COBRA Coverage

COBRA coverage includes medical insurance, dental coverage, prescription drug service, hearing and vision plans, flexible spending account (FSA), and some Employee Assistance Plans. But if you have what's called "voluntary or specialty benefits," - like life insurance or accidental death policies - and your employer doesn't contribute to your premium, you can't receive COBRA coverage for those plans.

Who's eligible for COBRA coverage?

Most Americans who have jobs with health insurance are eligible. If you meet that qualification, there are three more to consider:

The company must have 20 or more employees -- and offer group health coverage
You have to qualify for COBRA - and so do your dependents
There has to be a qualifying event - i.e., the reason you lost your job and health coverage

COBRA qualifying events

Qualifying events for the employee include:

You've lost your job - voluntarily or involuntarily and so you lost your group health insurance with your employer
You lost your job for reasons other than "gross misconduct," like theft
Your employer reduced your work hours, thus canceling your health benefits
You become eligible for Medicare and consequently lost your group coverage
You become totally disabled

Qualifying events for the dependent:

You've just divorced or separated from your covered spouse
Your covered spouse becomes eligible for Medicare and thus lost group coverage
Your covered spouse has lost his or her job
Your covered spouse lost health insurance because of a reduction in work hours
Your covered spouse has died
You're a dependent child who was on a parent's insurance, but you've lost your "dependant child" status - typically age 19 or up to 25 for a full-time student

COBRA costs

It doesn't seem fair. You've lost your paycheck, and now your health insurance costs. Now your health insurance costs, through COBRA, can be very expensive - certainly more than you paid for health insurance out of your paycheck.

The reason is, you now have to pay the full cost of your health benefits. Before you left your job, your employer paid a portion of your health benefits costs - and you paid a portion. Now you have to pay the full bill, and the full bill for medical insurance can be substantial.

With COBRA, you'll need to pay these costs:

Premium - The amount that's been coming out of your paycheck
Premium - The amount your employer paid
Administrative fee: A 2 percent administrative fee on top of the premium

That's a total of 102 percent of the cost of the group coverage.

Example:

You've been paying $250 monthly premiums
Your employer was paying $250 toward your insurance
With COBRA, you have to pay both portions, or $500 a month premium, along with a 2 percent administrative fee, for a total of $510 a month.

What to consider when considering COBRA

When you lose your job, your employer has to inform you of what your COBRA benefits will be - but essentially your COBRA benefits are the same you had when you were employed.

Before you sign on the dotted line for COBRA, find out if you can:

Join a spouse's group insurance from his or her job
Sign up for individual health insurance

You'll want to compare the cost of COBRA to what it would cost for you - and your family members - to get individual health insurance. However, any one of you can be denied individual insurance if you have serious or chronic health conditions.

So COBRA may be your best resource if you're under a doctor's care, don't have the option to become insured under a spouse's insurance, and if you can afford COBRA's high cost.

When COBRA coverage ends

Your COBRA coverage ends when:

You decide to stop payment - like when your insurance from a new employer kicks in
You start coverage with Medicare
Your old employer stops offering group health insurance to all employees
Your COBRA continuation period has come to an end, typically after 18 months. You may be eligible for an extension beyond the typical 18 months to as much as 36 months

Typical COBRA continuation periods include:

Fired, laid off, or reduced hours: 18 months
Divorce or legal separation: 36 months
Employee's Medicare entitlement: 36 months
Employee's death: 36 months
Dependent child lost eligibility: 36 months

If more than one qualifying event occurs, your length of coverage may change. If you think you're entitled to an extension of COBRA coverage, you can file for an extension - before your initial COBRA coverage ends - with the Social Security Administration.

What if you have a disability?

If you or a dependent on your plan has a disability as determined by the Social Security Administration, you could be eligible for an 11-month disability extension to the 18-month period. But your costs could be higher for those additional months, up to 150 percent of the cost of the plan.

This disability extension could give you a total of 29 months of COBRA coverage. In some extreme cases - such as death of the covered spouse or a divorce - you may be able to extend that to 36 months of COBRA coverage.

COBRA payments

Your first monthly payment for COBRA is due 45 days from the day you sign up - but it'll be retroactive to the date your health benefits ended. So the initial payment will be high. Your employer will inform you what it is.

Here's an example. Say you lost your job and your health insurance ended on May 31. You talk to your spouse, crunch the numbers, and finally, in mid-June, you choose to continue your health benefits under COBRA. Your first premium is due approximately mid-September. But if the premium is $600 a month for your family, you would need to pay $2,400 for June, July, August, and September, plus another $600 for October's payment.

Stay on top of your COBRA payments

Once you've elected the coverage, all future monthly premiums for each month are due by the first of that month; although by law you can be up to 30 days late and not lose your coverage.

After your first payment, it's up to you to remember to pay your month-to-month premium payments. Your employer isn't responsible for reminding you that it's due.

What happens if you forget to send a payment within 30 days of the due date? You lose your health benefits retroactively on the due date. And, you lose all further COBRA continuation rights.

Can I be denied COBRA coverage?

Yes. If an insurance company denies you COBRA benefits, it has 90 days to let you know, and include the reasons for the denial and how to appeal it. Then you can file an appeal - with all appropriate documentation - within 60 days. Then it could take up to 60 more days before you receive a final decision.

Watch Healthcare Video: What is COBRA?