The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federally protected law that was created to provide covered employees and their immediate families with temporary continued access to employer sponsored group health insurance benefits when such access will otherwise be terminated. For many, COBRA is a viable option when they are put in this situation.
For others, the expense and impermanent nature of COBRA make for an un-wanted temporary solution, and they find that individual health policies or short term health insurance plans work best. In order to determine if COBRA is right for you, it is important to fully understand what COBRA offers. Once you have an understanding of how COBRA works, compare your other options to find what best suits your medical and financial needs.
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COBRA was designed to provide temporary continuing coverage for employees, their spouses, ex-spouses, and dependant children. It does not apply to everyone though, as eligibility is reliant on limited conditions. You may be eligible for a COBRA plan if you are currently or were recently (within 60 days of leaving the workplace) employed by a company that had more than 20 employees and offered group health insurance at the time of the qualifying event. A qualifying event for a COBRA plan is one in which the life or employment situation of an individual changes in a way that causes an individual's coverage to be terminated. These events include:
- Termination of employment (death, retirement, dismissal, resignation)
- Reduction of working hours
- Divorce (spouse)
- Loss of ¨dependent¨ status (child)
If you are un-certain about your eligibility for COBRA and want to make sure you and your family are covered, you should also explore individual health plan options.
Coverage with COBRA
The COBRA plan offers health coverage to a terminated employee for a maximum of 18 months, sometimes less depending on how you qualify for the plan, and the family of an employee for up to 36 months, offering the same benefits as the initial group health care policy. It is important to note that COBRA only covers medical insurance, and does not include life insurance or disability coverage. The following are some of the benefits offered by a COBRA health plan:
- Inpatient and outpatient hospital care
- Physician care
- Prescription drugs
- Other medical benefits, such as dental and vision care
Though COBRA coverage offers many of the same functions as individual and family health plans, they are often more costly so make sure to compare your options before committing to a COBRA plan.
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COBRA's Costs and Fees
COBRA fees will vary based on the health plan you previously had with your employer. While employed, health insurance is usually subsidized by employers and workers are only responsible for paying a portion of their premium. With a COBRA plan, however, individuals are accountable for the entire premium plus a 2% administrative fee. If you wait to commit to a COBRA plan until the end of the 60 day allowance period, you may be required to pay retroactive fees. If you fail to make a payment, your COBRA plan may be terminated.
Although, COBRA is a great option for some people, it has a number of disadvantages that make it unacceptable for others, such as its provisional nature. It is necessary to remember that COBRA offers only a temporary fix to a life-long problem—if you are looking for a long-term health insurance solution, COBRA is not for you. Furthermore, many find the costs associated with COBRA to be quite high. If you are used to your employer paying a percentage of your premium, you may be in for a rude-awakening.
With a COBRA plan, you are required to pay 100% of your premium in addition to a 2% administrative fee. As the payment is no longer deducted from your paycheck, make sure to take into account that your payments are now from post-tax dollars. Typically your cost will never exceed 102% of your premium, but in rare instances you may be required to pay 150% of what you where paying while employed. If your insurance needs are covered by what COBRA offers, and you are willing to afford the higher cost, COBRA may be right for you.
COBRA plans offer a wide range of coverage options, but in the end they can be much more expensive than what you are used to. You may want to consider other options like individual or short term insurance plans. In any case, it is a good idea to learn about the many potential health insurance providers and options available in order to find the most suitable plan for you.