What Is Cobra Insurance?

If you resign or get terminated from your job for any reason except gross misconduct, the federal government guarantees under The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) that you may continue, at your expense, health insurance coverage from your former employer for up to 18 months. There are other events that also trigger COBRA insurance. In special cases, your spouse and children can be covered for up to 30 months, for example. However, once you elect to be covered elsewhere, you and your dependents will be precluded from being covered by that employer's plan again.

Significance

• Because COBRA extends health coverage for you and your family as a result of your being terminated, it provides you with an important safety net as you look for new employment. Before the passage of this law, health coverage normally stopped at the end of the month of termination, before a wage earner had an opportunity to find new coverage, either through private insurance or his new employer. At the very least, he would be facing a certain period of time without health insurance.

Warning

• Extension of your COBRA insurance will be much more expensive for some people because many employers paid a high percentage of the premium when the persons were employed there. Unfortunately, that increased expense comes at a time when many people cannot afford it.

Prevention/Solution

• If you find out about your pending termination enough in advance, or if it occurs early in the month, take the time to find replacement health insurance that is less expensive. For example, one way to approach this might be to increase the deductibles or to sign temporarily with a HMO if you have a fee-for-service plan through your employer. Your employer is under no obligation to offer you a plan than is different from the one that covers you now.

Misconceptions

• Many people are unaware of the COBRA laws and therefore believe that if they lose their jobs, they will also lose their health coverage. The COBRA laws provide employees with the opportunity to extend their health insurance for a period of time, even though it probably will be more expensive than if the terminated employee were to secure private coverage.

Potential

• If there is a downturn in the economy and rising unemployment occurs, many more Americans will benefit from COBRA insurance than ever before. But many of them will be forced elsewhere because of high costs, putting even greater pressure on insurance companies and public assistance like Medicaid to fill the gap.

Geography

• Following your termination, if you move to a place where your previous company's insurance company does not offer coverage, your COBRA benefits will be lost. You ex-employer is not required to find coverage for you in your new location.