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What is COBRA Insurance?

by Ryan Guina

When I resigned my job just over a week ago, I met with my HR rep at my office to go over a few things before my final day. One of the topics we covered was COBRA Insurance, or COBRA continuation coverage. COBRA stands for Consolidated Omnibus Budget Reconciliation Act of 1985, and is a federal law which helps employees maintain health care coverage when they would otherwise lose it from a “qualifying life event,” including resigning from a job or filing for unemployment.

What is COBRA Insurance?

Basically, COBRA health insurance coverage guarantees employees the right to keep their group health care coverage for up to 18 months when they would otherwise lose it after leaving their job. COBRA generally covers employees who resign or are terminated for any reason other than “gross misconduct.”

However, there is one big difference. While employees are guaranteed the right to the same health care coverage they previously had, they are required to pay for all of it out of their own pocket. Their former employer is not required to subsidize the payments. Employers often cover a substantial portion of health insurance premiums, so COBRA coverage can be expensive.

COBRA Coverage can also be made available to an employee’s family members, sometimes for up to 36 months. COBRA is not available for individual health care plans that are purchased outside of a group plan through an employer or an association. If you lose individual health care coverage, there are no COBRA laws that require an extension.

How is COBRA Coverage Provided?

You must contact your human resources department and inform them when you have a qualifying life event, generally within 30 or 60 days of the event, depending on the type of event. Once your HR department has been made aware of the life event, they are required to offer qualified beneficiaries COBRA coverage. Each qualified beneficiary has the independent right to elect or decline coverage. From there, payments will be arranged through your company or their group health care provider.

When does COBRA Coverage end?

COBRA Coverage can extend up to 18 months for the employee, and up to 36 months under certain conditions for a spouse or dependents. There are certain conditions that will cause COBRA coverage to end, including:

  • Reaching the last day of COBRA coverage (after 18-36 months)
  • The employer ceases to offer a group health care plan
  • The employer goes out of business
  • The beneficiary obtains coverage elsewhere
  • The beneficiary doesn’t pay the premiums
  • The beneficiary is entitled to receive Medicare benefits

Should you elect for COBRA Coverage?

This is a very personal decision. While COBRA can be very expensive (sometimes prohibitively expensive), it will allow you to keep the same group health care coverage as you had while you were with your employer. COBRA also extends to spouses and dependents in events such as a divorce or the death of an employed spouse. This may be their only way to maintain coverage.

In my opinion, health care insurance is essential. I would at least consider COBRA coverage until you can investigate other options. Before applying for COBRA coverage, you should at least investigate individual health insurance, which will probably be a cheaper option (though you may not be eligible if you have a preexisting condition). You can find search for insurance rates on this site, or visit eHealthInsurance.com for multiple quotes.

Disclaimer: This article is intended to serve as a primer for COBRA coverage. There are many situations that can affect an individual’s eligibility. Please consult with your HR department or another professional for more detailed information. You can also visit the Department of Labor website for specific questions, or for  information about the regional office in your area. You may also call 866-444-ebsa for publications or to be directed to the office in your area.


Published or updated August 1, 2011.
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{ 19 comments… read them below or add one }

1 David Carter

Interesting, I had never even heard of that before. Were you going to get that coverage or will you have a new plan with your new job? I hope you get a mini vacation when you switch jobs. A nice gap of a few days off before you start the new job would be fun (if you can afford it). Good luck at the new job.

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2 Ryan

Great questions, David, and thanks for wishing me good luck at the new job. I’m excited about the transition.

The job offer I accepted was contingent that I start ASAP, which meant giving my 2 week’s notice right away. So, unfortunately, I won’t have any time between jobs. I could have afforded a small break, especially since I have to sell back my unused vacation time at my current company. (I could have used a few days off too!).

As for COBRA coverage, I won’t need to get it because I will start with my new company before my current coverage lapses. My new company allows me to sign up for the benefits package before my first official day of work and insurance will be effective starting my first day of work. That’s a good deal!

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3 Ron@TheWisdomJournal

You were fortunate that your new company allowed you to sign up and get coverage from day one. Too many companies have 90+ day waiting periods to elect medical coverage. All it takes is one split second in a car accident, or the discovery of a “lump,” or a child to require emergency treatment and the lack of insurance can be financially devastating.

Great article and great call to USE your COBRA coverage if you change jobs.

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4 Ryan

Ron,

I was pretty happy with the opportunity to elect coverage right away. It saved me some money because COBRA is expensive!

No break in coverage can be very important – especially for situations like you mentioned.

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5 Stephanie

I was a bit confused about the whole COBRA plan…I heard somewhere that you can retroactively set up COBRA. Have you heard anything like that? What I mean is, you might have, say, 60 days to decide what to do…and you don’t opt into it until after you get hurt or something, and it will be like you had it all along.
Just something I heard, didn’t know what you’d heard about the matter.

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6 Ryan

Stephanie,

I think as long as you are in your 60 day window, you can still get your coverage, but I am not sure about retroactive coverage. I think it would depend on the insurer or the details of the situation.

One of the benefits is that with COBRA, your coverage doesn’t lapse, meaning if you have a preexisting condition, you will be able to more easily get insurance through a new provider.

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7 Jeff Clair

Ryan, very useful information.

Actually there are lots of insurance plans in the market which suits everyone as per their requirement, but very few people know about them. You have done a great job by providing information about this insurance plan.

All the best for your future ventures!

Jeff Clair

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8 Rebecca Shaffer

Has anyone heard of a COBRA extension past 18 months for people not working and who are not disabled? Heard it may be in Obama’s stimulus package.

Please advise.

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9 Ryan

Rebecca: I have not heard of an extension of COBRA benefits beyond 18 months. Obama has yet to take office, so a change of this nature could still be several months away if he makes it.

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10 valerie

The Department of Labor’s Employee Benefits Security Administration exists to help benefit plan participants and beneficiaries (in private sector group-sponsored plans)know their rights under the federal law ERISA, and intervene on their behalf with employers and/or plan administrators. Questions about COBRA, pension, or other employee benefits benefits – what will happen with my 401(k)?Should be addressed to them for the definitive answers. Go to their website http://www.dol.gov/ebsa for the regional office in your area or call 866-444-ebsa for publications or to be directed to the office in your area.

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11 Ryan

Valerie, thank you for the information you provided. I will add this to the article for clarification.

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12 Michael Durbin

COBRA stimulus package to the rescue! At last the calary has arrived! Right?

My COBRA cost is $1200/month, I can’t elect alternative plans because my wife and I both have pre-existing conditions that eliminate us from the lower cost plans.

Problem is, I haven’t heard anyone explain how I go about getting the government to pay 65% of my $1200 monthly cost.

I called my ex-employer whom I mail my payments to and the payroll/benefits person is as much in the dark as I am. I called my insurance company to ask them and they knew even less than my employer.

I have until the end of February to pay for my February COBRA. Since the Stimulus package became law on February 17, 2009, does this mean I can send my employeer 35% of my COBRA cost for February? No one I have spoken to has any idea.

Please help, my daughter-in-law is in labor with my first grandchild as I speak and I could really find better things to do with that extra $780. My son and daughter-in-law don’t even have a washer and dryer yet.

If my insurance company and my ex-employer are clueless who do I turn to for advice they will listen to?

Regards,
New Grandpa
Mike Durbin
Lenexa, KS

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13 Ryan

Michael: Congrats on your new grandchild. I hope he/she and the mother are both healthy and doing well.

This is all the information I have about the new COBRA benefits: Unemployment and COBRA Benefit Provisions in the 2009 Economic Stimulus Plan.

As part of this stimulus bill, the government will subsidize 65% of the COBRA premiums for workers who were laid off between Sept. 1, 2008, and Dec. 31, 2009. If you were laid off between Sept. 1, 2008, and now, then you should qualify for the subsidy. However, I don’t know how or where to go about claiming it.

The best thing I can advise you to do is pay your full bill for February and until you get more information.

Best of luck to you and the new addition in your family,

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14 Troy

Millions of Americans who lost their jobs prior to September 1, 2008 could not afford Cobra. Millions more elected Cobra but have now depleted their resources and can not continue on. Still millions more with pre-existing conditions who rely on cobra to bridge the 18 month gap between their former employers insurance and their state’s high risk insurance pools are struggling to pay their premiums every month to prevent being locked out of insurance permanently.

Please join us in asking Congress and the Obama administration to eliminate the arbitrary September 1, 2008 cut-off date and 9 month limitation of assistance by signing our petition

For more information please see our website by clicking on my name.

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15 stephanie

We just got put on Cobra and we were 5 days late in our payment of our premium and we were cancelled. We paid for June and July was 5 days late. What do we do NOW? I have over 800$ in perscriptions a month.

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16 Christine

Stephanie,
I thought there was a 30 day grace period for paying your Cobra premium. Maybe check on that.

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17 gladys grisafr

i would like to know if you can get corba after the 18 momth.i need 9 month to be 65 and after june 1 i want have any insur.

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18 Jackie

A little over two years ago had to leave my job due to an injury outside the job site-not work related. I have been unable to return to my job due to the injury. I work for a public school system in South Florida am I able to qualify for COBRA?

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19 Ryan

Jackie, there is usually a time limit for COBRA benefits. You will need to contact your former employer for more information specific to your case, since this program is run through your previous employer. Best of luck.

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