How COBRA Health Insurance Works
Laura explains what COBRA continuation coverage is, who is eligible for it, and how to apply and shop for health insurance at the lowest possible price. Maintaining coverage after you leave a job protects your health and your financial security.
A Money Girl reader named Robert E. says, “I was recently laid off from my job and don’t want COBRA health insurance because it’s expensive—but my dental option turns out to be a good financial deal. Can I apply for just COBRA dental insurance without having to get the medical?”
In this post I’ll tell you what COBRA insurance is, who’s eligible for it, and how Robert can apply and shop for the health coverage he needs at the lowest possible price.
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What Is COBRA Heath Insurance?
COBRA is an acronym that stands for Consolidated Omnibus Budget Reconciliation Act. Even though the name of the law doesn’t mention anything about health insurance, it offers continuation of group benefits that would ordinarily be canceled when you leave a job.
Don’t confuse COBRA with an insurance plan or company. COBRA is a law that gives you the option to continue an employer-sponsored health plan after you’re no longer employed.
The good news is that COBRA gives you the same benefits and choices you had before you left your company. The bad news is that it lasts only for a limited period of time and it can be expensive, as Robert mentioned in his question. I’ll tell you more about how to cut the cost of health insurance in a moment.
COBRA is generally offered when you work for a private company that has at least 20 employees or for a state or local government agency. It does not apply to plans offered by the federal government (although federal employees get something similar to COBRA), churches, or organizations with religious affiliation, such as certain hospitals or schools.
You can have COBRA coverage for up to 18 months in most cases. If you’re disabled, it may last for up to 29 months. And if you’re a surviving spouse or divorced from a covered employee, COBRA may continue for up to 36 months.
With COBRA, everyone affected by the loss of group health insurance at work is protected—including the former employee, his or her spouse, former spouses, and dependent children—when certain events occur.
Who Can Get COBRA Health Insurance
With COBRA, everyone affected by the loss of group health insurance at work is protected—including the former employee, his or her spouse, former spouses, and dependent children—when certain events occur.
For instance, if you die, leave a job voluntarily, or are terminated for reasons other than misconduct, you (or your surviving beneficiaries) can get COBRA. Let’s say your hours are cut and you’re no longer eligible for benefits, or you get divorced or legally separated from a covered employee. Those are also qualifying events that allow you to get COBRA.
But you’re not eligible for COBRA if your employer discontinues a health plan altogether, declares bankruptcy, or goes out of business. So, in order to get COBRA coverage, you must:
- have a qualifying group health plan
- experience a qualifying event
- be the primary insured or a qualified beneficiary (such as a spouse or dependent of the former employee)
If you’re not eligible for regular, federal COBRA, many states offer similar programs called Mini COBRA. The benefits for state continuation plans vary depending on where you live. You can check with your state’s department of insurance to see what’s available.
What COBRA Health Insurance Covers
Now let’s discuss what types of group benefits COBRA allows you to continue. It extends only to medical care, such as health, dental, and vision insurance. You can’t get COBRA for disability or life insurance.
That’s why I recommend that you always purchase a disability and life insurance policy outside of work, in addition to what you get through a group plan. Having your own disability and life coverage protects you and your family if you lose your job and then get injured or die while you have no coverage. That could devastate your finances.
COBRA coverage must be identical to the coverage you were offered at your company before you left. You or your family are entitled to have the same coverage limits, co-payments, and deductibles. While you can’t opt for more COBRA coverage, you can opt for less.
Robert wants to know if he can keep his dental coverage and skip the medical. The answer is yes, as long as you were enrolled in dental before you left your job, you can keep the dental plan and discontinue the medical portion.
If your medical, dental, and vision coverage are with different providers, you’ll need to complete separate COBRA election forms, but all the same rules and eligibility requirements apply for any that you choose to continue. If you’re not sure how to apply for COBRA, contact your insurance provider directly for more information.
See also: When to Buy Life Insurance and How Much You Need
Who Pays for COBRA Health Insurance
Since employers usually pay some amount of the cost of group health coverage as a company benefit, the price of COBRA can be shockingly high compared to what you previously paid as an employee.
Since employers usually pay some amount of the cost of group health coverage as a company benefit, the price of COBRA can be shockingly high compared to what you previously paid as an employee.
How to Get Affordable Health Coverage
If you lose group health coverage at work, consider all your options before you opt for COBRA. There may be more affordable alternatives, such as enrolling in a spouse’s plan, a parent’s plan (if you’re younger than age 26), Medicaid, or shopping in the Obamacare health insurance marketplace.
Open enrollment for Obamacare typically lasts for three months, from November 1 until January 31. However, losing group coverage gives you the right to a special enroll period (SEP), which allows you to sign up for a marketplace plan at any time during the year. But you must select a plan no later than 60 days after losing your workplace plan.
The Obamacare marketplace allows every U.S. resident without health insurance to find and compare private plans. You can apply by visiting healthcare.gov or other insurance sites, calling 1-800-318-2596, or by working with an enrollment counselor or health insurance agent.
Depending on your income and family size, you may be eligible for a tax credit that reduces the cost of coverage. You may also qualify for free or low-cost coverage from Medicaid or the Children’s Health Insurance Program (CHIP). Being eligible for COBRA doesn’t affect your eligibility for an Obamacare plan or federal assistance.
Remember that if you choose COBRA but have to drop it because the premiums are unaffordable, you generally won’t be able to get a marketplace plan. You can only sign up during open enrollment, unless you have a special event—such as getting married, having a child, or exhausting your maximum period of COBRA coverage.
See also: Do You Qualify for a Health Insurance Subsidy? (Calculator)
How to Apply for COBRA Health Insurance
Your former employer must send you an election notice within 14 days. Then you (or your beneficiaries) have up to 60 days to decide whether or not to continue the coverage at the quoted price.After you leave an employer, you should receive information about your rights to apply for COBRA. You must notify your Human Resources department within 30 days after a qualifying event (such as a termination or cut in work hours), that you want to elect COBRA continuation.
As I mentioned, I highly recommend shopping and comparing the cost of COBRA to a private policy through the Obamacare marketplace. A marketplace plan may be less expensive, especially if you qualify for a tax subsidy.
Don’t make the mistake of thinking that you’ll just wait and get health insurance after you land your next job. Being uninsured is illegal and it also comes with a tax penalty if you’re uninsured for more than two consecutive months.
If you get sick or need a trip to the emergency room for a broken bone, a huge bill could be a major financial hardship that sets you back for years. Medical debt is the number one reason for bankruptcies in the U.S. Having health insurance is critical not only for your physical well-being, but also for your personal finances.
See also: Questions to Ask When You’re Changing Health Insurance
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.
