How Cobra Health Insurance Coverage Works

The Consolidated Omnibus Budget Reconciliation Act, or COBRA, allows you to continue coverage on your company‘s health plan for limited periods of time in the event that you terminate employment, or if you lose dependent coverage on the health plan due to a life event such as the employee‘s death or a divorce. This can be very beneficial if you have a pre-existing medical condition, which can make it more difficult to qualify for individual health policies and result in higher premium costs if you are approved.

Unfortunately, COBRA coverage can be very expensive as well, as the company usually absorbs a large part of the premium during employment and ends their contribution with the termination. If you are healthy and your medical expenses tend to be lower than the premiums, an individual policy may make more sense for you, so it’s best to explore all options and weigh the costs and benefits first. However, if you’ve chosen to go with COBRA, here are some of the things you’ll need to know.

The company nearly always terminates your coverage at the time you leave, so you will have to enroll in COBRA coverage in order to make it active again. Keep this in mind if you have any upcoming medical appointments or prescriptions to be refilled, as there may be a lapse in coverage until you have submitted an enrollment form and made an initial payment. During this time you may have to pay out of pocket for any medical expenses, in addition to the premiums. COBRA coverage is retroactive, though, so once your coverage is active again, it will be effective on the day after your employee coverage ended and any unpaid claims can be filed again and out of pocket expenses submitted to the insurance for reimbursement.

If you have been involuntarily terminated and are still out of work, money may be very tight, but if keeping your medical coverage is vital, you must pay your COBRA premiums on time. Federal payment guidelines allow you to mail payment by the 30th day of each month for that month’s coverage, but state that employers can refuse to accept payment if it is not mailed within that time frame and terminate your coverage. The employer must pay the insurance carrier in advance and is being reimbursed for that when you pay them, so they are unlikely to make any allowances outside of the federal regulations.

COBRA allows you to continue dental and vision benefits and flexible spending account policies as well if you were enrolled in them at the time of termination, but you do have the option to drop any policies at the time of your enrollment in COBRA. You may also drop dependents from the policy if they are able to find other coverage, which can reduce your costs. However, you will not be able to add dependents back or reenroll in policies until the employer’s next annual open enrollment period.

You can also change to a lower cost health policy (if available) during open enrollment, the only time that type of change will be allowed unless you are moving out of the insurance coverage area. Another thing to remember if you are considering a move while on COBRA – if the employer does not have a policy that provides coverage outside of the area they are in, which is not required unless they have other locations in other areas, you will likely only have emergency coverage with your current policy once you move.

These are the basics of COBRA, but many more questions can arise, especially if you are presented with a lengthy, complex and confusing notification of your COBRA rights and the one thing you do fully understand is the importance of maintaining your health coverage. Read the document carefully, be aware of your rights and ask questions about anything that isn‘t clear. After completing the initial enrollment process, the rest is fairly simple, you’ll just continue to use your insurance card as you did before – as long as you ensure the monthly premiums are paid on time.