Health Insurance

How Does Cobra Work If I Get A New Job

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 20 minute read

A characteristic of the American healthcare system is the dependence of most Americans on their employers to provide health insurance. More than 55 percent of Americans have health coverage through an employer either their own or a family member’s, according to the United States Census Bureau. 

One major drawback of this setup is that if you are laid off from your job, you will also lose your health insurance. Economists coin the term “job lock” to describe the situation in which workers refuse to leave their positions while feeling unhappy in them solely for the sake of the health insurance they provide.

The Consolidated Omnibus Budget Reconciliation Act, or COBRA, was the first legislative attempt to address this issue and was passed in 1986. Those who have lost their jobs but wish to maintain their health insurance coverage may do so by paying the whole payment individually, as is permitted by the new law. 

Although temporary, the coverage provides peace of mind while job seekers wait for offers that include health insurance.

COBRA is less important now than it was in the 1980s. By establishing standardized insurance exchanges, the Patient Protection and Affordable Care Act (ACA) of 2010 simplified the process of shopping for individual health coverage outside of the workplace. But COBRA insurance is still out there, and it can be a good substitute for a marketplace plan in some scenarios.

How COBRA Insurance Operates

COBRA is not a government-run health care program like Medicare or Medicaid. Basically, it’s merely a rule that mandates insurance providers to keep their customers for longer. Essentially, it mandates that those who offer group health plans must let employees keep their coverage even after they leave their employer.

If an employee loses their corporate health insurance, they may qualify for COBRA benefits. People who are set to lose their employer-provided health insurance because they have lost their jobs changed jobs, or curtailed their hours of employment can keep it if they are willing to pay the entire premium. 

In addition, COBRA can be used to continue health insurance for the covered employee’s dependents if they were previously enrolled in the employee’s health plan.

COBRA insurance is only in effect for a limited time. As a rule, it can endure for up to 18 months. However, in some cases (described further down), former employees and their dependents can continue their COBRA coverage for up to 36 months. 

That buys them more time to secure alternative health insurance or new employment with better benefits, like Medicare. Several government departments are responsible for overseeing compliance with COBRA regulations. 

This includes, but is not limited to:

  • United States Treasury. COBRA rules, including those for participation, insurance, and premiums, are set by the Internal Revenue Service (IRS). This regulation is enforced jointly by the Labor and Treasury Departments.
  • Department of Labor of the United States (DOL). This section makes sure private-sector workers know what they’re entitled to under COBRA and how to apply for it. On the website, staff members can find extensive resources for understanding and using COBRA.
  • HHS, or the United States Department of Health and Human Services (HHS). The provisions of COBRA that are relevant to health insurance provided by state and municipal governments are managed by HHS.

The COBRA Eligibility

Any person who was previously covered by a group health plan and later loses coverage due to a qualifying life event is entitled to COBRA continuing coverage from their former insurer. This includes current and past spouses and dependant children of the former employee.

There are three basic criteria that must be met in order to qualify for COBRA coverage:

  1. Your plan qualifies for COBRA.
  2. You have lost coverage due to a qualifying event.
  3. You are a qualifying beneficiary.

COBRA-Eligible Programs

As a result, not all employees are entitled to COBRA continuing coverage. Group health plans, which are defined as plans offered by an employer to cover the cost of medical care for employees and their families, are the only plans to which the law applies. 

Plans that pay for care directly from the employer’s assets are included here as well as health insurance, managed care, and health maintenance organizations (HMOs). In addition, how medical care is defined is crucial. 

All or some of the following must be covered by a group health plan in accordance with the law:

  • Inpatient and outpatient hospital care
  • Doctor visits
  • Surgery
  • Prescription drugs
  • Dental care
  • Vision care

Insurance against death or incapacity, however, does not fall under that category. The COBRA law does not apply to plans that only offer these benefits. Access to COBRA is not ensured even if you have a corporate health plan, so don’t assume anything. 

COBRA is limited by federal law to group health plans provided by private firms with 20 or more employees or by state and local governments. Religious groups, some nonprofits affiliated with the church, and the federal government are exempt. 

Federal employees, however, have access to coverage extensions under a law comparable to COBRA. Get in touch with your agency’s human resources department if you work for the federal government and want to know more about extending your health benefits.

Furthermore, some states have their own COBRA-like statutes, often referred to as mini-COBRA laws. Insurers may be compelled by such legislation to continue covering former workers at firms with fewer than twenty active employees. Get in touch with your state insurance commissioner’s office to learn about mini-COBRA regulations.

Qualifying Events

There must have been a qualifying event for you to lose your health insurance coverage and so be eligible for COBRA. This could refer to something that occurs with your own plan or with the plan of someone else you’re relying on.

Group health insurance eligibility requirements for employees include the following:

  • The termination of employment for any reason other than gross misbehavior. If you lose your job due to resignation or layoff, for instance, you may still be covered by your employer’s plan. Although you are not protected by the law if your employer terminates you for theft on the job.
  • Having your eligibility for the group plan terminated because of a decrease in your hours worked. When this happens, it’s common to shift from full- to part-time employment. It makes no difference whether your hours were cut for you by your employer or you made the decision to reduce them yourself.

These also count for your spouse and any children who are financially reliant on the group plan. The other incident that causes them to lose access to your company’s plan makes them eligible for COBRA. 

For example, if

  • If you pass away, your dependents will no longer be eligible for health insurance under your plan.
  • If you become Medicare-eligible, you will no longer be able to maintain your current health coverage via your employer.
  • After a divorce or legal separation, the ex-spouse can no longer be claimed as an eligible dependent.
  • If your child is too old to be considered a dependent on your health insurance, they will no longer be covered by it. When a child reaches the age of 26 under the ACA, this occurs.

Candidates for Beneficiaries

It’s easy to tell if someone is a COBRA-eligible beneficiary. Until a qualifying event happened, you were eligible for group health insurance coverage, making you a qualifying beneficiary. 

Anyone who meets the following criteria is considered a qualified beneficiary:

  • A covered employee. This includes independent contractors who are covered by an employer’s plan.
  • The employee’s spouse or former spouse.
  • The employee’s dependent child.

Ex-employees and their dependents are not eligible to be qualified beneficiaries under a group plan if they left the company before the qualifying event. You and your family may be eligible for COBRA coverage if you are a retiree who loses their retiree health benefits due to the bankruptcy of their former company.

Additionally, if you have a child or adopt one during the time you are receiving COBRA benefits, the child is eligible for family coverage under your plan. Your child is legally entitled to be added to your COBRA coverage, and the insurance company must comply.

Advantages of COBRA Insurance

COBRA continuation coverage is required by law to offer the same comprehensive health care benefits to eligible beneficiaries as are offered to active employees and their families. As a rule, this is the same protection you received under your previous group plan.

Nothing changes with regard to your deductible, co-pays, or coverage maximums. For the same cost, you can keep seeing your current doctors and using your current drugs. If your health insurance claim is denied, you can file an appeal following the same steps you took before.

If, as an employee, you were given the choice to select from numerous plans, you will have the same flexibility when selecting a COBRA plan. Similar to currently employed individuals, you have the opportunity to switch health plans during the annual open enrollment period. 

Former employees have the same flexibility as present workers when it comes to selecting among available health insurance plans following a change in the company’s health plan offerings.

Time Frame of Coverage

The length of time you are eligible to receive COBRA benefits after losing your old group plan is determined by the date and circumstances under which you lost your coverage. You can keep your coverage for up to 18 months if you lost it because you lost your job, quit your job, or reduced your hours of employment. 

Your coverage extension request includes your spouse and any children who are financially dependent on you. The rules change, though, if you became Medicare-eligible less than 18 months before terminating your group coverage. In this scenario, you no longer require individual health insurance but your family will not be covered under your new plan. 

You can keep your family covered for up to an additional 36 months after you become eligible for Medicare. A standard period of coverage for any other covered occurrence is 36 months. COBRA can be used for up to 36 months following a covered employee’s death, divorce/separation, or dependent child turning 26.

COBRA coverage is not needed to be maintained for the full maximum time. If you find new employment or obtain insurance through any other means, you are free to cancel your membership at any time. 

As an additional downside, your health insurance may terminate your coverage before its normal expiration date in certain circumstances. 

That’s a possibility if:

  • You don’t pay your premiums in full and on time
  • Your former employer stops offering a group health plan;
  • You get coverage under another group health plan.
  • You become entitled to Medicare.
  • You engage in fraud or any other conduct that would allow the insurer to cut off coverage for a current employee of your former employer.

In addition, there are certain circumstances that allow you to keep your COBRA coverage in effect for longer than the standard 18 months. As an example, if a family member becomes disabled, coverage can be extended for them and their dependents for an additional 11 months. 

If another qualifying event occurs during your 18-month COBRA extension, you will be eligible for an additional 18 months of coverage. The Department of Labor has a comprehensive guide about COBRA that you can consult for more information.

The expense of COBRA Insurance

The expense of COBRA can differ from plan to plan because all it does is prolong your current coverage. However, under COBRA, most people may expect to pay far more for health insurance than they did when they were still employed. 

The reason for this is that the majority of companies only require their workers to contribute a small percentage of the total cost of health insurance.

COBRA Premiums

You cannot be charged more than 102 percent of the premium you were paying before the qualifying event for the continuation of your health insurance coverage under COBRA. 

Nonetheless, that includes the full amount it charged, not just the out-of-pocket cost. The employer’s contribution, which is often more than half of the total, is also included. Large corporations in 2019 covered over 70% of their employees’ health care costs, as reported by the Society for Human Resource Management. 

So if your monthly premiums for health insurance were $400, your employer would have paid around $280 and you would have paid about $120. If you choose to continue your coverage via COBRA, however, you would be responsible for the full $400 every month, which is more than three times the amount that was deducted from your paycheck before.

Cobra coverage, on the other hand, would set you back a little more money. Previously, we established that your COBRA premium cannot be more than 102% of your former cost. This includes both your and your employer’s contributions, as well as an additional 2% administrative fee. With this 2% surcharge, your monthly premium will be $408.

And this sum may increase in the future. If your former company decides to transfer to a different group plan with higher rates, you will be responsible for paying the difference in premiums as well as the 2% administrative charge. If your prior employer’s premium increased to $450 per month, for instance, the average employee would pay only $135, but you would be responsible for $459.

The good news is that the initial COBRA premium payment is not required straight away. You have 45 days from the date of your COBRA enrollment to pay your first premium. Every subsequent payment has a 30-day grace period. 

If you miss a payment, your insurance company may temporarily cancel your coverage; but, if you pay during the grace period, your coverage will be reinstated. But if you don’t pay before the grace period’s end, your insurance could be canceled permanently.

Medical Insurance Tax Credit

The Health Coverage Tax Credit is a federal tax credit that can be used to reduce the out-of-pocket expense of continuing your group health insurance through COBRA. In the event that you are eligible for this credit, it will cover the cost of 72.5 percent of your health insurance premiums. If your COBRA premiums regularly total $408, you will only be responsible for $112.20.

There are two groups who qualify for this rebate:

  • Beneficiaries of the Trade Adjustment Assistance (TAA) Program are those who have lost their jobs as a direct result of freer trade between nations.
  • Those who are presently receiving pension payments from the Pension Benefit Guaranty Corporation

Additionally, qualified family members of people in either group can claim the tax credit upon the death, Medicare enrollment, or divorce of an insured family member. They have up to 24 months from the event to submit the necessary paperwork for the credit.

You can claim this tax credit in one of two ways. It can be claimed on your tax return at the end of the year, or you can ask for a monthly advance payment to go toward your health insurance premiums. Visit the IRS website for further details on the Health Insurance Tax Credit.

How to Sign Up for COBRA

Due to the fact that COBRA is a private insurance plan, the enrollment process differs depending on the provider chosen. To be sure, there are rules that must be followed because they were established by the federal government. 

It mandates that group health plans establish policies for the provision of COBRA coverage, the enrollment of beneficiaries, and the termination of such coverage. 

The law also mandates that all employees in a group health plan be given written information regarding their rights under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).

Notice Policies

You, your employer, and your group health plan are all required by federal law to give alerts about COBRA at different times. 

That includes, but is not limited to:

  • Brief Outline of the Strategy. A Summary Plan Description (SPD) must be made available to you when you enroll in a group health plan. All of the plan’s details, as well as your rights and obligations under the plan, including as your continuation coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) options, are detailed here. You are entitled to receive an SPD from the insurer no later than 90 days after you become a plan participant.
  • Disclaimer Concerning the COBRA Program. Similarly, the plan has 90 days to notify all employees and their spouses of their rights under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). Both the SPD and a separate document can serve this purpose. This notice must explain how to notify the plan of a qualifying event and provide a general summary of the COBRA coverage the plan provides. There needs to be a way to get in touch with the organization for clarification, so make sure to include contact details.
  • COBRA Notification of an Eligible Occurrence. Any time you or your employer experience a covered occurrence, you must notify your insurance company immediately. If you or a member of your family loses health insurance because you quit your work, retire, become eligible for Medicare, or die, your employer is required to notify insurance companies and any other organizations that get payments from them. If the company goes bankrupt, your employer is also obligated to let the plan know. If your marital status changes, such as when you are divorced or legally separated, or if your child is no longer considered a dependant, you must inform the plan. When any of these events occur, participants should follow the procedures outlined in the SPD and the General Notice. If you haven’t received this information from the plan, you can still submit a notice by getting in touch with whoever manages employee benefits at your workplace.
  • A Notification of Eligibility to Elect COBRA Coverage. A group plan has only 14 days from the time it learns of a qualifying event to notify each qualified beneficiary and request their vote on the plan’s future. How to elect (sign up for) continuing coverage is outlined in this notification. In it, you should find all the details you need to decide whether or not to enroll in COBRA, including the associated costs.
  • COBRA Advise that Continuation Insurance is Not Available. Group health plans have the right to refuse your request to continue coverage under COBRA in certain circumstances. If this occurs, you will be notified of the denial and given an explanation for it within 14 days.
  • COBRA Revocation of Continuation Insurance Effective Date Notice. If your COBRA coverage is terminated early, the plan is required to notify you as quickly as possible, usually because you have not paid your premiums. If your insurance is going to be canceled, you have a legal right to know why, when, and how you can get another policy.

The Electoral Processes

Plans are required to provide participants with at least 60 days to decide whether or not they want COBRA coverage. If your employer’s coverage stops before the 60 days are up, the period begins on the day the COBRA election notice is sent.

Everyone in your household has the option to sign up for COBRA coverage on an individual basis. If you and your spouse are both eligible for COBRA coverage, but you and your spouse want different plans, each of you can have your choice of coverage. 

If both you and your spouse decide to go with COBRA, however, just one of you needs to fill out the enrollment paperwork. You can also sign up on behalf of any minor children who live with you.

To inform the plan administrator of your COBRA election, you need only follow the steps included in the election notice. You will be covered from the moment you become eligible until the day you enroll. Your monthly payment due date and address should be specified in the election notice. 

Your initial payment is due in 45 days, as previously stated. You can change your mind and re-enroll in COBRA coverage at any point throughout the election period even if you initially decide to waive coverage. Your coverage will resume on the date you revoke your waiver if you do this.

Additionally, if you are a part of the TAA program, you are eligible for a second COBRA enrollment period. From the first of the month in which you start collecting TAA benefits, this time frame lasts for 60 days. The relevant information can be found in the DOL manual.

Advantages and Disadvantages of COBRA

The primary advantage of choosing to continue your health insurance coverage via COBRA is that you can maintain your current health care coverage without changing anything. You and your loved ones can keep going to the same doctors, using the same pharmacy, and taking the same drugs at the same low, affordable prices. 

The processes you follow to make a claim are also unaltered. As difficult as it is to adjust to life after a job loss or other circumstance that would make you eligible for COBRA, it is comforting to know that your health insurance coverage will continue without interruption.

Keeping your current employer-sponsored health insurance plan is preferable to switching to an individual plan because group plans often offer more extensive provider networks. If you do a lot of out-of-state traveling, this could be useful.

The expense involved with continuing COBRA coverage is its main drawback. In 2020, an individual’s share of the cost of group health insurance premiums is expected to be $7,470 ($622.50 x 12 months), as reported by the Kaiser Family Foundation (KFF). 

As a matter of course, most workers don’t pay this much because their employers foot the bill for a sizable portion of the expense. However, under COBRA, you are responsible for covering 100% of the premium.

According to the KFF, the average monthly premium for a 40-year-old purchasing a Silver plan on the ACA health insurance marketplace in 2020 was only $442. Further, many consumers who purchase plans via the marketplace are eligible for subsidies that further reduce the price. 

In 2020, a 40-year-old making $40,000 per year paid an average of $307 per month for a Silver plan after subsidies, while a 20-year-old making $20,000 per year paid an average of $60 per month after subsidies.

The fact that COBRA coverage is just temporary is another major drawback. In most cases, its duration is 18 months and never goes above 36 months. 

You’ll have plenty of time to locate a new job with health insurance if that’s your goal, but if you’ve quit to pursue more education or go into independent work, COBRA won’t be able to guarantee you continuous coverage.

COBRA alternatives for health insurance

After losing their jobs, many people relied on COBRA when it was initially enacted in 1986. While this may have been the case in the past, nowadays there are many alternative coverage options available. 

Check out these other insurance options before signing up for COBRA, since you may be able to save money.

1. The Workplace Plan of a Relative

If you or your dependents lose coverage under your current workplace health plan before the open enrollment period, HIPAA allows you to switch to another group plan immediately. This law was passed in 1996. 

During the 30 days following your loss of coverage, you have a special enrollment period during which you can enroll in any dependent coverage plan. If you lose your work but your spouse still has one, for instance, you can become dependent on their health insurance policy. 

In the event that a dependent kid loses coverage under one parent’s plan, that youngster may enroll in the other parent’s plan. Additionally, in some jurisdictions, non-married individuals sharing a household with a married person may qualify for domestic partner coverage under that person’s health insurance policy.

2. The Marketplace for Health Insurance

If you lose your job and health insurance, you can shop for individual coverage on the federal or state health insurance exchange. Private health insurance plans in your area may be researched and compared here in order to find the best one at the best price. 

Find out if you are eligible for tax credits that can lower your monthly premiums and other health care costs, such as deductibles and copayments. There is no bearing on your tax credit standing if you are able to use COBRA.

In the 120 days before and after the day your employer-based coverage ends, you are eligible to enroll in a Marketplace plan during a special enrollment period. Open enrollment occurs annually from November 1st to December 15th, but you can enroll at any time.

You can extend your current coverage through COBRA until the next open enrollment period for the marketplace, giving you time to make an informed decision about your long-term health insurance needs. 

When your COBRA coverage ends, or if you have a qualifying life event like getting married or having a child, you may qualify for a special enrollment period that allows you to switch to a Marketplace plan. 

You will have to wait until the next open enrollment period to enroll in a plan through the marketplace if you decide to terminate your COBRA coverage early.

3. Medicaid and CHIP

If you go to a health insurance exchange, you can find out if you are eligible for government-subsidized health coverage. Medicaid is available, for instance, for low-income and disabled adults. 

Children of families with incomes too high to qualify for Medicaid may still be able to enroll their dependent children in the Children’s Health Insurance Program (CHIP). There is no need to wait for an open enrollment period to apply for Medicaid or CHIP if you or a family member are eligible. 

Your membership begins immediately upon enrollment. The health insurance exchange is where you’ll want to go if you want to enroll in any of these options. 

It is also possible to apply for Medicaid by contacting your state’s Medicaid office. To find out more about CHIP, go to InsureKidsNow.gov or call 1-877-KIDS-NOW (1-877-543-7669).

4. Temporary Insurance

Consider looking into short-term insurance plans if you’ve exhausted all other options for obtaining affordable health coverage. These policies offer shorter durations of coverage at potentially lower costs than comparable marketplace policies. Insurance from AgileHealthInsurance, for instance, maybe had for less than $99 per month.

Unfortunately, the low cost of these plans comes at the expense of substantially less protection than is provided by more conventional policies. The Affordable Care Act (ACA) stipulates that health insurance must cover hospitalizations, doctor visits, prescription medications, and mental health with no annual or lifetime restrictions. 

However, short-term plans are not subject to these provisions. There is no requirement for mandatory coverage under short-term plans, and benefit caps are permitted. The Department of Labor advises against long-term coverage, instead suggesting temporary options. 

It can bridge the gap in coverage when one group health plan ends and another begins, or it can smooth the way from a group plan to a marketplace plan under the Affordable Care Act. On the other hand, you shouldn’t count on short-term insurance policies to provide adequate protection over the long haul.

Bottom Line

After losing your work, COBRA isn’t the only option for continuing your health insurance coverage, and it’s not even the best one in most circumstances. Most people who have lost their jobs can find affordable health coverage through the health insurance marketplace. Subsidies make it considerably more affordable, but even if you don’t get one, it’s still likely to cost less.

Keeping your prior employer’s plan through COBRA, even if it costs more, can be worthwhile in some situations. If you’re undergoing treatment for a life-threatening illness like cancer, for example, it might be worthwhile to spend a little additional money to make sure you don’t have to transfer doctors in the middle of your therapy. 

In addition, COBRA may be more convenient than enrolling in an ACA plan if you need to continue your health insurance coverage but are waiting for a new job with a different health plan to begin.

For those who do not meet the income requirements for a marketplace subsidy plan, COBRA may be an option. In the event that you switch employment and your new company provides you with affordable health coverage but not for your family members, those family members will not be eligible for subsidies under the ACA. 

They may save money in the long run by extending their current coverage under COBRA rather than purchasing a new plan through the marketplace. Compare the costs listed on Healthcare.gov to the amount you would have to pay under COBRA.

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