If you are leaving your job, either voluntarily or as the result of a layoff or workforce reduction, you may be offered continued health insurance coverage through a plan called COBRA. COBRA is an acronym for the plan that gave rise to this special form of health insurance coverage – namely the Consolidated Omnibus Budget Reconciliation Act. This landmark act was passed in 1986, and it included, among other things, a number of health care provisions.
One of those provisions was designed to help departing workers maintain their health insurance coverage by paying the entire cost of the premium. Since many employers pay a significant portion of those premiums, accepting coverage through COBRA typically involves a sharp increase in out-of-pocket premium costs. Your employer should review these costs with you and you will have to decide whether to accept or decline this continuing coverage.
Deciding what to do about health insurance coverage is an important decision, and not one to be taken lightly. It is important to understand just what COBRA entails, what it is intended to do and how you can make the most of it. Here are some frequently asked questions about the COBRA provisions and how they apply to the average displaced worker.
Which Employers are Covered by COBRA?
Employers with 20 or more employees are generally required to offer COBRA coverage to their employees, and to notify their workers of the availability of such coverage. COBRA applies to health insurance plans offered by private sector employers and those maintained by most state and local government entities.
Who Pays for COBRA Coverage?
In most cases employees who separate from their employers, either voluntarily or involuntarily, will be required to pay the entire cost of the health insurance plan under the COBRA provisions. The total cost of the COBRA coverage may not exceed 102 percent of the cost of the plan as offered to existing employees. This 102 percent limit is designed to account for administrative and overhead costs the employer may incur when offering continued health insurance coverage to their former employees.
How Long Can a Departing Worker Stay on COBRA?
If you are eligible for coverage under the COBRA provisions, your former employer must give you an election period of at least 60 days. After that 60 day period is over, you have the option of continuing COBRA coverage or declining additional coverage. If you choose to continue on COBRA, you will be responsible for paying the premiums for the duration of your coverage.
In most cases the departing employee and his or her beneficiaries will be able to continue COBRA coverage for a maximum of 18 to 36 months. Your former employer should provide you will additional information regarding your continued eligibility for COBRA.
Should I Accept the COBRA Coverage My Former Employer Offers?
The decision to accept or decline COBRA coverage will be influenced by a number of factors, including your budget and the nature of your health care needs. It is important to review all your options, including state-sponsored health insurance coverage and private-purchase options, when deciding whether or not to take COBRA coverage.
The COBRA coverage option is designed to help displaced workers bridge the gap from one job to another by allowing them to keep their current health insurance, albeit at a higher cost. If you are offered coverage through COBRA, you will need to discuss the situation with your loved ones, review other options and decide which choice is right for you.