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Unemployment & COBRA Extension Problems

Health insurance is essential for providing protection against large medical expenses resulting from illness or injury. For most American workers, group health coverage under an employer-sponsored plan is a cost-effective means of maintaining health insurance coverage. If you lose your job, you can continue receiving health insurance benefits by electing COBRA coverage. However, extending health insurance benefits through COBRA can pose several problems.

  1. Cost

    • Cost is a common problem that affects an unemployed person's ability to extend heath benefits under COBRA. Employers typically subsidize health insurance premiums as a benefit to employees, which helps keep costs down. However, employers do not subsidize premiums for an employee who has separated from the company. This means that you are responsible for the full cost of coverage plus a two-percent administrative fee, which can be significantly higher than employer-sponsored premiums. Paying the full cost of health coverage can be difficult, particularly during unemployment, which is typically accompanied by reduced income.

    Small Employers

    • Employers with 20 or more employees are typically required to offer COBRA extension benefits to employees who separate from the company. However, federal law does not require most employers with fewer than 20 employees to extend COBRA benefits. This means that if you worked for a small employer, you may not have the option to elect COBRA coverage, even if you are eligible for unemployment benefits.

    Gross Misconduct

    • Most employees who pay group health insurance premiums during employment are eligible for COBRA continuation coverage after employment ends. However, federal law does place restrictions on COBRA extension eligibility. If you were terminated for gross misconduct, you may not be eligible for COBRA benefits. "Gross misconduct" is not specifically defined under COBRA regulations---instead, an employer's health plan administrator determines gross misconduct on a case-by-case basis.

    Time Limit

    • An employee who has separated from a company may not receive health coverage benefits under COBRA indefinitely. You can typically only receive COBRA benefits for 18 months after your unemployment date, unless you are totally disabled or are entitled to Medicare benefits. This means that you must secure group health insurance coverage through a new employer within 18 months, or purchase an individual health insurance policy to replace exhausted COBRA benefits.

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