced to the point where your employer no longer contributes to your health insurance.
What is required to sign up for health insurance under COBRA?
Fortunately, not much.
As long as your employer had a group health plan for 20 or more employees, you can sign up for COBRA. COBRA is also available if you are a member of an employee organization (e.g. a union), or if you work for the government.
It does not matter if you quit or were laid off, or whether you were working part-time or full-time. Timing is important, however. To enroll in COBRA, you must elect coverage within 60 days of your departure from your former employer.
How do I enroll?
Enrollment is a matter of filling out an application form that should be provided by your former employer when you leave. If you were previously covered under your employer’s health plan and have not received information about COBRA, contact your human resources or benefits manager immediately.
The 60 Day Window
One other helpful feature about COBRA is that the coverage is retroactive. In other words, if you haven’t yet signed up for COBRA, you can still be covered by your old insurance plan by electing to sign up for COBRA within the 60 day window.
As an example, let’s say you leave your current employer and find another job that will offer you health coverage, but the new job doesn’t start for 45 days. Then, two weeks after you leave your previous job, you require hospitalization. You can still be covered by your health insurance plan, as long as you are within the 60 day window. (Note: You will also generally be covered under your employer’s plan through the end of the month during which your employment ends.)
The 60 day window for COBRA works to your benefit. It enables you to search for alternative health coverage during that time period, without the risk of going without health insurance. If you don’t find a better alternative, you can always sign up for COBRA.
The cost of COBRA will depend on the state you live in and the type of health plan your former employer offered.
When working, your employer will generally pay some portion of your health coverage cost as part of your “benefits package.” Effectively, the company subsidizes a portion of the health insurance premium. The amount that a company will contribute depends on the type of health coverage offered, but averages around 75% of the premium, with the remainder of the cost coming out of your paycheck.
As a large organization, your employer gets a volume discount when purchasing what is referred to as group insurance. In many cases, this group insurance is cheaper than what it would cost you to purchase health insurance on your own.
Under COBRA, you benefit from being able to continue on the group insurance plan at the group rate, but you are required to fund 100% of this cost, plus 2% for administrative fees. According to the Kaiser Family Foundation and the Health Research & Educational Trust, in 2008 the average annual premium for employer sponsored health plans was $4,707 (or $392 per month) for individuals and $12,680 (or $1,057 per month) for families.
With the passage of the American Recovery and Reinvestment Act in February 2009, there is now a subsidy that offsets 65% of the cost of COBRA insurance premiums. To learn more, see our article about qualifying for the COBRA subsidy.
In addition to the COBRA subsidy, some companies may subsidize a portion of your COBRA costs as part of your separation agreement. If you are already out of work and paying for COBRA, contact the human resources person at your former employer to see if they have made any changes to the policies.
COBRA health insurance is retroactive. If you choose not to sign up for the COBRA at the time of your departure, you still have a 60 day window to enroll. If you allow time to pass between the date of your departure and the time you make the decision to sign up for COBRA, you will have to pay for the time period that has elapsed, but you will also be covered by the insurance for medical costs incurred over this time.