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What is COBRA coverage and how does it work?

Key takeaways

  • Under COBRA, if you lose or quit your job, you can stay enrolled in the health plan you already have through your employer for a limited time.
  • Depending on your situation, COBRA coverage may be expensive, and you may wish to consider alternatives for health coverage.

More than half of Americans get their health plan coverage through their employers, according to the US Bureau of Labor Statistics. While this is a great benefit, it also introduces a challenge: When you leave your employer—whether their choice or yours—you lose this coverage. But thanks to the Consolidated Omnibus Budget Reconciliation Act (COBRA), you may be able to keep your existing health plan for up to 18 months after you leave your job.

Here's what you need to know to take advantage of COBRA—as well as other options you may have.

What is COBRA?

Enacted in 1986, COBRA is a law that makes it possible for workers to stay on their existing health plan for a limited time when they leave their employer. You may also hear it referred to as COBRA continuation coverage or simply continuation of health coverage.

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Who can enroll in COBRA?

You can enroll in COBRA coverage only if you meet certain eligibility requirements including:

  • You experience a qualifying event, such as job loss or a reduction in hours, divorce or legal separation from a covered employee, death of the covered employee, or the employee becomes eligible for Medicare.
  • You were covered under the health plan the day before the qualifying event.
  • You lose dependent child status.

In addition to the covered employee, qualified beneficiaries can include:

  • Spouses and former spouses
  • Dependent children

How does COBRA work?

If you're eligible for COBRA, your employer, who is also the plan administrator, is required to notify you within 44 days of a COBRA qualifying event. Your employer will send you a COBRA election notice about your coverage, the cost of enrolling, and instructions for any paperwork that needs to be completed.

Once you have received your COBRA election notice, you have at least 60 days to decide whether you want to continue coverage.

It's important to note that you can elect coverage at any point during your 60-day enrollment period. Coverage applies retroactively to when it otherwise would have lapsed.

How much is COBRA coverage?

The cost of your COBRA coverage is equal to the total cost of the premium under your group health plan. That means it includes what you already were paying as a premium as an employee—plus what your employer was paying on your behalf. In addition, your plan may charge you a 2% administration fee.

How much does that add up to? According to the US Bureau of Labor Statistics (BLS), the average employer covers 80 percent of the cost of the health plan for their employees. If the average individual policy costs around $660 per month, per health research nonprofit KFF, the average employee is paying around $130 per month while they're employed. This means their health plan costs could jump to over $670 per month when opting into COBRA, including the extra fee.

To help defray some of the steep costs associated with COBRA coverage, you can use funds in your health savings account (HSA) to cover premiums.

Other COBRA rules

Does an employer have to offer COBRA?

If an employer has at least 20 employees and offers a group health plan, the health plan is likely subject to COBRA requirements. Health plans sponsored by the federal government or churches and certain church-related organizations are exempt from providing COBRA coverage.

Some states have laws similar to COBRA that may apply to employers with fewer than 20 employees.

How long does COBRA last?

How long COBRA lasts can depend on the qualifying event that made you eligible in the first place. If you become eligible for COBRA due to job loss or a reduction in hours, you can generally stay on your plan for up to 18 months. This can sometimes be extended to 29 months if you are considered disabled by the Social Security Administration or 36 months if there is a second qualifying event.

COBRA pros

  • COBRA provides coverage for at least at least 18 months (to a maximum of 36 months), giving you time to find more permanent coverage.
  • COBRA makes it easier to keep your existing doctors and pharmacists who might be out of network when you switch to a new plan.
  • COBRA can prevent a gap in health plan coverage, making it less likely that you'll experience an unexpected and/or higher-than-usual medical bill while you look for more permanent coverage.
  • COBRA applies to spouses and dependent children who were enrolled in the plan before your qualifying event.
  • You can elect COBRA coverage at any point during the 60-day election period, and coverage is retroactive, meaning you won't experience a gap.
  • If you have an HSA through your employer, you can use funds in that account to pay for your COBRA premiums.

COBRA cons

  • COBRA can be expensive, especially compared to the premiums you were paying before your qualifying event. You should expect to pay up to 102% of the total monthly premium for your coverage.
  • COBRA does not apply to all employer-sponsored health plans—in particular, those organizations with fewer than 20 employees may have no requirements. However, some states may require continuation of coverage for organizations with fewer than 20 employees for a limited time, so check the laws for your particular state. Sometimes, this type of coverage is referred to as “mini-COBRA.”
  • Even if you get an extension, COBRA is only temporary.
  • If you are even one day late making your initial COBRA payment, coverage can be terminated immediately. If you are late making subsequent COBRA payments, you could also risk losing your coverage.

Alternatives to COBRA

Just because you are eligible for COBRA coverage doesn't mean it's your only option. Depending on your circumstances, you may have some alternatives, including:

Enrolling in your spouse's plan

If you are married and your spouse is eligible for health coverage through their employer, a special 30- or 60-day enrollment period is triggered when you experience a qualifying event. During this time, both you and your spouse can opt into their employer's plan in lieu of COBRA coverage.

Enrolling in a parent's plan

Under the Affordable Care Act (ACA), children can stay on their parent's health plan until they turn 26. If you are under 26 and have health coverage through your employer, but leave that job or otherwise lose coverage, your parent can add you to their plan. This can be done during the parent's annual enrollment period or through a special enrollment period that gets triggered by a qualifying life event, such as losing a job.

Purchasing your own policy through a federal or state marketplace

When you lose your health plan due to a qualifying event, you can purchase coverage for yourself through either, the federal government's insurance marketplace, or your state's marketplace if it has one. As long as you do so within 60 days of experiencing the qualifying event, you do not have to wait for the fall open enrollment period. Be sure to fully consider the premiums, coverage, deductibles, and out-of-pocket maximums and compare these with your potential COBRA coverage to pick the best health coverage for you.

Purchasing private insurance

To obtain coverage, you can also look to your local health plan agent, trade or professional associations, and other so-called "private exchanges" that offer plans from multiple carriers. You may have more plan options available to you through these outlets than the public marketplace, but note that government-funded premium tax credits cannot be applied to these plans. These plans can be found through insurance companies, agents, brokers, and online health insurance sellers.

Consider a health savings account (HSA)

With an HSA, you can pay for qualified medical expenses in a tax-advantaged way.

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