How Does Cobra Insurance Work?

Key takeaways:

  • COBRA is a federal health-insurance law. COBRA allows you to keep your existing employer-based coverage for at least the following 18 months if you lose or leave your employment.
  • Your current health-care plan will suddenly be more expensive. Under COBRA, you are responsible for the entire payment, including the portion that your former employer used to pay.
  • Mini-COBRA statutes exist in several states, which may provide additional months of coverage or more substantial payouts.
  • A young couple sits at their dining table, surrounded by their laptop, paperwork, and notes.

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It’s difficult to lose a job. Fortunately, COBRA prevents you from losing your health insurance at the same time.

The COBRA programme is called after the federal statute that established it in 1985, the Consolidated Omnibus Budget Reconciliation Act. After certain work or family changes, COBRA protects employees and their covered dependents from losing their employer-based health insurance. People who are eligible can keep their current health insurance for an additional 18 months (or more, in some cases).

Continue reading to learn more about COBRA, who is eligible, and why it is so costly.

What is COBRA health insurance, and how does it work?

Your COBRA health insurance is the same as your employer-provided coverage. After a qualifying life event, “having COBRA insurance” simply means that you and your insured family members will continue to be covered by your employer’s group coverage.

  • You were a member of your company’s health plan.
  • There are at least 20 people working there.
  • That health-care package is still in effect.
  • You lost coverage due to a qualifying event.
  • COBRA coverage is available to your spouse, former spouses, and dependant children.

What is mini-COBRA insurance, and how does it work?

Some states have “mini-COBRA” legislation that allows insurance benefits to be extended beyond the federal program’s limits. Some states’ mini-COBRA laws, for example, allow coverage to last longer than 18 months (such as Texas and New York). State mini-COBRA legislation, on the other hand, may apply to businesses with less than 20 employees. This is a law in California and Florida.

Qualifying life events are changes in your life that may cause you or a family member to lose coverage under an employer’s group health plan, such as:

  • The termination of the insured employee’s employment
  • When an insured employee turns 65, he or she becomes eligible for Medicare.
  • Divorce of the covered employee
  • The death of an insured employee whose family was covered by their insurance policy.
  • When the insured employee’s child reaches the age of 26 and no longer qualifies for family coverage,

What is COBRA and how does it work?

If your prior employer had more than 20 employees and provided group medical insurance, you may be eligible for COBRA. People who acquire their employer-based insurance through: are not eligible for COBRA coverage.

  • Small businesses (those with fewer than 20 employees)
  • Churches and affiliated organisations in the federal government
  • COBRA insurance benefits are the same as those provided to active employees. COBRA coverage has the same copays, deductibles, coverage limits, and appeal rights in the event of a claim denial as standard coverage. If your employer’s health plan included prescription medication coverage, vision care, and dental coverage, your COBRA will include all of those benefits as well.

However, these benefits will cost you extra because you will be responsible for the entire premium, including your half and the employer’s share.

Who is eligible for COBRA benefits?

If you meet the following criteria, you may be eligible for COBRA coverage:

If your state law provides higher benefits than the federal COBRA legislation, your state law takes precedence. You can find out if your state has mini-COBRA legislation using online resources.

What is the procedure for enrolling in COBRA insurance?

You must tell your health plan administrator within 60 days if you want to enrol in COBRA. The plan administrator must next present you and each covered member of your family with notification of your COBRA entitlements. After that, each adult in the family has 60 days to choose whether or not to continue with COBRA coverage.


Your COBRA notice will include important details concerning rules and deadlines, such as:

  • How can I sign up for COBRA?
  • When must you make your COBRA decision?
  • How should the plan administrator be notified?
  • COBRA coverage will commence on this day.
  • The coverage’s maximum duration
  • Your monthly payment and the date it is due
  • Any premium payments that are due retroactively
  • Situations in which coverage may be cancelled prematurely
  • The COBRA notice should include all of the details concerning the premiums you’ll have to pay. It will list the amount owed as well as your payment alternatives (weekly, monthly, or quarterly). Although no money is required with your election form, you may be required to pay the initial payment within 45 days of completing the form. If you miss that deadline, you may lose your COBRA coverage.
  • You have a 30-day grace period for other premium payments. You may lose your COBRA privileges if you skip the grace period. Late payments may result in your insurance being cancelled. However, if you pay inside the grace period, the coverage may be reinstated retrospectively.

Following a layoff or a reduction in anticipated work hours, people are normally entitled to 18 months of federal COBRA continuation coverage. Coverage for your spouse and dependent children can last up to 36 months under certain conditions.

The date of the job loss or other qualifying event triggers coverage. Even if you wait a long time to join, after you’ve paid the premiums for that period, coverage is retroactive to that date.

You have the option to cancel your COBRA coverage at any time.

What’s the deal with COBRA insurance prices being so high?

COBRA premiums are higher, despite the fact that you’re getting the same amount of coverage. This is due to the fact that you are responsible for paying the entire health insurance premium (rather than your former employer paying a share). Additionally, a modest administrative fee of up to 2% may be charged.

Because this might be a significant financial burden during a time of change, it’s vital to consider all of your other healthcare options before enrolling in COBRA.

The federal government’s American Rescue Plan provided premium discounts to help offset the cost of COBRA during the pandemic. However, the COVID-19-related programme will be phased out on September 30, 2021.

What to Know About COBRA and Medicare

If you’re eligible for Medicare and your employer’s health plan coverage terminates, you can enrol in Medicare.

This is true even if you didn’t sign up for Medicare when you first became eligible. You may have waited because you were still employed and insured by your employer’s health plan.

In any case, when your current plan expires, you’ll have an eight-month special enrollment period (SEP) to enrol in Medicare.

Your SEP will begin in one of two ways:

  • The month after your work ends, or the month after your group health plan supplied by your company expires
  • If you’re in this circumstance, COBRA continuation coverage may be a better option than Medicare. However, if you later decide to enrol in Medicare Part B, you may find yourself with a coverage gap. You may be charged a monthly late enrollment penalty in addition to your Part B premium if you miss the deadline.

COBRA coverage may be discontinued if you choose COBRA initially and then enrol in Medicare Part A or B later.

It’s a different storey if you’re already enrolled in Medicare Part A or B and then decide to enrol in COBRA. In that instance, your COBRA coverage will continue to be in effect in addition to your Medicare plan.

Medicare will be your primary payer, and COBRA will be your secondary payer if you have both Medicare and COBRA.


COBRA coverage vs. ACA coverage

If you are qualified for COBRA, you are not required to use it for health insurance. You should see if a health insurance marketplace plan under the Inexpensive Care Act (ACA) is a more affordable choice.

Even if you quit or get fired, losing your job is a qualifying life event for ACA plan enrollment. A special enrollment time is available to you (SEP). You’ll be able to enrol in a plan right away, rather than waiting until the autumn open enrollment period.

You may discover that ACA marketplace plans save you a significant amount of money over COBRA coverage. In and of themselves, the ACA plan rates may be cheaper. Certain tax credits may also be available to you. The credits can be used to pay for Marketplace plan premiums as well as out-of-pocket expenses like deductibles and copayments.

Last but not least

After a change in job status or family circumstances, COBRA continuation coverage can help you keep your employer-based health insurance. However, because you pay the whole premium plus an administrative surcharge, it can be quite costly. Examine other insurance options before enrolling in COBRA. If you qualify for premium tax credits or cost-sharing subsidies, an ACA plan may be significantly less expensive.

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