COBRA Health Insurance

2008 was a record year for job loss in the United States. 2.6 million jobs were eliminated, bringing the unemployment rate to 7.2% in December of 2008. The loss of income has an obvious impact on American life. What may not be so obvious is the impact of losing health insurance benefits.

A 2001 study found that medical expenses were a major factor in half of the personal bankruptcies in the U.S. Many Americans simply cannot pay the full price for medical care out of pocket. Fortunately, there is a way to keep group health benefits even after leaving a job.

COBRA is a U.S. federal program created by the Consolidated Omnibus Budget Reconciliation Act to let workers continue to receive health insurance from a group health plan when coverage would normally have been lost. Workers who have lost coverage, and their dependents, can elect to keep their group health plan so long as they pay the necessary premium.

Who qualifies for COBRA coverage?

There are three criteria for COBRA eligibility. The employer's health plan must qualify, coverage must be lost due to a qualifying event, and the person seeking coverage must be a qualified beneficiary.

A plan is covered if it is a group health plan, and the company had at least 20 employees for 50% of its normal business days during the previous year. Part time employees are pro-rated for the count according to the number of hours worked. If this standard is met, the plan is a qualifying plan.

Qualifying beneficiaries include the covered employee, as well as the employee's spouse, and dependent children. Divorced or legally separated spouses are also eligible. Any child born to or adopted by the covered employee during extended coverage is automatically a qualified beneficiary. If an employer declares bankruptcy, the law has provisions to include retired employees and their dependents, as well. Coverage lasts at least 18 months, and up to 36 for dependents.

Qualifying events for employees are a loss of coverage due to a reduction in hours, or leaving a job for any reason other than gross misconduct. For spouses and dependent children, qualifying events also include loss of coverage if the employee becomes eligible for Medicare, divorce or legal separation from the covered employee, or the death of the employee. Children qualify if they have lost their "dependent child" status as defined by the group plan.

There are filing deadlines to consider when thinking about using COBRA. Your group health plan administrator will have more information on how and when you must file.

What protection does COBRA coverage offer?

COBRA gives beneficiaries the same coverage as similarly situated employees and their dependents. This is usually the same the former coverage, but if the employer changes the health plan, the change will also apply to those who extend their coverage under COBRA. Beneficiaries must pay the full premium for their coverage, up to 102% of the employer's cost. The additional two percent is an administrative fee. In May of 2009, the Wall Street Journal reported that the average family with COBRA coverage pays $13,000 per year.

The American Recovery and Reinvestment Act of 2009 gives a 65% subsidy to employees who left their jobs involuntarily between September 1, 2008 and December 31, 2009. This subsidy lasts for up to nine months, and is paid for by the employer. Coverage phases out for higher-income workers.

There are other options beyond COBRA. Under the Health Insurance Portability and Accountability Act (HIPAA), you have the right to special enroll, or enroll in other health insurance without waiting for the next enrollment period. You may be able to use this to join another household member's group health plan. HIPAA also gives you the right to get individual health coverage without a preexisting condition exclusion period.