COBRA - how it works, who is eligible, what it costs, and more

mark waterstraat headshotAs layoffs, hiring freezes and recession fears continue to (understandably) grab headlines, it is important for employees to understand the benefits available to them, especially if their roles are cut. We sat down with Mark Waterstraat, chief customer officer at Alegeus and an industry expert in consumer healthcare funding, to learn more about health benefits for those impacted, specifically COBRA—how it works, who is eligible, what it costs, and more.

Question: Please explain what COBRA insurance is and how it works.

Mark: COBRA is a Federal law that applies to employers with 20 or more employees which allows individuals covered under the employer’s group health plan to elect to continue coverage under the employer’s health insurance when they lose coverage because their normal relationship with the plan ends (for example on termination of employment or reduction in hours or when a dependent’s relationship with the employee ends through divorce, death of the employee, or a dependent child aging out of the plan).

Question: Who is eligible for COBRA insurance, and for how long are you eligible?

Mark: Each individual who was covered under the employer’s group health plan at the time of the qualifying event (i.e. the termination of employment or the divorce) have the right to elect to continue coverage under the plans they were on (like the medical and/or the dental plan) when the qualifying event occurred. Some states have special rules and there are some other special circumstances, but generally under the Federal COBRA regulations people who experience an employee related qualifying event (like termination or reduction in hours) can continue under the employer’s plan for up to 18 months, and those who experience a dependent type of event (like divorce or the death of the employee) can continue for up to 36 months.

Question: What are the pros and cons of COBRA insurance?

Mark: In general there are two big pros to continuing on an employer’s health plan. First, you already know it, and you know if your doctors are part of the plan. This can be important if you or a member of your family are in active treatment and you don’t want to risk any changes. Second, if you’ve already had an expensive health year and have satisfied your deductible, you may want to continue your current coverage for the rest of the plan year versus having to start from zero with a new deductible on a new plan. The con generally is simply the cost of the premium. Most employer health plans are generous – often overly generous – and the premiums are high. If you continue the employer’s plan under COBRA you usually have to pay the full premium yourself without the employer contribution most employers pay for active employee coverage under their plan. Many employees may not realize just how much their employer pays each month towards their employees’ insurance premiums until they see the full cost themselves.

Question: What is the deadline to sign up for COBRA insurance?

Mark: Generally under the Federal COBRA rules you have 60 days from the date of the qualifying event to choose to elect continuation of coverage. You can choose to begin paying your premiums when you elect, or you can elect without paying and have an additional 45 days to make your first payment. It is important to understand though that when you make your first premium payment you must pay the premiums you owe back to the date of your original loss of coverage to then continue coverage moving forward.

Question: What does COBRA insurance typically cost? Who covers these costs?

Mark: The average US monthly health insurance premium for individuals is roughly $650 per month and for family coverage it is about $1850 per month. Again, that’s often shocking to many people who don’t realize how much employers cover for active employees. Except for special circumstances like government or employer subsidy programs that are sometimes in place like during 2021 due to Covid, the individual is responsible for paying the plan premiums.

Question: How can you apply for COBRA insurance?

Mark: If you experience a qualifying event (losing coverage under a group health plan due to termination of employment, divorce, etc.) you should receive an official letter from the employer or their administrator notifying you of your rights to elect continuation of coverage, the process to elect, and the cost of the premiums. If you think you should have received this letter and haven’t, you should contact the employer’s HR department.

Question: When do you lose COBRA eligibility?

Mark: You lose eligibility to continue health insurance coverage under COBRA if you fail to elect continuation within the 60-day election period; fail to pay the initial premium promptly within the timelines outlined; fail to pay your monthly premium at any time within its payment grace period; become covered under another group health plan; or reach the end of your maximum continuation period.

Question: What alternatives to COBRA insurance should readers explore?

Mark: Before electing health insurance continuation under COBRA, everyone should first understand their options. Depending on your age or life circumstances you may be eligible for Medicare, Medicaid, or government subsidies called “Advanced Premium Tax Credits” for individual health insurance through your state’s health insurance marketplace. Even if you’re not eligible for any of these, you should explore your coverage options for individual health insurance, the details of the available plans, and the monthly premiums. The best place to start is usually HealthCare.gov. Note the “Quick Start Guide” and “Find Local Help” links right on the home page.

Question: What is a mini-COBRA plan?

Mark: Since the Federal COBRA regulations apply to employers with 20 or more employees, most states have state laws often referred to as :”mini-COBRA” laws which are very similar to COBRA and generally apply to employers with 2 to 19 employees. If you experience one of the types of qualifying events discussed above, had employer health insurance coverage from a small employer, and receive a notice about your rights to continue coverage under the small employer’s plan, read it carefully. The state mini-COBRA laws sometimes have different time periods for electing, paying, and maximum lengths of continuation than Federal COBRA.

Question: Why is COBRA so expensive?

Mark: Health insurance in the United States is expensive because health care in the United States is the most expensive of any country in the world (pick your favorite source – one is https://data.worldbank.org/indicator/SH.XPD.CHEX.PC.CD?most_recent_value_desc=true). Employer-sponsored health insurance is often more expensive than individual health insurance, because employers usually offer more generous plans as part of their overall plan to attract and retain employees than one would buy on your own.

Question: Can you get COBRA insurance if you quit your job?

Mark: If your employer offers group health insurance, has 20 or more employees, and you were on the employer’s health insurance at the time you quit your job, yes, you would usually be eligible to elect to continue coverage under the employer’s plan when you quit your job. One way to know for sure is if you received a notice of your rights under COBRA from your employer when you were initially hired or when you first joined your employer’s health plan.

Question: Can you cancel COBRA insurance if you get other coverage?

Mark: Yes, and usually you are required to as your eligibility to continue coverage under COBRA generally ends when you begin coverage under another health plan.

Question: Any other thoughts, tips, or suggestions on this topic?

Mark: The two most important tips are (1) don’t delay and spend a little time examining your options when you first lose coverage under an employer health plan. Losing your employer health insurance and becoming eligible for COBRA rarely happens at a happy time, and you’ll feel like you have much bigger things to worry about than health insurance. Timelines through are strict. Contact your insurance carrier to understand exactly where you stand in covering your deductible for the year. Visit healthcare.gov and take advantage of the opportunity to “get local help.” Whether you choose to continue your employer coverage under COBRA, purchase an individual plan through healthcare.gov, or discover you are eligible for Medicare or Medicaid, the timeframes allowed for making your decision to elect coverage under each are tight. Don’t delay. (2) Read all the rules carefully. Put reminders in your calendar. Pay your premiums on time. There are usually no second chances if your fail to elect or pay on time.