Health insurance allows us to wake up knowing that whatever lies ahead, be it sniffles or a severe emergency, we can afford the treatment to get us healthy. But, what if you lose your job, get laid off, or have an event that cuts off your employer-sponsored plan? Well, the government does have laws and plans in place to ensure you aren’t left wholly unprotected. One of these ‘laws’ is COBRA or the Consolidated Omnibus Budget Reconciliation Act.
What is COBRA?
Also known as the Consolidated Omnibus Budget Reconciliation Act, COBRA is a fancy phrase for an act that ensures you can continue your health insurance if you lose it, depending on several determining factors. Signed into law in 1985, it was an amendment to the original Employee Retirement Income Security Act. Its purpose was to protect employees from losing health benefits if something occurred to interrupt their employer-based health insurance plans.
How Does It Work?
If you lose your job or have a qualifying life event that affects your employer-based health insurance, you are entitled to keep it depending on determining factors for a set amount of time. Unfortunately, you have to pay for it and it’s usually quite expensive, up to 102% of the cost of the plan. The good news is that your coverage remains the same as it was when you were employed or carried the plan through your employer.
This means you can keep the same network, the same doctors, and the same prescriptions as you had before, your co-pays and deductibles shouldn’t change, just your premiums. While helpful, COBRA isn’t intended to be used long-term and most consumers are only eligible for 18-36 months depending on their circumstances. You can think of COBRA as a supplemental or short-term insurance plan to keep you insured while you find a better option.
Am I Eligible?
Not everyone is eligible for COBRA and not every company is required to comply. In order to be eligible, you’ll need to experience one of several life events that interrupt your health insurance coverage through your employer, below is a list of qualifying life events that would allow you to elect to purchase COBRA continuation coverage, please note, this list is not all-inclusive.
Termination of Employment
If you are laid off, fired, or terminate your employment voluntarily, you may be eligible for COBRA depending on your employer. Employees who commit gross misconduct are not eligible for continuation coverage.
Reduction In Hours
Sometimes a business needs to cut labor costs and an employee will get their hours cut, affecting their health insurance coverage. If your hours are reduced and it affects your ability to maintain your employer-based plan, you may be eligible for COBRA.
Divorce
If you get divorced or separated from your spouse and they held insurance through their employer, you are eligible for continuation coverage of your benefits.
Death
In the event that the individual holding employer-based insurance dies, you’ll eligible for the continuation of your coverage as well.
What Are the Downsides to COBRA?
COBRA wasn’t designed to be a long-term solution to health insurance needs. Instead, its purpose is to protect consumers from a loss of health insurance when no other options remain. There are many pros and cons to COBRA depending on your situation.
It’s Expensive
COBRA is usually the most expensive option if you lose your employer-based health insurance. As mentioned before the cost of COBRA can be up to 102% of the plan, as your employer would no longer be required to contribute to your premiums.
Your Eligibility Is Limited
In order to be eligible for COBRA, you have to meet certain criteria and you only have a 60-day window to continue your insurance. If you do decide within the 60-day window, however, your health insurance will be retroactive. You’ll need to backdate your premiums to the date you became eligible for them to be valid.
Your Network is Restricted
If you lose employer-based health care for reasons that affect where you need coverage, like a new job or relocation to a new state or area, your insurance plan may not cover you in your new location. You’ll only be covered based on your previous network coverage by your employer. This means you may have to pay out of pocket if you can’t find eligible services in your network area.
COBRA Isn’t a Permanent Solution
How long you’re eligible for COBRA depends on a few factors, but typically you can only use continuation coverage for 18 months. In certain circumstances, like if you become disabled or eligible for Medicare, you may be able to continue for up to 36 months. Either way, COBRA won’t continue forever, and you’ll need to find another health insurance option at the end of your term.
The Pros of COBRA
While COBRA is expensive and limited to a certain time period, there are plenty of positives that make COBRA a viable option for many consumers looking to fill the gap between one employer-based plan and another.
You Maintain the Same Coverage
If your employer-based plan provided you with the coverage and network that fit well for you and your family, you’re in luck. COBRA allows you to continue the exact same coverage as before, with no changes to your network. However, if your employer makes changes to the plan offered to their employees, you’ll be affected by the changes.
Your Family is Eligible
Whatever dependents you covered under your employer-based plan will remain eligible under COBRA. This includes spouses, children, partners, and even ex-spouses depending on certain factors.
It Can Bridge A Short Gap
While there are alternatives to COBRA, if you have a short gap between one employer to the next, COBRA can bridge that short-term gap without any changes to your healthcare for an easy transition. You’ll get to keep your same doctors and prescriptions and even maintain the same claims process until you switch to a new plan.
How Do I Purchase COBRA?
If there is a change to your employer-based health insurance and you are eligible for COBRA, your employer is required by law to notify you. If you think you are eligible and haven’t been notified, you should contact your employer or human resources representative if you think you qualify. You’ll have 60 days from the date of your qualifying event to elect to purchase COBRA. You’ll do this through your employer with the paperwork they will provide you. Your human resources representative can walk you through the process if you have any questions.
What Are My Alternatives?
While COBRA makes sense for some consumers, it’s usually expensive and isn’t a long-term solution. If you lose your employer-based insurance you may want to consider a more affordable alternative solution to cover your needs.
The Marketplace
Those eligible for COBRA should first see if they are eligible for a plan through Obamacare on the marketplace. Depending on your income, dependents, and other factors, you could qualify for subsidies and tax credits that lower your premiums. Some consumers pay as little as $10/month for silver plans on the marketplace. All plans offered on the marketplace include ten essential benefits and cover pre-existing conditions.
Catastrophic Insurance
If you have a short gap and are healthy, you may not want to pay the high premiums for COBRA you may want to consider a short-term plan or catastrophic insurance. These plans protect in case of major emergencies or severe injury and illness. They will typically cost way less but won’t cover pre-existing conditions. Each plan will be different and you should investigate what your plan does and does not cover before deciding to go in this direction.
COBRA Can Protect You Short Term
COBRA coverage is confusing to understand but the main takeaway is that in times when you lose employer-based health care and need a short-term solution, it may be beneficial to choose COBRA for a short period of time. If you need a long-term solution or can’t afford the high costs associated with COBRA you should consider alternatives. At Insuraway we can guide you through your options, including marketplace plans that could be the most cost-effective options for you and your family. Contact us at 1-800-764-7186 to talk to an agent right away.
**This information is subject to change, refer to healthcare.gov for more information.
