Great days ahead! You just signed an offer for your dream job! You are excited and making preparations to begin the journey of a lifetime! Then you realize there is a lag in the insurance benefits enrollment at your new company. What to do? You don’t want to go uninsured. You aren’t sure of the proper course of action for yourself and your family, so what’s next? In your search for solutions you come across COBRA Insurance and begin asking, is it worth it? Is it the best option for your family? Not sure, yet? Not to fear, this article will cover the details about COBRA insurance and help you make a wise decision.
What is Cobra insurance?
First things first, prior to determining if COBRA is right for you, you must know exactly what it is and what it is not. According to the United States Department of Labor the Consolidated Omnibus Budget Reconciliation Act better known, as COBRA is an act that gives workers and their families who lose their health benefits the flexibility to continue group coverage benefits. Just what you were looking for, right? Maybe, or maybe not. While COBRA provides an option for continuous coverage please note COBRA is not an insurance company and it is not a long term coverage solution.
The act requires most group health plans to provide a temporary continuation of group health coverage. COBRA generally applies to all private sector group health plans maintained by employers that have over 20 employees (part and full time). Group health plans covered by COBRA are sponsored by private sector employers but are generally governed by the Employee Retirement Income Security Act of 1974 better known as ERISA. COBRA coverage must be offered to employees, spouses, former spouses and dependent children after a qualifying event.
Simply put COBRA is a way to ensure health coverage for a specific period of time in the event you wouldn’t otherwise have health coverage. Although the coverage plans are funded by the private sectors and the company’s that elect to participate in the plans the act is regulated to ensure there is a level of consistency and accountability. This ensures in the event of job loss or transition you have an option for continuous health insurance. COBRA provides temporary continuous coverage but the key word to remember is temporary, COBRA coverage has a maximum term. The goal of COBRA is to be an asset to you and your family, but is COBRA right for you? Should you fund a Roth IRA instead of shelling out the premiums for COBRA?
How Does COBRA insurance work?
COBRA grants insurance coverage for a limited amount of time due to particular circumstance such as: voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce or other qualifying life events. If there is a qualifying life event such as termination or reduction in hours of employment the employer is responsibility for the eligibility reporting and must notify the plan within 30 days of the qualifying event. For example, if your number of employment hours are reduced or you are terminated for reasons other than gross misconduct your employer/former employer has 30 days from the date of the qualifying event to notify the plan.
This means if there is an employer caused qualifying event (an event in which you had no control over) such as reduced hours or termination it is the employer responsibility to notify the COBRA plan of your recent eligibility. In the event of qualifying events that are life changes such as divorce, death of spouse who was the insurance provider, or change in dependent status it is your personal responsibility to notify the COBRA plan of your change in eligibility. Remember, you have 30 days from the qualifying event to notify COBRA.
Once the plan is notified you are required to receive a general notice from the COBRA plan. This notice acknowledges their receipt of your change in eligibility. Once you are provided a COBRA general notice you have 60 days starting from the latest of (1) the date of the qualifying event (2) the date on which you lose coverage under the plan because of the qualifying event or (3) the date you receive the COBRA notice telling you to notify the plan if you are choosing to elect continuous coverage.The general notice will be accompanied by the election notice. The election notice will allow you to elect for continuous coverage or decline if you so choose.
How Long will COBRA Last?
COBRA requires that continuation coverage last from the date of the qualifying event for either 18 or 36 months. The length of coverage depends on the qualifying event that gave rise to COBRA. When the qualifying event is an employee’s termination of employment or reduction in hours of employment, qualified beneficiaries get 18 months of coverage. Essentially, COBRA can last from 18-36 months to allow time to arrange more permanent insurance coverage. The term length is dependent on the qualifying event thus each event has its own coverage timeline. It is important to remember COBRA is not an insurance company and they are not set up to provide long term insurance coverage.
The coverage must be identical to the coverage currently available under the plan to similar active employees. Generally this allows you to keep the same coverage you were enrolled prior to the qualifying event, however the COBRA insurance will be at a higher rate. The insurance for your dependents generally remains the same as well as COBRA plans all you to continue the insurance plan the was in place prior to the loss of coverage (including dependents). COBRA charges can pass the cost of the plan on to the insured, this essentially means you are covering the cost of medical care, treatments and additional cost that may arise. Not all group plans have the same rate but the group plans have a government maximum and cannot exceed 102%. The plan can charge up to 100% of the medical cost as well as a 2% administrative fee. It is important to review the election form and the rates and premiums prior to choosing to enrolling in continuous coverage. You are not required to submit payment when returning your election form however you can be require to make a payment within the first 45 days. COBRA allows you to provide insurance to eligible dependents such as a spouse or dependent child.
How Do I get COBRA Insurance?
There are 3 requirements that must be met to be eligible for COBRA coverage: (1) Your group health plan must be covered by COBRA, (2) a qualifying event must occur and (3) you must be a qualified beneficiary for that event. To determine if your company or former company participates in COBRA contact your benefits department. If you met the set of employer related qualifying events it is your employer/former employer’s responsibility to notify the COBRA plan.
To elect continuous coverage from COBRA fill out the election notice and return it to the proper department as indicated on the election notice within the required 60 days. If you do not elect coverage during the election period you must be permitted by the plan to later revoke you wavier of coverage and enroll in the coverage plan. Plans are not required to allow you to revoke your wavier of coverage so be sure to thoroughly weight your decision prior to signing the documents. If there was a life event that caused a change in COBRA eligibility remember it is your responsibility to contact COBRA and notify them of the eligibility change. COBRA can be terminated early due to the following reasons:
- premiums are not fully paid on a timely basis
- the employer ceases the group health plan
- a qualified beneficiary enrolls in coverage under another group health plan after electing continuous coverage
- a qualified beneficiary engages in conduct that would justify terminating coverage (such as fraud)
If the plan is terminated early the plan must provide the qualified beneficiary with an early termination notice. The notice must be provided in a timely fashion and identify the date the coverage will terminate, the reason for termination and any rights by law for alternative individual or group coverage.
What are the facts? Simple, COBRA stands for Consolidated Omnibus Budget Reconciliation Act and is governed by Employee Retirement Income Security Act of 1974 better known as ERISA. Maybe those were simple facts, however there are some simple facts of COBRA.
First things first always remember COBRA is not an insurance company nor is it a long term coverage option (third times a charm!). COBRA is an option for insurance coverage for a time of transition during a qualifying event. COBRA allows you to ensure qualified dependents and can provide coverage for 18-36 months. On the other hand, the premiums can be up to 102%.
A major medical event can happen to anyone, at any time. Warning, the leading cause of personal bankruptcy in the US is due to medical debt. Electing COBRA coverage can help ensure you aren’t adding to this statistic. Is COBRA right for you and your family? Only you can decide.