How Do COBRA Benefits Work?

One of the most frightening aspects of losing your job is knowing that you will also lose your health insurance. Many people do not realize that they can keep their health insurance benefits after they have resigned, been laid off or otherwise separated from their job by using COBRA benefits.

Definition

• COBRA is an acronym for the Consolidated Omnibus Budget Reconciliation Act of 1986. Businesses with 20 or more employees enrolled in a group health insurance plan for at least half the year must allow workers who leave, are laid off or are terminated for any reason, besides "gross misconduct," to retain coverage for at least 18 months. Spouses and dependent children are also eligible for COBRA coverage due to death of spouse, divorce or a child's loss of dependent status. Federal government health insurance plans are not covered by COBRA.

  After termination, the employer must notify the health plan administrator to begin COBRA coverage. In the case of divorce, death of a spouse or dependent child losing dependent status, it is the employee's responsibility to notify the health plan administrator. Administrators have 14 days to alert you and your family members, either in person or by first-class mail, about your rights to COBRA coverage. You or your family members then have 60 days to decide to keep the coverage.

Limitations

• In some cases, COBRA coverage is not available. If you were not eligible or covered under an employee health insurance plan at the time of your separation from the employer, you are not eligible for COBRA.

  Additionally, if you are now unemployed due to an employer that has ceased operations, you are not eligible for COBRA because there is no longer a group plan for your participation.

Benefits

• One of the biggest benefits of COBRA coverage is that it prevents you from losing health insurance coverage while you search for another job, await Medicare qualification or find other health insurance coverage.

  Losing coverage altogether often means waiting periods before pre-existing conditions will be covered under a new plan. This can be expensive and detrimental to the health of those who have medical conditions that require care and medications.

Drawbacks

• The biggest reason most people decline to continue coverage under COBRA is the cost; those who continue coverage are responsible for the entire cost of the premium, plus a 2 percent administrative fee. The website Insure reports that "COBRA eats up 84 percent of the average monthly unemployment benefit," making it impossible to continue coverage for many who are eligible.

Considerations

• The type of qualifying event that makes you eligible for COBRA benefits can also determine how long you can extend your coverage.

  "People eligible for Social Security Disability benefits may receive COBRA coverage for 29 months, if the Social Security Administration determines that the individual is totally disabled," reports Insure.

  Additionally, employees entitled to Medicare are allowed 36 months of COBRA coverage, as are spouses who are losing coverage due to divorce, legal separation or the death of the insured employee. Dependent children who have lost dependent status can also continue coverage for 36 months.

  Individual states have their own COBRA laws that may extend coverage to employers who are not covered by the federal law.