As a professional health insurance agent, I regularly get calls from individuals who are losing their employer-provided health insurance. These individuals are eligible for COBRA (Consolidated Omnibus Budget Reconciliation Act). Usually, these individuals are within a week of losing their group health insurance coverage and are in a panic.
“I am losing my health insurance next week and COBRA is too expensive. I need affordable health insurance quickly!” is the common refrain.
When you lose your employer provided health insurance there is no need to panic. You do not need to have new health insurance in place the same day your group health insurance ends. In fact, you should not start your new health insurance on the day that your group health insurance ends.
The first thing that we need to do is understand what COBRA is and what your rights are.
What is COBRA?
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act 1985. This legislation was needed because most Americans under the age of 65 were receiving health insurance through an employer. In fact, 75% of Americans in 1980 were receiving their health insurance through an employer sponsored plan.
Most Americans received their health insurance through their employer. But many Americans received their coverage through the health insurance plan offered by the employer of a spouse.
The challenge in 1985, as it is today, is maintaining health insurance after losing access to employer-sponsored coverage. In 1985 this was especially problematic if you had a preexisting medical condition. In a pre-Obamacare world, individual health insurance companies could deny coverage to anyone with a medical condition.
Who Does COBRA Apply To?
COBRA only applies to employers with 20 or more workers. An employer with nineteen employees is exempt from its provisions. Under the law an employer with 20 or more employees is required to offer covered individuals the opportunity to continue health insurance coverage. To be eligible for COBRA a covered individual must have a qualifying event.
Cobra protects the insurance rights of employees, spouse of an employee, and the children of an employee.
What Are Qualifying Events Under COBRA?
- The death of the covered employee – This allows the surviving spouse and children to continue coverage
- A covered employee’s termination of employment – Termination of employment is a qualifying event. If the employee is terminated for reasons of gross misconduct COBRA does not apply. But an employee who resigns is covered by COBRA
- Reduction of the hours of employment – Many employers require a minimum number of worked hours to be eligible for group health insurance benefits. An employee’s reduction in hours worked resulting in loss of health insurance is a qualifying event.
- The covered employee becomes entitled to Medicare – If the employee has dependents that are covered under the health plan, they are protected by COBRA.
- Divorce or legal separation from the covered employee – As in the Medicare event above, the spouse and children of the employee are protected under COBRA
- A child who ceases to be eligible for coverage as a dependent.is also protected under COBRA
How Much Does COBRA Cost?
Most people are shocked by the cost of continuing health insurance coverage under COBRA. They are shocked because while they were an employee, their employer paid all or most of the premium for their coverage. In some cases, the employer may have also contributed to the cost of dependent coverage as well.
Once you are no longer eligible for the employer’s group health plan, you will have to pay 100% of the cost. In addition, employers can add a 2% fee to the premium.
How Long Can I Stay on COBRA?
The length of time that you can keep your employer-sponsored plan will be either 18 months or 36 months. The duration of coverage is based on the specific circumstances of the qualifying event.
For “covered employees,” the only qualifying event is termination of employment (whether the termination is voluntary or involuntary) including by retirement, or reduction of employment hours. In that case, COBRA lasts for eighteen months.
If the qualifying event is the death of the covered employee, divorce or legal separation of the covered employee from the covered employee’s spouse, or the covered employee becoming entitled to Medicare, COBRA for the spouse or dependent child lasts for 36 months.
Do I Have to Elect COBRA Immediately?
This is probably the most important section in this report. You do not have to elect COBRA as soon as you lose your group health insurance. In fact, you have 60 days from the date that you are notified of rights under COBRA.
When I receive a panicked call from someone losing employer-sponsored health insurance I tell them to relax. Technically you have 105 days of coverage from your notification of your COBRA rights.
Under the law you have 60 days from the date that you receive notification to decide on electing COBRA. On the sixtieth day you can contact your employer and elect to continue your group health insurance. At that point you have another 45 days before you are required to pay all the premium due.
To better understand this point, let me provide an example. Imagine that you lost your job, and your health insurance ends on September 1. If you received the formal notice of your COBRA rights on September 1 you have until October 31 to decide about continuing coverage. On October 20 you are rushed to the hospital with acute appendicitis and need surgery. You simply contact your employer immediately after your surgery and elect COBRA and pay the back premiums to September first. Your surgery must be covered under the health plan.
What if My Employer Has Fewer Than 20 Employees?
Many states have passed legislation similar to COBRA for employers with fewer than 20 employees. Unfortunately some states have no health insurance continuation. Other states have continuation that is less generous than COBRA.
No Small Group Continuation
Alabama, Alaska, Idaho, Indiana, Michigan, and Montana and Washington. Washington does have a provision that allows employers to choose to extend continuation coverage
States with Limited Small Group Continuation
- Arkansas – 120 days
- Delaware – up to 9 months
- District of Columbia – up to 3 months
- Georgia – up to 3 months
- Illinois – 12 months
- Iowa – 9 months
- Louisiana – 12 months
- Maine – up to 12 months if the employee was laid off or had to quit t accident or illness
- Mississippi – up to 12 months
- Nebraska – up to 6 months as long as the termination was involuntary
- Nevada – follows COBRA but the individual had to be covered for 12 months under the group plan
- New Mexico – up to 6 months
- North Dakota – up to 39 weeks
- Ohio – up to 12 months but must be an involuntary termination
- Oklahoma – up to 63 days
- Pennsylvania – 12 months
- South Carolina – up to 6 months if the individual was covered for the prior 6 months
- South Dakota – up to 12 months
- Tennessee – Up to 3 months
- Texas – up to 9 months
- Utah – up to 12 months
- Virginia – up to 12 months
- Wyoming – up to 12 months
Is There an Affordable Alternative to COBRA?
As I mentioned above, most people are shocked by the cost of health insurance under COBRA. Your cost for continuing coverage is 100% of the premium plus 2%. Without the employer’s contribution, the monthly premium is unaffordable for most people.
Depending on your circumstances, you may have several affordable health insurance alternatives.
Losing your group health insurance is an eligible qualifying event for the health insurance marketplace. This will allow you to enroll in a new health insurance plan regardless of your health. If you qualify you may even receive a health insurance premium subsidy.
If you are relatively healthy, you may be able to purchase a short-term major medical policy. While these insurance policies do not cover preexisting conditions, they can be very affordable. When purchasing a short-term health insurance policy be aware that these plans do not provide prescription drug coverage
You may also be able to purchase a Medical Cost Sharing health plan. Medical Cost Sharing is technically not health insurance. That said, these plans have been around for a long time and offer and affordable alternative to traditional health insurance.
Beware of any health insurance policy that sounds too good to be true! There are products being sold that do not actually provide any real value as a health insurance policy but sound great. When you hear words like “first dollar” benefits ask about your maximum out of pocket liability.
Work With an Independent Health Insurance Agent
The best advice that I can give you is to talk with an independent health insurance. This is a health insurance agent who is licensed with multiple insurance companies. You will also want to make sure that this agent is certified to work with healthcare.gov.
In your search for an insurance agent, you will likely find one or two “captive” agents. These insurance agents can only sell the products of a single health insurance company. And when it comes to the Health Insurance Marketplace, they cannot legally enroll you.
There are many “captive agents’ who will tell you that they can help you with the Marketplace. But that is not the same thing as being legally certified to help you.
Some of these agents will tell you that they will help you shop the marketplace and understand all the available plans. You must remember, these insurance agents do not receive a salary and will not get paid if you do not enroll in their plan.
A professional, independent health insurance agent can help and guide you through all of your options.