COBRA health insurance has both advantages and disadvantages. Learn when this important coverage is best for you and when it is a costly mistake.
If an employee has his or her health insurance benefits terminated either due to a loss of employment or a reduction in hours,
they still have an option for continuing that coverage through their group plan for a set period of time.
Based on COBRA, the Consolidated Omnibus Reconciliation Act of 1986, Congress mandated that those who will lose their employer sponsored health insurance coverage should be given the right to continue their benefits – at least up to a certain amount of months – in order to avoid possible hardship prior to qualifying for new coverage.
It is important to understand, however, that not all employees qualify for COBRA, nor do all employers have to offer it. Therefore, prior to moving forward with a change in employment status, a good knowledge of the rights that are afforded is essential.
It is also necessary to note that there are alternatives to COBRA coverage. In many cases, the coverage that is provided by COBRA may be more costly than a comparable stand-alone health insurance policy. Therefore, by taking the time to truly understand what benefits are offered – as well as for how long – individuals can get a better idea of which option will work out the best for their specific situation.
Who Qualifies for COBRA?
In order to qualify for COBRA, an employee must be considered a full-time worker as stated in their current health benefits plan. In addition, the individual must actually be enrolled in that plan.
On top of covered employees, the dependents of that individual may also qualify for COBRA coverage it they, too, were enrolled in the employee benefits plan. These “qualifying beneficiaries” may include the employee’s spouse as well as dependent children of the employee.
Not all employers are required to offer COBRA. Therefore, even if an employee and / or their qualified beneficiaries are enrolled in the group health insurance plan, they may not be covered by COBRA if the employer does not offer it.
Those employers that are in the private sector, as well as state and local government employers must offer COBRA to their employees if they have had at least 20 full-time workers for at least 50 percent of the time in the previous year.
There are also certain types of employers that are exempt from offering COBRA, even if they meet the number of employees rule. These include the federal government, as well as churches and other specific church related employers.
How to Enroll in COBRA
Enrollment in COBRA is a simple process for the employee and any applicable covered dependents. In order to be included, the employee and / or dependents must be enrolled in the employer’s group health insurance plan at the time of the change in employment status.
Upon enrollment in the health plan itself, covered individuals are given an “initial notice” by the group health plan. This notice will inform the participants of their rights under COBRA. Once a qualifying event occurs that allows the employee and / or their covered dependents to continue their COBRA coverage, the affected individuals will receive a “qualifying event” notice. This notice will give information on the individuals’ rights and obligations under COBRA, as well as will provide premium information should they wish to continue benefits and a deadline as to when a decision must be made.
Other Alternatives to COBRA Coverage
In most cases, the cost of continuing health insurance benefits through COBRA can be fairly high. This is because unlike when the individual was employed, the employer has no future obligation to pay any portion of the health insurance premium. Therefore, the full cost of coverage is up to the employee and / or their dependents.
In addition to the cost of the coverage itself, there is an additional 2 percent added to the cost of the COBRA premium. This helps to fund the administrative fees and other associated costs of offering the coverage to persons who are no longer employees of the covered company.
Because of the high cost of coverage, many individuals and their dependents opt to obtain coverage through either a temporary or long-term health insurance plan on their own. In many cases the cost for comparable benefits may be less by going this route.
Temporary Health Insurance Coverage
If an individual knows that his or her need for health insurance will only be temporary, then a short-term health insurance policy may be the best way to go. These policies often provide a full range of coverage at a premium cost that may be quite a bit lower than COBRA.
Coverage limits on these plans can be attractive – sometimes up to $2 million in total benefits. And, should the applicant have no substantial health issues, they may qualify for coverage within just a day or two of applying.
While a short-term or temporary health insurance plan typically only lasts up to 12 months, this is likely the best option for someone who will soon qualify for health insurance coverage under a new employer’s plan.
Stand-Alone Health Insurance Plans
If the need for health insurance will be longer than 12 months and the cost of COBRA benefits is prohibitive, then a stand-alone health insurance policy may be a good option. Oftentimes an individual or family can pick and choose the benefits that are right for them.
In addition, because both temporary insurance plans and COBRA coverage has time limits, a stand-alone plan can provide peace of mind in knowing that benefits will not end on a certain date. This can be especially important for those who may acquire certain health related conditions within that time frame.
A good way to decide whether a stand-alone plan or COBRA will be the best option is to do a side-by-side comparison of the actual benefits offered with the associated premium that will be due.
In addition, it is always a good idea to contact a local health insurance professional before making a final decision. This way, all related questions can be answered and specific details about benefits can be explained.
