COBRA

cobraThe Consolidated Omnibus Budget Reconciliation Act, more commonly referred to as COBRA, was created in 1986 in order to help individuals and families maintain their health care benefits during periods of unemployment. It was continued under the American Recovery and Reinvestment Act of 2009, which provided a reduction in premiums prescribed in the original act of 1986. It is an important safety net of sorts for those that have recently lost their jobs or are transitioning to a new line of work.

However, it was not designed as a permanent or universal health insurance option. COBRA was mandated by the federal government and is not run by private insurance companies. It was essentially designed to allow a continuation of the group coverage provided by the employer after the employee has left the company, whether the termination was voluntarily or involuntarily. The program was intended to help solve some of the problems that can come up when lapses in health insurance occur; including clauses that can exclude people on the basis of a “pre-existing condition”. And while this program has been largely hailed as an excellent social safety net, the system is not perfect.

The advantage of a group insurance policy, which is what most employers offer, is that you are only required to pay a portion of the overall premium, with the company picking up the rest of the tab. This makes the cost of health insurance a great deal less than what it would normally be. However, while COBRA mandates that terminated employees be able to continue their health coverage under the same policy, it does not mandate that the employer continue to pay their share. The result is that, while the coverage continues uninterrupted, the cost of this coverage goes up considerably because the former employee must pay the full price of the insurance.

On top of this, it is not uncommon for a two percent administrative fee to be added to the bill. Now this being said, premium group insurance rates are often less expensive than paying for private individual insurance policies. Private insurance policies do not have the advantage of pooling resources from a group, and as such, they tend to cost a great deal more. This is especially true if you have to add a spouse or children to a private policy. It is, however, advisable to research what private plans are available to you before you register for COBRA insurance coverage, as it is sometimes possible to find a better deal in the private sector. It is also important to remember that not everyone is eligible for coverage under this government mandated plan.

First, only those that were part of a group insurance plan covering 20 or more people will be able to take advantage of COBRA, and you must be covered by that plan at the time you became unemployed. These benefits do not extend to those that lose their job through gross misconduct. For those that do qualify, the benefits are only temporary, usually only being extended for a period of 18 months. However, under special circumstances, these benefits can be extended for up to 36 months.