COBRA Continuation Health Coverage: An Overview
In 1986, congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) as a way to ensure former employees, their spouses, and dependents continue to have access to quality health insurance coverage at group rates during times of transition, such as a lay off (I probably should have included “sign up for COBRA” to my list of 11 things to do immediately when you get laid off). What this means is that if you lose your job, you are eligible to keep your former insurance coverage for a specified period of time, typically 18 months.
It is important to note your employer will no longer be required to subsidize your coverage, so that means you pay the full cost, not just what was coming out of your paycheck before separation. However, the group rates COBRA affords you will often be lower than what it would cost to purchase an individual policy, especially if you aren’t in peak physical shape. Tomorrow, I will cover how to sign up for COBRA continuation health coverage. For now, here are some basic facts of the COBRA program.
How Do I Qualify For COBRA?
In general, you qualify for COBRA if you were separated from your previous employer for any reason other than gross misconduct. In other words, unless you did something really, really bad, you’re eligible. Additionally, said coverage must still be in effect for active employees. If your former employer terminates health benefits entirely (in a total jerk move), you will lose your COBRA benefits. It is also important to note that firms with under 20 employees usually aren’t bound by this law. Small-company employees beware.
How Do I File For COBRA Benefits?
I’ll go over this in detail in tomorrow’s post, but for now you should know you only have 60 days from the time of termination to elect to receive COBRA. Don’t procrastinate.
Can I Extend My COBRA Benefits?
Yes, if you are disabled.
If I Waive COBRA Coverage Initially, Can I Change My Mind Later?
Surprisingly enough, yes! You can change your mind at any time before your 18 months are over.
When Does COBRA Coverage Begin?
Immediately. Coverage is retroactive to the date of termination.
For more information on COBRA, check out the U.S. Department of Labor’s COBRA FAQ.
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A very attractive and significantly lower cost alternative to Cobra continuation coverage is an individual health insurance policy which can be purchased for one person or for an entire family on the open market. The reason that these types of policies are inherently cheaper is because you can design the plan to meet your personal budget.
The problem with Cobra continuation coverage is that you are continuing a health insurance plan that was designed and purchased by someone else. Specifically your former employer. The decisions made during that purchase were much different than the decision that a family must make when purchasing their own health insurance coverage without the help of their former employer (who used to pay a significant portion of the monthly premium as an employee benefit). Cobra continuation plans typically have very low calendar year deductibles (e.g. $250 or $500). The lower the deductible, the higher the premium. When you design your own individual health insurance policy you can raise the calendar year deductible and lower your premium drastically whilst retaining all of the “first dollar” benefits that are normally included with Cobra continuation coverage.
“First dollar” benefits are defined as “benefits you receive WITHOUT paying your calendar year deductible (e.g. outpatient doctor office visits, outpatient generic and brand name prescription drugs, outpatient preventative care or wellness coverage and accidental injuries). All of these “first dollar” benefits are covered WITHOUT paying your calendar year deductible first. Typically only a small “co pay” ($25 or $30) is required at the time of service. This being the case, it is much wiser to choose a high deductible plan (e.g. $2,500 per calendar year) with $5,000,000 major medical coverage per family member instead of paying twice the premium (or more) for Cobra continuation coverage. Doing so will protect each family member just as well as Cobra continuation coverage whilst also maintaining all of the aforementioned “first dollar” benefits found on most Cobra continuation plans.
A common misconception is that individual health insurance plans do not cover “pre-existing conditions”. Whilst this can be the case with some carriers (e.g. Blue Cross Blue Shield.) There are many quality insurance carriers who actually cover controlled conditions such as Hypertension (High Blood Pressure) & Hyperlipidimia (High Cholesterol) from day one, including the medication one uses to control such conditions. This being the case, if you and your family are reasonably healthy people there is no reason to throw your money away by paying an inflated Cobra continuation premium. After all, isn’t it better to pay a bit more IF you actually end up in the hospital, then pay twice the premium (or more) each and every month for fear that one day you will?
What if you have tried to obtain individual health insurance coverage and have been declined for a pre existing condition more serious that the two aforementioned conditions? Are there still options to Cobra continuation coverage? Indeed there are. The options are threefold. They are as follows:
1.) State Insurance Risk Pool Coverage provided under HIPAA that provides seamless continuation coverage for pre existing conditions such as Diabetes or Cancer after your Cobra continuation coverage expires. Not all states have insurance risk pools but many do. To find out which ones do visit: http://www.naschip.org/states_pools.htm
2.) Small Group Health Insurance which contains the all important “Guaranteed Insurability” clause. This option can be elected with a minimum of two people (often husband and wife) who work for the same company. Must have corporate tax ID number and both “employees” must work 30 hours or more.
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3.) HIPAA qualified “Defined Benefit” Health Insurance policies. These policies (recently advertised on the Fox news channel) are issued on an individual basis to anyone regardless of medical history. Whilst these plans offer limited benefits, they will cover pre existing conditions such as Diabetes or Cancer from day one providing you have proof of prior coverage of 18 months or more with no lapse in coverage of more than 63 days.
Great info! Thanks!