What You Need to Know About COBRA Insurance

COBRA, also known as 'The Consolidated Omnibus Budget Reconciliation Act' of 1985, is a federal law that ensures that a person's health insurance coverage will continue for up to 18 months after the date of his or her termination. Most companies that offer group health insurance to their employees are subject to COBRA and certain situations can extend this deadline from 18 months to 29 months and even up to 36 months.

Who Benefits from COBRA?

COBRA insurance protects those who have lost their job against simultaneously losing their health insurance benefits. COBRA is a temporary measure that's designed to help individuals through this potentially difficult time. Not every terminated employee qualifies for COBRA insurance, but all employers know whether these rules apply to their company and their employees. The law enables a terminated employee to buy health insurance for himself (and his family if he had family coverage while employed) at the group rate even though that employee is technically no longer part of the group. The price of coverage is high and the former employee is responsible for paying 100% of the cost each month, plus a 2% surcharge.

COBRA kicks in when an eligible employee is terminated, laid-off or experiences some other type of change in his or her employment status (such as reduced hours, or divorce from or death of the eligible employee). COBRA continues according to the schedule above or until the terminated employee is covered by an individual health insurance plan or another group health insurance plan.

Employers are required by law to notify eligible former employees of their option to purchase health insurance through COBRA. Employers need to also specify the cost for this coverage. Those receiving this notification have up to 60 days to accept COBRA coverage.

Because COBRA basically extends a terminated employee's health insurance for a period of 18 months, those who participate in COBRA need not worry about a change in their benefits. Coverage itself does not change; the only change is the person responsible for paying the monthly premium. All family members who were covered prior to termination remain covered during the course of COBRA as well. In fact, the only way that coverage will change is if the person's former employer changes the health insurance plan it is offering to its current employees.

COBRA Designed to be Temporary

The important thing to keep in mind about COBRA is that it is intended to be used as a temporary measure. It guarantees you won't be without health insurance for 18 months, but once that period expires, you will find yourself without health insurance if you have not secured it otherwise, either from a new employer or by obtaining an individual health insurance plan. And, although it's unpredictable, you never want to find yourself in a situation where you detect for the first time a serious medical condition (such as cancer) while covered under COBRA. Such a situation could cause you to become 'uninsurable' later on because you've since developed a pre-existing condition.