COBRA, also known as the Consolidated Omnibus Budget Reconciliation Act is a federal law that was passed in 1986 amending several other prior laws to provide continuation of group health insurance that would otherwise have been terminated. COBRA is most commonly used when an employee leaves a job where they had employer-sponsored health insurance, usually after being laid off or leaving the group on their own terms.
In short, COBRA is an extension of the current group health insurance plan offered to employees after they have left the company. This coverage can be kept for up to 18 months and is only available to individuals and families covered under a plan with more than 20 employees enrolled.
Premiums for COBRA coverage are 102% of the total cost of insurance – this is important because many employers pay for part of the cost while the employee is still working. As an example, Jim works for ABC Company and his family’s health insurance has a total cost of $1,000 per month. ABC Company is generous and covers 80% of the family cost while Jim is employed, so he is paying $200 per month. When he leaves the company, if he wants to continue the coverage it will cost him $1,020 per month (the full $1,000 plus an additional 2% administrative charge, or $20).
COBRA election applies to each person individually that is covered under a given policy. If five family members are covered under a COBRA policy, they can all accept the coverage or accept it on an individual basis (for example, one or two family members accepting and three or four rejecting). This is important because individual market health insurance can often be much less expensive than a COBRA policy, which can average $1,200-1,500 for a family and upwards of $2,500 per month for “Cadillac” plans at some companies. Let’s use another example:
COBRA coverage for John’s family costs $1,800 per month. John’s wife has cancer, but the rest of the family is in perfect health. The rest of the family can secure their own health insurance on the individual market for $400 per month. John’s wife can stay on COBRA for 18 months while the rest of the family buys a policy immediately to lock in their insurability and cost. John’s wife pays $450 per month (these figures are all made up, but are generally accurate) for her COBRA coverage and the rest of the family pays $400 per month, for a total cost of $850 per month. This is a much better deal for the family than continuing to pay $1,800 per month while John is out of work and may not be able to afford such high premiums.
So…what happens to John’s wife when the 18 months of COBRA expires? Assuming she does not qualify for other coverage like Medicaid/Medicare/etc, she would likely be eligible for a guaranteed-issue policy under the HIPAA conversion rules. Every state has different rules on what plans are available for HIPAA conversions – in Virginia, all plans from all companies at all deductible levels are available. However, every company charges different rates for these plans and it’s important to talk to an independent broker that can review the differences with you.
If you are in good health and offered COBRA coverage, DO NOT WAIT UNTIL IT EXPIRES TO LOOK FOR A NEW POLICY! You can cost yourself a lot of money in the long run if you experience a change in health while on COBRA. As noted above, if you are otherwise uninsurable when COBRA expires, you would need to purchase a HIPAA policy at a much higher price than if you had bought while healthy.
If you are considering COBRA coverage and want to compare the cost with an individual policy, just click the banner at the top or bottom of the page to get an instant health insurance quote for you or your family. We strongly encourage you to give us a call at 1-800-571-2980 from 9 AM to 9 PM to review your options in more detail. You can also e-mail us at Info@terminsurancebrokers.com 24 hours a day.