Everything You Need to Know About Continuation of Health Benefits (i.e. COBRA)
- Lauren Hargrave
- 8 min read
Losing your employer-sponsored health insurance can be a stressful experience because no matter how often you access the healthcare system, maintaining access to insurance, your trusted doctors and prescriptions is essential to your financial and physical health. That’s where COBRA comes in.
In this post we’ll tell you everything you need to know about qualifying, signing up and using your COBRA insurance so that you can shift your focus back to what comes next.
What is COBRA?
In everyday conversation, COBRA is often used as a noun to refer to health insurance you can access when you lose your employer-sponsored plan. But it’s actually part of a law titled: the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985. As part of this law, Congress mandated an insurance program for former employees who’ve lost access to their former employer’s plan. The law applies to private-sector employers and does not apply to former employees of the Federal Government, churches, or church-related organizations.
So, COBRA isn’t an actual insurance plan, it’s the system through which you can maintain access to the health plan you had under your most recent employer. It can cover you, your spouse, and any dependents who were covered under your employer plan. It can also cover your spouse and dependents in the event that something happens to you or you and your spouse separate.
If you were a W2 employee, then you, your spouse and the dependents which were covered under your employer-sponsored health plan can qualify to continue with the same health insurance. However, there are some exceptions to this rule.
If you were a W2 employee and were on an employer-sponsored group health plan for at least one day before you lost access to it, you may qualify to purchase your former employer-sponsored health plan through COBRA. Here are the scenarios in which you would qualify:
- You quit.
- You’ve been furloughed.
- You’ve had your hours reduced below the threshold required to qualify for your employer-sponsored plan.
- You’ve been laid off.
- You’ve retired before you’re eligible to begin Medicare.
- You’ve been terminated for any reason other than gross misconduct.
Former employees can stay on their group health plan through COBRA for up to 18 months. If the covered individual was determined to be disabled at the time of the qualifying event, they’re eligible to receive an additional 11 months of coverage.
One of the great things about COBRA is that it allows for coverage of spouses and dependents who were previously covered under qualifying employer-sponsored plans to retain coverage. The following are the situations in which spouses and dependents can purchase the employer health plan under COBRA:
- The covered parent or spouse has lost their employer-sponsored coverage due to one of the above-mentioned qualifying events.
- When there has been a divorce of, or legal separation from, the covered spouse, the non-covered spouse is eligible to purchase access to the employer-sponsored health plan through COBRA.
- If the covered spouse or parent becomes eligible for Medicare under Title 18 of the Social Security Act, the non-covered spouse and dependents can maintain access to the health plan through COBRA.
- A dependent child “ages out” of eligibility for dependent coverage (i.e. turns 26).
- The covered parent or spouse dies.
Spouses and dependents who lose access to the group health plan can stay on said health plan through COBRA for up to 36 months. If the covered individual was determined to be disabled at the time of the qualifying event, spouses and dependents are eligible to receive an additional 11 months of coverage.
Who doesn’t qualify
If you lose your job due to gross misconduct, you’re not eligible to maintain access to your employer’s group health plan through COBRA. Former employees of small businesses are also exempt from COBRA. Since COBRA is a federal program, most states have what are referred to as “mini COBRA” laws that allow small business employees to retain access to their group health plan. To find out whether your state has a mini COBRA law, you can reference this website.
What does it cover?
COBRA covers all qualifying group health insurance plans (e.g. PPOs, HDHPs, HMOs) for private sector companies. Since COBRA isn’t a new health insurance plan, but is instead the system through which you maintain access to your previous employer-sponsored group plan, your coverage will remain the same. The only thing that changes is the cost.
If you had an employer-sponsored group while employed, your employer likely covered at least a portion of the premium. When accessing this plan through COBRA, you are responsible for paying for 100% of the premium cost. Plus the requisite co-pays, co-insurance and other out-of-pocket costs.
If your plan covered the following types of care, COBRA will also cover them:
- Inpatient and outpatient hospital care
- Physician care and doctor visits
- Surgery and other medical benefits
- Prescription drugs
- Dental and vision care
It’s important to note, however, if your plan did not offer a certain coverage listed above, it won’t be covered by COBRA.
How do you sign up for COBRA?
Here is the step-by-step process for signing up for COBRA:
- You lose coverage due to a qualifying event.
- Within 30 days your employer must notify your health plan of said qualifying event.
- Your health plan has 14 days to send you what’s called an election notice to restart your workplace health insurance.
- You then have 60 days to choose to re-enroll in your former employer’s group health plan.
- To re-enroll, follow the instructions your health plan sends you with the re-enrollment paperwork.
- Once you’ve re-enrolled, you (or your employer if your COBRA coverage is being subsidized) have 45 days to pay your first premium.
- Your coverage begins once your insurance company has received the first premium payment and will be retroactive, covering any medical expenses you incurred before your COBRA plan began. So keep the receipts to submit for reimbursement.
- All your health plan details including co-pays, co-insurance and health cards will remain the same as they were for when you were employed.
Your coverage under COBRA can expire before the 18 or 36 month window is up if any of the following occur:
- Your premium isn’t paid in a timely manner.
- Your employer stops maintaining any group health insurance for the company.
- The qualified beneficiary (i.e. the former employee, spouse or dependent) begins health insurance coverage under another group health plan.
Is it expensive?
It can be. But, depending on both the cost of your plan and the amount of regular medical care and/or prescriptions you take, it could be less expensive overall than purchasing a plan in the private market. The reason being, employers are usually able to negotiate lower premium rates than individuals because they have more leverage, and that coverage tends to be more comprehensive than individual plans at the same price point.
Like anything related to healthcare, the cost of COBRA will depend on where you live. Here you can find the average cost of COBRA-accessed health insurance by state to give you a rough idea of what your cost will be. You won’t find out the actual cost of COBRA coverage until you sign up.
Alternatives to buying health insurance through COBRA include: buying short-term health coverage or buying a plan in the private market.
Should you buy a healthcare plan or COBRA?
Whether or not you should buy a private health plan or stick with your group health plan through COBRA is a personal decision that will depend on your individual circumstances. But here are some instances when it might make sense to keep access to your former employer’s health plan:
- You or your spouse or dependents have pre-existing conditions. Short-term health plans don’t cover pre-existing conditions, so buying one of these plans could result in high out-of-pocket costs if your pre-existing condition requires active treatment.
- You or your spouse are pregnant or planning on becoming pregnant.
- You or your spouse or dependents regularly take prescription medication.
- You or your spouse or dependents have a chronic condition that needs managing by a specialist.
- You don’t want to lose access to your doctors.
- You’ve been declined for private health insurance recently.
- You’ve had an accident within the previous 60 days.
- You’ve received medical advice that you should undergo a medical procedure in the near future.
- You got a new job and your employer doesn’t offer health insurance.
It might not make sense to buy coverage through COBRA if any of the following are true:
- You don’t access the healthcare system that often.
- You don’t have pre-existing conditions.
- You want continual coverage at a lower cost.
- You aren’t pregnant or planning to become pregnant.
- You’re not taking any prescriptions.
Continuing HSA contributions
If you had an HSA with your previous employer, we’ve got great news. Since you own your HSA, you never lose access to your contributions. And if you want to continue contributing to your account after you lose your employer-sponsored health insurance, you can do that through COBRA unless you become covered by a healthcare FSA. Your contributions lose their tax-exempt status but you gain the ability to pay for your premiums with your HSA.
Losing your job can be a stressful time, but COBRA is there to help ease the transition into what’s to come. If you can’t afford COBRA or you decide it’s not the right fit for you, you can find plenty of health insurance options on Healthcare.gov or with one of the private short-term insurance providers in the market. Either way, as long as you maintain a High Deductible Health Plan (HDHP), you can continue to contribute to your HSA and keep your health savings growing. If you have questions about your Lively HSA, or you’re interested in starting one, reach out today!
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.