Assuming you’re considering COBRA coverage but are concerned about the cost differences between insurance coverage through this program and insurance coverage with the support of an employer, there are a few things to keep in mind. Let’s dive into it!
What is COBRA Health Insurance?
When an employee loses their job or has their work hours reduced, Cobra Insurance provides them and their dependents with continued health insurance coverage.
We’ll go over the basics of COBRA, such as how it works, eligibility requirements, benefits and drawbacks, and other features.
In the United States, large employers with 50 or more full-time employees are required to provide health insurance to their qualifying employees by paying a portion of insurance premiums.
If an employee loses eligibility for an employer’s health insurance benefits for any reason, the employer may stop paying its share of the employee’s insurance premiums.
In that case, COBRA allows an employee and their dependents to keep their current insurance coverage for a limited time if they are willing to pay for it themselves.
Former employees, spouses, former spouses, and dependent children must be offered the option of continuing health insurance coverage at group rates, which would otherwise be terminated, under COBRA.
While these individuals are likely to pay more for COBRA coverage than they did as employees, COBRA coverage may be less expensive than an individual insurance plan.
It is important to note that COBRA is a health insurance coverage program, and plans may cover prescription drug, dental, and vision care costs. It excludes life insurance and disability insurance.
As part of the American Rescue Plan Act of 2021, the federal government paid COBRA insurance premiums for individuals who lost their jobs as a result of the 2020 economic crisis from April 1 to September 30, 2021.
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Criteria for COBRA Health Insurance
Different criteria apply to different employees and other individuals who may be eligible for COBRA coverage.
In addition to meeting these requirements, eligible employees are typically only eligible for COBRA coverage after certain qualifying events, as discussed below.
COBRA coverage is typically required for employers with 20 or more full-time equivalent employees.
Part-time employees’ working hours can be combined to create a full-time-equivalent employee, determining the employer’s overall COBRA applicability.
COBRA applies to private-sector employer plans as well as those sponsored by the majority of local and state governments. A law similar to COBRA protects federal employees.
Furthermore, many states have local laws that are similar to COBRA. These are known as mini-COBRA plans because they typically apply to health insurers of employers with fewer than 20 employees.
On the day before the qualifying event, a COBRA-eligible employee must be enrolled in a company-sponsored group health insurance plan.
In the previous calendar year, the insurance plan must have been in effect on more than 50% of the employer’s typical business days.
For the departing employee to be eligible for COBRA, the employer must continue to provide a health plan to its current employees.
If the employer goes out of business or stops providing insurance to current employees (for example, if the number of employees falls below 20), the departing employee may no longer be eligible for COBRA coverage.
The qualifying event must result in the employee losing his or her health insurance. The list of qualified beneficiaries is determined by the type of qualifying event, and conditions differ for each type of beneficiary.
Employees
Employees are eligible for COBRA coverage if they meet the following eligibility criteria:
- Job loss, whether voluntary or involuntary, such as the 2020 economic crisis (except in cases of gross misconduct)
- A reduction in the number of hours worked, resulting in the loss of employer insurance coverage
Spouses
In addition to the two qualifying events listed above for employees, their spouses can qualify for COBRA coverage if the following conditions are met:
- The covered employee is now eligible for Medicare.
- Legal separation or divorce from the covered employee.
- The covered employee died.
In the event of divorce, legal separation, or the loss of the dependent status of a child, the employee or beneficiaries must notify the plan.
Children in Need
The qualifying events for dependent children are similar to those for the spouse, with one exception:
- According to the plan rules, loss of dependent child status.
The plan must be notified within 30 days of the qualifying event that applies to the employee. If the qualifying event is divorce, legal separation, or the loss of dependent status of a child, the employee or beneficiaries must notify the plan.
COBRA Benefits and Available Coverage
COBRA rules require that qualifying candidates be provided with coverage that is identical to that which the employer provides to its current employees.
Any changes to active employees’ plan benefits will also apply to qualified beneficiaries. All qualifying COBRA beneficiaries must have the same options as non-COBRA beneficiaries.
In essence, the insurance coverage for current employees/beneficiaries under COBRA remains the same for ex-employees/beneficiaries.
You must be given at least 60 days to decide whether or not to continue your coverage. Even if you waive coverage, you have the option to change your mind within the 60-day election period.
COBRA coverage is limited to 18 or 36 months from the date of the qualifying event, depending on the applicable scenarios.
If any of the qualified beneficiaries in the family is disabled and meets certain requirements, the 18-month maximum period of continuation coverage can be extended.
If a second qualifying event occurs, such as the death of a covered employee, the legal separation of a covered employee and spouse, a covered employee becoming eligible for Medicare, or a covered employee losing dependent child status under the plan.
Cost of COBRA Health Insurance
The term “group rate” may be misinterpreted as a discount offer, but it may actually be relatively expensive.
During the employment term, the employer frequently pays a significant portion of the actual health insurance premium (for example, 80% of premium costs), while the employee pays the remainder.
Following employment, the individual is required to pay the entire premium, which may be supplemented with an additional 2% for administrative charges.
For employees who have not experienced a qualifying event, costs may not exceed 102% of the plan’s cost.
As a result, despite the availability of group rates for the COBRA continued plan during the post-employment period, the cost to the ex-employee may be significantly higher when compared to prior insurance costs.
In essence, the cost remains the same, but the individual must bear the entire burden with no contribution from the employer.
COBRA may still be less expensive than other types of individual health insurance.
It is critical to contrast it with coverage that the former employee may be eligible for under the Affordable Care Act, particularly if they qualify for a subsidy.
The cost can be determined precisely by the employer’s human resources department.
Those who lost health insurance as a result of a job loss during the 2020 economic crisis qualified for a “special enrollment” period on the federal exchanges, giving them 60 days to sign up.
That could have been an attempt to find a less expensive insurance option than COBRA.
Early Termination of COBRA Health Insurance
COBRA coverage may be terminated prematurely in the following circumstances:
- Failure to make timely premium payments.
- Employer discontinues any group health plan.
- A qualified beneficiary who gains coverage under another group health plan (for example, with a new employer), becomes eligible for Medicare benefits or engages in misconduct (for example, fraud).
Pros and Cons of COBRA Health Insurance
Individuals who choose COBRA coverage can keep their current physician, health plan, and medical network providers.
COBRA recipients keep their existing coverage for preexisting conditions and prescription drugs.
The plan cost may be lower than other standard plans, and it is preferable to going uninsured because it protects against high medical bills that must be paid in the event of illness.
Nonetheless, the disadvantages of COBRA must be considered.
The high cost of insurance when paid entirely by the individual, the limited period of coverage under COBRA, and the continued reliance on the employer are just a few examples.
If the employer chooses to discontinue coverage, an ex-employee or related beneficiary will no longer be eligible for COBRA.
If the employer changes the health insurance plan, a COBRA beneficiary must accept the changes, even if the new plan does not meet the individual’s needs.
A new plan may alter the coverage period and number of available services, as well as raise or lower deductibles and co-payments.
For these reasons, individuals eligible for COBRA coverage should weigh the benefits and drawbacks of COBRA against other available individual plans in order to find the best fit.
A potential COBRA beneficiary can also investigate whether they are eligible for public assistance programs such as Medicaid or other state or local programs.
However, such plans may be limited to low-income individuals and may not provide the best care and services available in comparison to other plans. Healthy people should consider a low-cost healthcare discount plan.
However, these plans do not count as insurance coverage, which can make it difficult to obtain health insurance in the future because enrolling in one of these plans means that insurance coverage has been interrupted.
Managing a High COBRA Premium
You usually lose your flexible spending account (FSA) when you lose your job. If you are about to lose your job, you can spend your entire year’s contribution to the FSA before you lose your job.
Also, if you planned to contribute $1,200 for the year but it’s only January and you’ve only had $100 withheld from your paycheck for your FSA, you can still spend the entire $1,200—say, by seeing all of your doctors and filling all of your prescriptions right away.
If you choose COBRA, you can switch to a less expensive plan, such as a preferred provider organization (PPO) or health maintenance organization (HMO), during the employer’s annual open enrollment period.
Tax breaks may also help to alleviate the financial burden of higher premiums.
You can deduct COBRA premiums and other medical expenses that exceed 7.5% of your adjusted gross income (AGI) on your federal tax return (but you must itemize your deductions on Schedule A).
Additional savings can be obtained by lowering other healthcare expenses, such as switching to generic drugs or purchasing larger quantities at a discount, and visiting a low-cost community or retail clinic for basic healthcare services.
Finally, you can use the funds in your health savings account (HSA) to pay COBRA premiums as well as medical expenses, potentially lessening the impact of losing your health insurance benefits.
It is critical to note that timely payment of COBRA premiums is required to maintain coverage for the duration of your eligibility.
Failure to make the initial premium payment within 45 days of the date of your COBRA election may result in the loss of your COBRA rights.
Payment is typically intended to cover a retroactive period, beginning with the date of loss of coverage and ending with the qualifying event that established eligibility.
Government Jurisdiction Over COBRA
COBRA coverage is administered by a number of federal government agencies.
Currently, the Departments of Labor and Treasury oversee private-sector group health plans, while the Department of Health and Human Services oversees public-sector health plans.
These agencies, however, are not always heavily involved in the process of applying for COBRA coverage or other aspects of the continued coverage program.
The regulatory responsibility of the Labor Department includes the disclosure and notification of COBRA requirements as required by law.
Additionally, the Centers for Medicare and Medicaid Services provides information on COBRA provisions for government employees.
If you lost coverage due to a reduction in hours or an involuntary termination of employment, you are eligible for the COBRA premium subsidy.
Your employer must consider “assistance-eligible individuals” who have COBRA coverage during the six-month subsidy period to have paid all of their premiums.
If you are eligible for another group health plan or Medicare, you will lose your eligibility for the COBRA subsidy.
If you do not self-report your eligibility for other coverage to the COBRA plan, you will face a tax penalty.
Applying for COBRA Health Insurance
To begin COBRA coverage, an individual must confirm that they are eligible for assistance based on the criteria outlined above.
Typically, an eligible individual will receive a letter outlining COBRA benefits from either an employer or a health insurer.
Some people find this notification difficult to understand because it contains a lot of legal information and language.
If you are unsure whether you are eligible for COBRA or how to begin coverage under this program, contact the insurer or the HR department of your former employer.
There are other options, such as a spouse’s health insurance plan, for individuals who are not eligible for COBRA or who are looking for alternatives.
There are other options for people who are not eligible for COBRA or who are looking for alternatives. A spouse’s health insurance plan may be an option in some cases.
Alternatively, you could look into your options on the federal health insurance marketplace or a state insurance marketplace. The loss of a job triggers a special enrollment period.
Medicaid programs and other short-term policies designed for those experiencing a gap in health coverage, as mentioned above, may also be available to you.
Individuals who choose to go uninsured are typically discouraged by health insurance professionals because the possibility of severe consequences is high—especially during an uncertain time.
Individuals who are eligible for COBRA coverage have at least 60 days to choose whether or not to participate in the program.
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The Bottom Line
COBRA is a convenient way to keep your health insurance if you lose your employer-sponsored benefits, and it is sometimes the best option.
However, the cost is frequently high, and the plan is not always the best one to meet the needs of an individual or a family.
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