Know Your COBRA Options

Have you lost your job? If you have, you may be worried about losing your health coverage as well. If this is the case, don't panic just yet. It is possible that you are eligible for a continuation of your health insurance benefits. It is called COBRA which stands for Consolidated Omnibus Budget Reconciliation Act of 1985 and is a federal law that provides a connection between health insurance plans for workers that qualify, their spouses, and any dependent children they have at critical times when their health insurance would generally be cut off. COBRA offers a much needed security net for families that are caught in the middle of crisis situations such as death, divorce, or unemployment.

Under the COBRA law, if you leave your job from voluntary resignation, or are terminated from your position for any reason other than what can be classified as "gross misconduct" then you will be guaranteed the right to continue with your employer's group plan for either individual or family health benefits for up to 18 months at your expense. A lot of times your spouse and dependent children will also be eligible for coverage under the COBRA law for as long as three years in some cases. On the other hand, if you are carrying an individual plan that you have purchases on your own and is not a plan under an association or workplace, you are not subject to COBRA law. Once you lose the coverage under an individual plan you have purchased on your own, you will not be eligible for an extension of health benefits under COBRA law.

Are you eligible for COBRA?

Generally speaking, there are three groups of people that are known as the beneficiaries that are eligible for health coverage under COBRA. These groups are employers or previous employees such as retirees in private business; spouses of these employees; and dependent children of these employees. What is a considered a "qualifying event" must occur in order to trigger COBRA. When this happens, you will then be considered eligible to purchase COBRA for the maximum coverage period. Your maximum coverage period will be determined by your status as a beneficiary, and the qualifying event. You must remember that you are not obligated to stay on COBRA the entire time of your maximum coverage period, and in some cases you will not be eligible to if different health insurance options become available to you.

Additionally, your spouse or any of your dependent children are eligible to enroll in COBRA regardless of your COBRA election decision. If you choose not to purchase COBRA, your family members that qualify may still choose to continue their health insurance benefits under the plan of your former employer.

There are restrictions to COBRA eligibility. COBRA eligibility is extended to workers in both state and local government positions, and is also extended to workers that may be classified as independent contractors. On the other hand, the law provides an exemption to the District of Columbia, federal employees, certain church-related organizations, and firms that have fewer than 20 employees. The IRS stipulates that employers are required to calculate part-time workers into their total employees in order to determine if they are eligible to claim exemption.

This does not necessarily mean that you will be out of luck if you work at a small company that is exempt from federal law. Many states have initiated their own laws that are often known as "mini-COBRA." These laws will often grant even broader rights when determining your eligibility for health coverage.

In order to be eligible for COBRA, you are required to be covered under an employer health plan. Should your employer have more than 20 employees but does not offer health coverage, or only offers health coverage to certain groups of employees that excludes you, you will not be eligible for COBRA coverage even if you experience one of the qualifying events. Further, nor will your spouse or dependent children be eligible for COBRA either.

Your COBRA coverage will end when any of the following events occur:

Paying for COBRA

It is not enough to only be eligible for COBRA. You must take into consideration that cost is another major factor. You need to consider that the coverage you will receive under COBRA will be the exact same coverage you had under your employer health plan. This means, it is going to cost you the same amount. If you do not have any pre-existing conditions, you can choose to forego COBRA and purchase individual insurance or short-term health coverage to tide you over until you get a new job with health coverage.

The coverage you will get under COBRA must be identical to the coverage you had before you lost your job. Paul Fronstin is a senior research associate with the Employee Benefits Research Institute -- a nonprofit, nonpartisan organization that conducts research on employee benefits. He says, "An employer can't allow employees to choose a less expensive plan". Employers can however, but are not obligated to, offer you the option of dropping benefits that may be considered "noncore" such as dental or vision care. On the other hand, if you were covered by a number of different health plans at the same time – for prescriptions, medical, and hospitalizations for example - you have the right to choose coverage in any or all of these plans.

At the same time, should your employer choose to change health coverage for its current employees, you are entitled to those same benefits under your employer's new plan, even if the benefits change. Should your employer switch plans all together, you are required to switch as well and will not be able to maintain the old plan.

The Rules for Beginning COBRA

There is a protocol and procedure that both you and your employer must follow in order to initiate COBRA. Failure to do so could result in your forfeiting your entitlement to coverage.

The employer is first required to notify the health plan administrator within 30 days of an employee's "qualifying event". Again, a qualifying event is considered to be one of the following: death, termination of employment, reduced hours of employment, or eligibility for Medicare.

In the event that the qualifying event is divorce, legal marital separation, or a child loses dependent status; it is the responsibility of the family to notify the health plan administrator. In these cases, the family must do so within 60 days of the qualifying event.

Once the plan administrator is notified, they will then have 14 days to notify both you and your family members about your entitlement to elect COBRA. This can be done either in-person or through first-class mail. The IRS is not lenient in these cases. If your health plan administrator fails to notify you within this time frame, they could be held liable for a breach of their duties. However, this will not be the case if your health plan administrator does not have your correct mailing address. Thus, it is your responsibility to notify your health plan administrator if you move.

You, your spouse, and your dependent children, are then given 60 days to decide whether you will buy COBRA. This election period is counted from either the date your eligibility notification was sent, or the date that you lost your health benefits; whichever date is the later date. Your coverage under COBRA will then be retroactive to the date that you lost your health coverage as long as you are maintaining your premium payments.

During this 60 day election period when you have to make the choice to buy COBRA or not, you may decide not to. In this case, you are waiving your right to health coverage. As long as your 60-day election period has not expired, you may change your mind and revoke your waiver. At this time, COBRA coverage would begin on the day that the waiver was revoked. If during this timeframe of waived COBRA you should visit a doctor, you will not be reimbursed for those expenses even if you change your mind and decide to purchase COBRA coverage. In the case of waived COBRA during the 60-day election period, COBRA will not be retroactive to the date that you lost your employer's health coverage. On the other hand, even if you purchase COBRA on the last day of your 60-day election period, your health coverage will still be retroactive to the date you lost your job. You will only have to pay all of your retroactive premiums to initiate this.

Other COBRA tidbits

Separate vs. "bundled" Health Insurance Plans

Your former employer may offer you separate health insurance plans, such as dental, medical, and vision. If your former employer does this, you and each of your family members that qualify may choose to continue any combination under COBRA. On the other hand, if your employer is offering health coverage under one plan but with multiple benefits, you are required to select either all of the benefits or none of them.

Health Plans Subject to COBRA Are:

Benefits not Subject to COBRA are: