insurance

7 little-known facts about COBRA

Highlights
  • COBRA provides 18 months of health insurance to laid-off workers.
  • You'll lose coverage if a former employer goes out of business.
  • Some family members may be eligible for coverage.

Many people who lose their jobs turn to COBRA continuation coverage when there's no other option to get health care.

COBRA -- which stands for "Consolidated Omnibus Budget Reconciliation Act" -- is temporary health insurance that allows former employees to continue coverage under their old health plan if they have a "qualifying event," such as being terminated from a job.

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Under COBRA, employees must pay the full price of coverage premiums at a time when they least can afford it. As a result, COBRA is often a "last resort" option for health care, says John Ellis, a certified public accountant and principal of the John Ellis Co., an accountancy corporation in Long Beach, Calif.

"Before enrolling, you have to ask yourself how healthy are you?" he says. "Is this your only option for insurance?"

Before enrolling for COBRA coverage, Ellis suggests getting to know your former employer's COBRA administrator and learning more about the program.

"The administrator is required by law to notify you if you are qualified under COBRA, but it pays to be proactive and get your questions answered," he says.

Know these seven facts about COBRA coverage before you enroll:

1. If you get laid off next year, you might not get a COBRA premium reduction

Under the American Recovery and Reinvestment Act of 2009, eligible individuals receive a 65 percent reduction in their COBRA premiums. But that benefit ends Dec. 31, 2009.

Under current law, if individuals get laid off in January of next year, they will not be eligible for the 65 percent COBRA subsidy. However, that may change soon.

"The Extended COBRA Continuation Act of 2009 has been introduced as legislation to extend the premium reduction into 2010," Ellis says.

2. If your former employer goes bankrupt, you might not be eligible for COBRA

Former employees pay premiums in the COBRA program, but the coverage itself is still part of the employer's group plan, Ellis says. If the employer goes bankrupt or out of business, there may not be a plan for the employee to pay into.

Once your former employer discontinues all its health plans, COBRA coverage disappears.

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"This is another reason to proactively keep in touch with the COBRA plan administrator," Ellis says.

The administrator may alert you to any problems between the plan provider and your former company, Ellis says. It's important to know this information before a potential medical claim is denied for lack of insurance.

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