Basics of COBRA Health Insurance

Health insurance in the United States is most often tied to employment, so a big worry for many people if they lose their job - or can't find one - is what to do about coverage.  COBRA, a law enacted as part of the Consolidated Omnibus Budget Reconciliation Act of 1986, provides one option for people losing their coverage under a group health plan.

Basically, if you are losing your health insurance coverage for a reason that's covered under the law, you have the right to keep that insurance for a period of time, generally 18 months. You are required to pay the full premium, but you can't be turned down for the coverage just so long as you keep up with the payments.

There's two main factors to look at to figure out if you're eligible for COBRA: 1) why you're losing coverage; and 2) your employer's size and status. You must lose your insurance for an eligible reason AND the COBRA law must apply to your employer for the provisions to kick in.

Reasons for Loss of Coverage

The Qualifying Event is whatever happened that caused you to lose your coverage. There's actually a number of situations that qualify, but here's the most common ones:

• Loss of employment
  Just so long as you didn't get fired for gross misconduct, you should qualify. Voluntary resignation is a qualifying event.
• Overage Dependent
  If you are covered on a parent's group health insurance and are turning 26 (remember: under healthcare reform, kids can stay on parental insurance until age 26), you qualify for COBRA. You should seriously consider finding an individual plan, however, if you don't have a pre-existing condition: it will likely be less expensive than COBRA for a healthy twenty-something.
• Reduction in Hours
  If your work schedule is cut and you no longer qualify for your employer's medical plan, you should qualify. 
• Divorce
  If you carry the insurance, your ex-spouse is eligible for COBRA and vice versa. 
• Death
  The surviving spouse and children of a deceased employee qualify.

It's important to note that you can get COBRA coverage only if you had medical insurance as of the date of the qualifying event.  This also applies for your spouse and children. 

Employer Characteristics

Only companies that have more than 20 employees are required to offer COBRA.  The Department of Labor, which sets the COBRA rules, has a good explanation on its website about how to figure out if it applies to your employer.

In addition to small employers, certain churches are also exempted, and federal employees have a similar, but different, arrangement.

Your employer is required to send you a notification of your COBRA insurance rights, how much it will cost, and how to make your election. The exact time limit they have to send this notification depends on how the plan is structured, but you should wind up with at least 45 to 60 days to elect the coverage.

If the triggering event is divorce or a child reaching age 26, then you have an obligation to notify your employer of the situation within 60 days. Plan administrators often pick up on the overage dependent issue, but you should still contact them.

The basic period you can elect COBRA health insurance coverage is 18 months. But if the event is the death of the employee, for example, coverage continuation is available for up to 36 months.

A major drawback has always been how much COBRA costs. While covered by an employer's group insurance plan, the premium is almost always subsidized by the company. Under COBRA, you must pay the full premium cost plus a 2% administrative fee. Single coverage alone could easily cost $500 while family coverage will likely top $1,300 - per month.

Given the high COBRA premiums, give some consideration to other options.

• Children and Pregnant Women
  Coverage is often available through programs such as CHIP or Medicaid, both administered at the state level. You state health and welfare department should have information on its website.
• Married or Partnered Individuals
  See if you can go on your spouse/partner's plan. Your losing your group health insurance coverage should be treated as a qualifying event by their employer's plan allowing you to be added.
• Individual Plan
  Research your options. The federal government has a comprehensive portal that will guide you to options available in your state. Also check with any organization you're affiliated with - a professional group, your alumni association, etc. - to see if there are plans available to members. You might find that a catastrophic plan with a high deductible is a doable option.
• Non-Insurance Health Plan
  This is a growing product category. Technically, it's not insurance but a way to get negotiated discounts on services with certain doctors, pharmacies, and other providers. If you consider this option, research the company carefully so you understand how the program works.

More options for individual health insurance plans should become available as more provisions of the Affordable Care Act take effect - this is a rapidly changing field. But for the moment, it will take a fair amount of research to find your best option in the event you lose your group coverage.