7 little-known facts about COBRA

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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.

“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.

3. Children who ‘age out’ of their parent’s plan can get COBRA coverage

Usually, children who are dependents of their parents are able to get health insurance coverage through their parent’s plan.

This coverage lasts until the child reaches a certain age (generally 19, or even older for full-time college students), loses his or her dependent status, and “ages out” of coverage on the parent’s health insurance plan, according to Sam Gibbs, a senior vice president with Mountain View, Calif.-based eHealthInsurance.

However, aging out of a parent’s health plan can count as a qualifying event under COBRA. That makes the child eligible for the COBRA coverage attached to his or her parent’s plan, Gibbs says.

4. Divorced or widowed spouses (and children) of beneficiaries can still get coverage

A legal separation or divorce means you won’t be covered under your former spouse’s employer insurance plan. However, these circumstances (as well as the death of the insured employee) count as a “qualifying event” for COBRA, so you could still receive benefits, says Gibbs.

You might be responsible for insurance payments, however.

5. You can change your mind

Even if you waive COBRA coverage in writing, you can change your mind and accept it later. You just have to make sure you accept the coverage during the election period, which is generally 60 days, says Gibbs.

6. If you go on Medicare, this is a ‘qualifying event’ for your spouse

The spouses of employees who qualify for Medicare can still receive COBRA coverage, Ellis says.

“If an employee retires and goes on Medicare, but their spouse is not of retirement age, the spouse can lose coverage” under the employer’s group plan, Ellis says.

However, the employee’s switch from private insurance to Medicare is a qualifying event, which means the spouse can then receive insurance coverage under COBRA, Ellis says.

7. Your specific health plan could still change

Even though COBRA is “continuation” coverage, it doesn’t necessarily mean you’ll still get the same benefits (with access to the same doctors, for example) that you’ve always had.

That’s because if your former employer changes the health insurance plan for their current employees, your COBRA coverage would be for that new plan, not the old one you are familiar with.