COBRA
COBRA, the Consolidated Omnibus Budget Reconciliation Act, is a federally mandated law that was created to help covered employees and their immediate family temporarily secure continued access to employer sponsored group health insurance benefits. COBRA is a great choice for some people when those benefits are lost. For others, COBRA is an expensive, temporary solution that does not meet their needs, and they find that individual health policies or short term health insurance plans work better. In order to decide if COBRA is best for you, it’s a good idea to fully understand the COBRA plan. After you have a grasp of what COBRA offers, you should compare other options to determine what best fits your financial and medical needs.
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Eligibility for COBRA
COBRA was created to provide temporary continued health coverage for employees, their spouses, ex-spouses, and dependant children. 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. Qualification is limited, however, based on specific conditions. A qualifying event for a COBRA plan is one in which changes in the life or employment situation of an individual cause their 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 want to make sure you and your family are covered, but are un-sure whether or not you are eligible for a COBRA plan, you should also explore short term and individual health plan options.
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Areas Covered by COBRA
The COBRA plan offers continued health coverage with the same benefits as the original group health care policy, but does not include life insurance or disability coverage. A terminated employee may get coverage for up to 18 months depending on how they qualify, and the family of an employee may get coverage for up to 36 months. The following are some of the benefits covered in a COBRA health plan:
- Physician care
- Inpatient and outpatient hospital care
- Surgery
- Prescription drugs
- Other medical benefits, such as dental and vision care
Though COBRA coverage offers many of the same benefits as individual and family health plans, it can be more expensive, so compare other options before committing to a COBRA plan.
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Disadvantages of Using COBRA
COBRA has some great advantages, but it also has some drawbacks. One such drawback is the expense. COBRA plans offer a variety of coverage options, but they can be much more costly than what you are used to. While employed, workers are generally only responsible for paying a percentage of an employer subsidized premium. With a COBRA plan, individuals are responsible for paying 100% of their premium, based on what they were paying with their original plan, plus a 2% administrative fee. Typically your cost will never exceed 102% of what you were paying while employed, but on rare occasions you may have to pay up to 150%. You should also consider that, as the payment is no longer deducted from your paycheck, your payments are now drawn from post-tax dollars. For these reasons, many find the expenses associated with COBRA to be very high.
Another disadvantage to the COBRA option is that it is only a temporary fix for a life-long dilemma. If you are looking for a more stable solution, COBRA may not be for you, and you may want to consider other options like individual or short-term insurance plans. It is a good idea to learn about the many potential health insurance providers and options available before committing, in order to find the most suitable plan for you.
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