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This COBRA can be a lifesaver

How can I possibly survive without health insurance?

That's one of the biggest fears facing those who leave or lose a job.

Thanks to COBRA, a short name for a federal law with a clumsy title, you don't have to be left out in the cold.

COBRA (Consolidated Omnibus Budget Reconciliation Act) gives people in this dire situation a way to continue health insurance benefits when they suddenly find themselves out of a job and without insurance coverage. It's a scary situation even if you and your family are in good health, but far worse if anyone needs ongoing medical care.

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Simply put, you qualify if:

  • You quit or lose your job for any reason other than "gross misconduct"
  • You were enrolled in your company health plan
  • That plan covered at least 20 employees.
  • That employer is still in business

COBRA, which started in 1986, gives you the right to continue your former employer's group plan for individual or family health insurance for up to 18 months -- at your own expense, of course. In some cases, your spouse and dependent children can remain eligible for as long as three years.

If you decide for whatever reason to buy into a new insurance plan rather than continuing the one you had through your employer, you give up your access to the COBRA lifeline.

And it's also worth remembering that if you lose that private coverage, there is no way back into COBRA short of getting another job with a company-sponsored health plan.

Although 40 million Americans today are reported to be without insurance, only an estimated 4.7 million are on COBRA at any given time. And only one in five employees eligible for COBRA actually signs up for it.

Why do so few eligible people sign up for this safety net? They simply can't afford it, says Kathleen Stoll, director of policies for Families USA, a nonprofit organization dedicated to helping all Americans obtain affordable health insurance.

Stoll says it's often a loud wake-up call for those who lose their jobs and employer-sponsored insurance. Under COBRA, the employer is no longer paying for all or part of the cost, so the laid-off employee suddenly is facing monthly premiums in excess of $500 -- and much higher if a medical condition exists -- until he resumes employment and picks up insurance elsewhere.

The national average cost of COBRA coverage, explains Stoll, is $7,194 per year, or $600 per month, plus a 2 percent service fee. Since the national average monthly unemployment benefit is approximately $939, the family COBRA premium eats up nearly two-thirds of a family's typical monthly unemployment income.

But just as the technicalities of the law can work against you, they can also be worked to your advantage, say the experts.

Once your employer notifies you of your COBRA rights, usually via a letter mailed at or near the time you leave your job, you have 60 days to enroll, says Paul Fronstin, a senior research associate with the Employee Benefit Research Institute, a nonprofit organization that studies benefits and related issues. From the day you enroll -- by filling out a COBRA form and mailing or faxing it to your employer -- you have exactly 45 days to pay the premium.

But watch the calendar. If you mistime your calculations by one day, you're out in the cold. So, from the time you leave your job, you have more than three months (60 days for enrollment plus 45 more days to pay the premium) to get another position, find a better insurance deal on your own or get a part-time job to make the COBRA payments.
If calamity strikes, that COBRA premium probably will be a lot cheaper than the hospital bill.

Over the long term, the situation can worsen.

When COBRA coverage runs out after 18 months, you can continue insurance with a conversion policy which, say experts, averages $600 monthly for an individual policy and perhaps more than double if you are continuing with spouse and dependents.

"It is, unfortunately, an expensive situation that people find themselves in -- with not really a lot of options," says Dianne Wolman, a senior researcher with the Washington D.C.-based National Academy's Institute of Medicine.

Many states have adopted their own "mini-COBRA" laws, which provide COBRA provisions to companies with less than 20 employees. The time period in which to decide if you're going to sign-up for mini-COBRA coverage varies by state, however, and in most states, companies are not required to notify their workers they qualify.

A final word of caution: Your COBRA benefits can come to a screeching halt, sometimes as a result of reasons you have no control over. If your former employer goes out of business or ceases to maintain any group health plan, your COBRA benefits will abruptly end.

For more information about COBRA or self-insured employer plans, visit the Pension and Welfare Benefits Administration of the U.S. Department of Labor.

Bill Burt is a freelance writer in Florida.

-- Posted: Sept. 23, 2003

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