What is COBRA and How Does It Work?
In this case COBRA isn't the venomous, yet charming snake. Simply put, COBRA is a federal law that gives you the right to temporarily continue purchasing the group health insurance you had at work when you leave your job due to a qualifying event.
What is COBRA?
It stands for Consolidated Omnibus Budget Reconciliation Act – which explains why they call it COBRA. It applies if your company's group health plan covers 20 or more workers, and in instances of a qualifying event. These events include having your hours cut, quitting your job, or being let go for a reason other than gross misconduct, like stealing.
In general, COBRA allows you to continue your coverage for up to 18 months. Certain people with a disability are allowed 11 additional months. And, even if you choose not to extend your coverage immediately after you leave your job, you have a grace period in which you can still enroll.
Let's say Gary loses his job due to cutbacks because nobody is buying his company's battery–operated flyswatters. Because losing your job is a qualifying event, Gary can use COBRA to cover himself and his wife, provided she was covered in his health plan at work. Gary's wife can still continue to use COBRA if Gary becomes entitled to Medicare and gives up his group coverage, if there is a divorce or legal separation, or if he goes to that great golf course in the sky.
Dependent children who were covered by his plan can use COBRA in those same cases. They can also extend their coverage when they are no longer considered dependents.
When you use COBRA, you are responsible for paying 100% of the cost, plus an administrative fee. That means you pay what you paid as an employee, plus what your employer paid, plus 2%. This may still be less expensive than an individual policy with similar coverage, so do your research.
BREAKING NEWS
This just in: With the approval of the new stimulus package, COBRA's terms have changed.
Individuals who are eligible for COBRA – except those who left their jobs voluntarily – may qualify for a 65% subsidy for nine months. That's big! Let's say Gary is laid off from Global Flyswatters, Inc. between September 1, 2008, and December 31, 2009. He is now qualified to get COBRA coverage for just 35% of the total cost even if he already declined it.
That means, if Gary's health insurance cost his company $300 a month, and cost Gary $200 a month, his total insurance cost was $500 a month. Under the new stimulus plan, Gary would be eligible for COBRA for just $175 a month. He's eligible as long as he isn't what they call a –high–income individual– – that is, a single tax filer with an adjusted gross income of $125,000 or more, or a joint filer with income over $250,000. Not a problem for Gary.
COBRA Summary
When you leave your job due to qualifying events, COBRA gives you the opportunity to continue purchasing the group health insurance you had for yourself and your dependents for a limited time. Normally, you pay 100% of the cost. But with the new stimulus package, qualified individuals are entitled to a subsidy that covers 65% of the total.
