If you are leaving your employer (whether voluntarily or involuntarily), it’s important you get familiar with COBRA insurance, what it is, how it works and what it will cost you.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a health insurance program that allows eligible employees and their dependents to continue health insurance coverage when an employee loses their job or experiences a reduction of work hours. But here’s the catch: you will have to pay the entire cost, plus up to 2% in additional administrative costs.
Employers with at least 20 full-time workers must offer departing employees the opportunity to temporarily extend their health insurance. State and local government employees are also eligible for COBRA. However, health insurance plans sponsored by the federal government, churches, and certain church-related groups do not fall under the COBRA umbrella. Instead, federal employees are covered by a law similar to COBRA. If you work for a small company, you may still be eligible to continue coverage even after leaving your job; some states have COBRA-type laws that apply to employers with fewer than 20 employees.
You can elect COBRA for you and your family if you otherwise would lose coverage because:
- You quit your job.
- You were fired, unless it was for “gross misconduct.”
- Your hours were reduced.
In addition, dependents can elect COBRA if they lose eligibility for coverage because of:
- Death of the covered employee.
- An adult child turns 26 and can no longer stay on a parent’s plan.
- Divorce or legal separation from the covered spouse.
- The employee who claims the dependent is now covered under Medicare.
From the date of the qualifying event, COBRA coverage extends for a limited period of 18 or 36 months, depending upon your eligibility.
If you are entitled to elect COBRA coverage, your employer must provide an election period of at least 60 days. If you decline COBRA coverage during the normal 60-day decision period, you must be allowed to rescind your coverage waiver within the decision period. Your final decision will become permanent after the 60-day window closes.
Premiums must be paid in a timely manner or your coverage will be canceled (oftentimes a 30-day grace period is allowed).
COBRA is not always the best choice and you should consider all your options before you elect COBRA coverage. Other available options for you and your family can be buying a health plan through the health insurance marketplace, signing up for coverage with your new employer when you get another job, or asking your spouse or partner to add you as a dependent on his or her employer-sponsored plan.
Whatever your reason for looking into COBRA coverage might be, it’s important to discuss your options with a trusted CFP® professional to make sure you’re best covered for the next chapter of your life.