COBRA Health Insurance Coverage: What You Should Know

When you lose your job, often one of your first concerns is what will happen to your health insurance coverage, particularly if you have a pre-existing condition that could make it difficult to get an individual plan. The 1986 COBRA law gives most employees the option of continuing their health insurance once their employment ends, but people often aren't aware of their rights.

The issue of people not understanding their COBRA rights had become so serious that a few years ago a new notification requirement was put in place - one of the few significant changes to the law since it was originally passed. Covered employers must now notify new employees of their potential COBRA rights when they are first hired.

The Affordable Care Act - aka Obamacare - eliminates all pre-existing provisions starting in 2014. Health insurance exchanges should also be available by that time which should make more coverage options available. But until that time, COBRA is often a person's only coverage continuation option.

Eligibility is determined by both employer size and the circumstances under which the health insurance is ending.

Unfortunately, if you're losing your job because your employer is going out of business, meaning the health insurance plan is going away completely, you are out of luck. If there's no underlying plan, there's no coverage to continue.

Employer Size

COBRA does not apply to small employers, which the Department of Labor (DOL) defines as having fewer than 20 employees during at least 50 percent of the business days during the past year.

Certain churches are also excluded. Federal employees are covered by a different law that is similar to COBRA.

By the way, the DOL sets the regulations for COBRA and has a lot of information about your rights on their web site.

Why Are You Losing Coverage - The Qualifying Event

Your former employer can withhold COBRA only if you were fired for gross misconduct. You can get COBRA health insurance coverage if you are being let go because your position was eliminated. You are eligible even if you resign and need the coverage as a bridge to the plan at your new job.

There are a number of other situations when you or a family member can continue their health insurance coverage under COBRA, including

• A young person turns 26 and can no longer stay on his or her parent's plan.
• Divorce. The ex-spouse of whichever person carries the health insurance is eligible for COBRA.
• Death. Any family members who were on the deceased's employer's plan can get coverage through COBRA for up to 36 months.
• Stopping work because of disability. You can get COBRA coverage for up to 29 months (this is tied to the waiting period for Medicare if you are on Social Security Disability).
• Your hours have been reduced such that you're no longer eligible for the health plan.

You should get a notification from your employer stating your rights, the costs, and how to make your elections. The exact time period they have to send the notification depends on how the plan is structured, but you are supposed to have at least 60 days to make your election.

If the situation involves divorce or an overage dependent, you are supposed to notify your employer of the event within 60 days. They should then issue the notification to the affected individuals.

In most cases, COBRA coverage is available for 18 months. As noted above, it's a bit different in some situations. In cases of death of the employee, for example, dependents can get 36 months of coverage continuation.

Of course, one of the key issues is the cost of COBRA health insurance. You generally must pay the full cost of the premium plus a 2% administrative fee.

Since your employer likely subsidized part of the health insurance premium cost while you were working, it can be a bit of sticker shock when you get that COBRA notification: single coverage can easily be $500 per month with family coverage being $1,200 or more.

Because of the high cost, it can be worth your while to explore other options:

• See if you can go on your spouse/partner's plan. Losing your health insurance is a "qualifying event" meaning their employer is supposed to allow a change if notified within 30 days of the event.
• If you have children, you might be able to get more affordable coverage for them through CHIP or Medicaid. Check with your state agencies.
• Explore an individual policy. Many states - and the federal government - have very informative portals that help consolidate links to different insurance companies. If you don't have any pre-existing conditions and you go for a catastrophic plan, you will often save a lot per month.

As more features of the Affordable Care Act take effect, additional alternatives to COBRA health insurance should become available. Also, don't forget that if you have any self-employment earnings, you might be able to deduct your insurance premiums - check with your accountant about possible tax savings.