How COBRA Coverage Works

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One of the most significant financial impacts of a job loss is finding yourself without access to health insurance coverage through your former employer. In many areas of the United States, basic health insurance premiums for one person can cost upwards of $500 per month — and that number is is even higher when you have dependents added to your plan. What can you do to access affordable health insurance in the event that you lose your job?

The Consolidated Omnibus Budget Reconciliation Act, or COBRA, offers an option. This law allows you to continue your healthcare coverage after a loss of employment or loss of eligibility for employer-based health insurance. If you’re about to leave your job or have recently experienced job loss, it’s important to learn more about how COBRA coverage works and carefully consider whether it could be a suitable option for maintaining your health insurance.

What Is COBRA?

COBRA got its name in part because Congress passed it faster than normal to start funding the law’s provisions. Today, people use the term COBRA to refer to the continuation of employer-based health insurance coverage that this act made possible.

When you lose your eligibility for health insurance through your employer, COBRA allows you to keep your health insurance coverage for a period of time even though you’re no longer working at that job. You have to opt-in for coverage through COBRA; you’re not signed up automatically. This form of continuing health coverage often costs more than what you might’ve been paying while you were employed. Because employers don’t subsidize a portion of COBRA premiums, you may have to pay the full cost of your health insurance premiums if you get coverage this way. There have been points in history, usually during economic downturns, when the government paid a portion of COBRA premiums for people who qualified. 

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You can qualify for continuing coverage, or COBRA insurance, under specific circumstances. You had to have been previously receiving employer-based health insurance coverage and then recently become ineligible for that program. This type of health insurance coverage applies to you as the employee as well as your dependents who received health insurance coverage because of your employment. 

In addition to having a qualifying circumstance, you must have also have been receiving employer-based health insurance from an employer that is subject to COBRA. Depending on the laws of the state where you live, businesses with fewer than 20 employees may not need to offer access to COBRA coverage. COBRA doesn’t apply to employment at most churches and religious entities. Regardless of the size of the business, COBRA always applies to government employees. 

Most people get COBRA coverage because they lost a job. This applies to people who were fired, were laid off or decided to quit. You could become eligible for COBRA while still employed at the same company that offers health insurance if a change in your role disqualifies you for coverage through your employer. 

For example, a corporation might only offer benefits to full-time employees. An employee who transitions from a full-time role to a part-time position within the same company can continue receiving the same health insurance for a period of time through COBRA, even though their change in scheduling leaves them ineligible for their employer’s health insurance program. Other businesses sometimes only offer health insurance to certain job roles. An athlete who retires from playing and becomes a coach for the same team may be eligible to purchase COBRA coverage, even if the team only provides health insurance to athletes.

Dependents of an employee who’s passed away can also be eligible for continued health insurance coverage through COBRA. Even in the case of a divorce, the individual who’s no longer eligible for insurance due to their former spouse’s employment can receive coverage. Adult children can receive COBRA benefits under their parents’ plans, even if their parents are still employed. Children older than 26 are no longer recognized as dependents, but they can pay for COBRA to keep the same health insurance for up to three years.

How COBRA Coverage Works Initially 

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After losing eligibility for your employer’s health insurance group plan, your employer (or former employer) should send you a notice about the COBRA coverage available to you. The notice explains how long you’re eligible for coverage, how much the monthly premium will cost and how to enroll. Dependents who lose coverage due to divorce or aging out may not receive a notice. Instead, they may need to inquire about coverage on their own. At a minimum, COBRA lasts for 18 months. In some situations, you can keep your coverage for three years.

There’s always an individual enrollment period for COBRA. If you decline coverage or fail to make a choice during your enrollment period, you permanently lose your right to this type of coverage. If you do enroll, all rights to receiving health insurance coverage through your employer stop at the end of your COBRA continuation period.

What Are Some Pros and Cons of COBRA Coverage?

Even if you qualify for it, COBRA isn’t your only option for obtaining healthcare coverage. If you lose your job or your eligibility for health insurance through your job, you’re also eligible for immediate coverage through the Health Insurance Marketplace, even outside of the open enrollment period. If you quickly obtain a new job, you may opt to receive coverage through your new employer. You could also choose to pay out of pocket for a private health insurance policy that you seek out on your own. 

Each household is different, and insurance prices vary by region. The number of dependents who need your health insurance coverage and your family members’ health status will likely play a role in your decision-making process. In general, COBRA is a great option when you don’t have access to more affordable alternatives. If your household meets certain income thresholds, you may be eligible through the Marketplace for premiums that are cheaper than what you had while employed. On the other hand, if you have higher income or more individuals to insure, you may opt for COBRA because it could cost less than paying out of pocket. 

Some people choose COBRA even when it’s not the more affordable option because having the same coverage ensures that they won’t have any interruptions in their access to medical care. If you or your dependents are in long-term therapy, like speech therapy or chemotherapy, it’s wise to think twice about changing your health insurance policy mid-treatment. After this type of change, the medical professionals who currently provide your treatment may become out of network. Or, your copays may increase to an unaffordable level.