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Health Insurance: Part 3 – COBRA Coverage

This is Part 3 of a series on health insurance. Part 1 discussed deductibles. That post discusses  how they affect your plan and costs. Part 2 discussed stop-loss provisions and co-insurance.

The Consolidated Omnibus Budget Reconciliation Act of 1985 or COBRA, is a set of provisions that require some employers (those with 20 or more employees) to continue health insurance coverage for employees after termination of employment.

Termination of Employment

Under COBRA, the employer must offer continued health insurance coverage for 18 months from the date of termination or demotion to part-time.¬† If the employee was fired due to “gross misconduct”, COBRA benefits do not have to be offered. COBRA coverage can be terminated before the 18 month period if any of the following occur:

  • the employer terminates the health plan for all employees
  • the employee neglects to pay the required premium
  • the employee becomes covered under a new medical plan (however, if pre-existing conditions are excluded on the new plan, the employee must be allowed to continue COBRA)

The employer is allowed to require the employee to pay for some of the costs of COBRA coverage. However, they are not allowed to charge more than 102% of the cost of the insurance.

Disability

If termination is due to disability, coverage must be allowed to be continued for up to 29 months. All of the requirements set above are still applicable.

Other Options

There are several other events where an employer must offer 36 months of continued coverage to an employee or their beneficiaries. These events include:

  • death of employee
  • divorce or legal separation of the employee
  • employee’s entitlement to Medicare
  • bankruptcy

Recommendations

COBRA can be a very beneficial for many individuals, especially in these tough times. If you lose your job, check with your previous company about COBRA coverage. The coverage may be more expensive than you are accustomed to, but may be considerably less than if you were to purchase individual coverage. It also allows you to avoid the possibility of having pre-existing conditions placed on your new policy. For example, if you were recently treated for cancer, your new policy may not cover you for those related expenses. COBRA coverage may help ensure that those expenses are covered for a period of time.

Has anyone had a specific COBRA experience they would like to share?