COBRA Continuation Coverage: A Quick Guide for the Unemployed or Newly Self-Employed

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When I was thinking of leaving my job one of the first things I did was visit my company’s benefit department and get an explanation of how my health insurance benefits would be affected by my leaving. Obviously I knew I wouldn’t be able to continue coverage indefinitely. I just didn’t know the particulars of when my coverage would drop and what my continuation options were.

I definitely wanted to continue coverage somewhere. If not with my old employer, then with a new policy. I’m not quite self-insured and I don’t want some major medical crisis to derail my entire financial future. If you’re considering self-employment, or if you think you may be laid off soon, I’ve got some information below regarding COBRA and how you can continue your group health insurance coverage.

COBRA Continuation Coverage

Federal law (the Consolidated Omnibus Budget Reconciliation Act or COBRA) gives you or your spouse or dependents the right to continued group health insurance coverage in the event that you lose your group coverage when there is a qualifying event. The Act basically forces your employer to let you participate in their group plan for a bit longer. This was set up so that you could continue to have health insurance while you looked for another job, or while you shopped for private individual medical health insurance.

The health insurance plan you have continued access to is the same plan you were under when you were employed. The major difference is that you have to pay for the full premium. Your old premium, plus the amount that your employer was paying for you. For most people, this will be a sizable difference. For me it was about a $750 difference. Yikes! It’s for this reason that the recently unemployed turn to their spouses health insurance plan for coverage, or strike out on their own to find an individual health insurance plan.

Unemployment COBRA Subsidy

If you were involuntarily terminated (fired/laid-off) by your employer, you are eligible for a subsidy of the amount you will owe towards your COBRA premium. The subsidy, provided initially by the ARRA, covers 65% of your premium and lasts for 15 months. You must have been termed from September 1, 2008 to May 31, 2010 (recently extended!). If you think you qualify for this subsidy, visit http://www.dol.gov/ebsa/cobra.html

How Long will Continuation Coverage Last?

For loss of coverage from end of employment, the regular COBRA continuation will last for 18 months. In order to continue coverage, you’ll need to make your payments on time and not get medicare or group health insurance elsewhere. Also, your former employer will need to maintain their group plan.

How Can You Extend COBRA?

You can extend COBRA beyond the 18 months if you are disabled or a second qualifying event occurs (i.e. death, divorce).

Electing and Paying for Continuation Coverage Under COBRA

To get signed up with COBRA you need to do the following:

• Be a “qualified beneficiary” who experiences a “qualifying event”.
• Receive notice of your right to elect continued coverage.
• Make the election via the election form provided with your notice within 60 days.
• Make your payment within 45 days of making the election.

The key takeaway here is that you have 60 days to decide if you want to use COBRA, and then you have another 45 days to pay for it. A common question at this point is “will I be retroactively covered?” Yes. But keep in mind you will need to make premium payments dating back to the time you lost coverage from your employer. So, if you wait the full 105 days to pay, you’ll need to make 4 months worth of payments at once.

My Decision Regarding COBRA

I decided against using COBRA continuing coverage. While I liked my old group plan provided by my employer, I couldn’t afford that type of plan on my own. Since I voluntarily termed, I’m not eligible for the subsidy. So, I’ve turned to a high-deductible, HSA-eligible individual health insurance plan to get my coverage. I’ll explain more about that purchase in a future post.

Disclaimer: Keep in mind that I’m not a professional on this matter. Do more research regarding your particular situation at the DOL’s COBRA Website.

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