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COBRA Health Insurance Plans

The cost of private health insurance is a common deterrent in having enough, or sometimes, any health insurance. However, many employers offer health insurance with group rate reductions, and some employers pay a part of the premium. However, if you leave or lose your job, there go your group rates and up go your premiums. In certain cases, however, a government program called COBRA can help you keep down the cost of health insurance as you find and transition into a new job.

  1. Objective

    • The United States Congress passed COBRA, or the Consolidated Omnibus Budget Reconciliation Act in 1986, adding it as an amendment to the Public Health Service Act of 1944, the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. Its objective is to reduce a sudden and often dramatic increase in the cost of your health insurance due to involuntary unemployment.

    The Facts

    • If you are initially eligible and choose to exercise your COBRA option, the act mandates most employers to continue health insurance coverage at group rates for a period of 18 months, or 29 months if you sustain a disability within 60 days of obtaining coverage under COBRA. Although maintaining health insurance coverage in this manner is less expensive than getting private insurance, guidelines do not require your employer to contribute any amount toward monthly premium payments. As a result, your monthly premium payment will most likely increase.

    Employer Requirements

    • Most, though not all private-sector employers, employer organizations, state and local government agencies that provide group health insurance to full or part-time employees must also offer the COBRA option. As of January 2011, any potentially eligible employer with 20 or more employees for at least half the previous year is subject to COBRA guidelines. Although part-time employees count, each counts only according to a percentage of hours worked as compared with a full-time employee. For example, two part-time employees, each of whom works 20 hours a week, counts as one full-time employee. So, if your employer has 15 full-time employees and 10 part-time employees, each working 20 hours a week, COBRA regulations view this as 20 employees.

    Employee/Family Eligibility

    • In general, you are eligible for COBRA unless your employment ends because of gross misconduct. You can also choose COBRA if a reduction in work hours causes you to become ineligible for your employer's group health insurance plan, If you carry group health insurance and you die, qualified beneficiaries, such as your spouse and dependent children are also eligible. In addition, if you get a divorce and your ex-spouse has no other form of health insurance, he is eligible for COBRA for a maximum of 36 months.

    Considerations

    • Although COBRA insurance usually means paying a higher monthly premium, you may be able to recover some of this cost via a tax credit called the Health Coverage Tax Credit. In its original form, 65 percent of your insurance premium payments were eligible. In 2009, however the Trade Adjustment Assistance Health Coverage Improvement Act of 2009 temporarily increased this amount to 80 percent. In March 2011, the credit returns to 65 percent.

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