COBRA

COBRA Health Insurance

COBRA simply stands for the Consolidated Omnibus Budget Reconciliation Act (1985).

It’s a federal law that gives workers and their families and option to keep coverage(as long as they cater for the cost) with their former employment-based health plan even in situations where the principal member would be forced to end the cover (either voluntary or involuntary termination) due to certain Qualifying Life Events(QLE).

The following are considered Qualifying life events for purposes of COBRA (job loss or changes in the immediate family);

• When the covered employees lose their job or work hours fall below the minimum threshold to qualify for group cover.
• The  worker under the cover is eligible for Medicare
• Former spouses
• Retirees before sign-in on Medicare
• Death of the principal member whose policy covered their family
• Children that lose dependency pass-child that has attained the age of 26 and opted for their own cover

COBRA is applicable to all employers who have 20 or more employees (any person employed for at least 1 day), including self-insured employers except the federal government group plans or church and their related plans (tax-exempt under section 501 of the Internal Revenue Code.)

It should be noted that COBRA health insurance may cover prescription drugs, dental treatments, and vision care. Life insurance and disability insurance may not be included.

How does COBRA Health Insurance work

Cover benefits under COBRA are essentially the same as the ones the currently active employees are enjoying under the group plan.

The same applies to copays, deductibles, coverage limits, and the same rights to appeal when it comes to any claim denials. The only difference will be in terms of cost as it’s not subsidized by the former employer.

Who is eligible for COBRA Insurance

You are eligible for COBRA coverage if;

• You were enjoying full group coverage in your employment-based health plan before the loss.
• The employer is not the federal government or church and church-related organization with at least 20 employees.
• That employment-based health plan is still active and you have elected to maintain the cover.
• You have lost coverage through a qualifying life event.

Current spouses, former spouses, and any dependent children are also considered eligible for COBRA coverage.

Rules of COBRA Insurance

In a nutshell, this is the best route to COBRA insurance:

1. Employment-based health plan ended due to a qualifying event
2. The employer will send you an election notice to restart COBRA Within 45 days of the qualifying event.
3. You have to enroll within a maximum of 60 days of this election notice and the cover will pick up after making the first premium payment.
4. Copays, coinsurance, deductibles, out-of-pocket expenses, and insurance cards will be maintained for the remainder of the cover and subsequent covers.
5. The first COBRA premium must be made within 45 days.
6. COBRA coverage is retroactive. Any medical costs incurred before the plan kicks in must may be submitted for reimbursement

Cost for COBRA Insurance

During transitions, the cost of COBRA will always come as shock due to the high sticker price. This is so because the term “group rate” is always incorrectly assumed to be a discount offer.

What most forget is, that the affordability of the most employment-based health plan always depends on the employer footing the lion’s share of the monthly premiums(Kaiser Family Foundation puts this subsidy at an average of 83% for single and 73% for family coverage).

After employment, the individual will now be expected to pay the entire premium on his own, and on top of this, the employer is allowed to charge an extra 2% to cater for administrative charges.

Take note, that these Costs are not allowed to exceed 102% of the cost of the employment-based health plan for employees who have not experienced a qualifying event. This still applies to a child who no longer qualifies as a dependent.

Any person on the federal continuation and who becomes disabled cannot be charged more than 150% of the total cost for a similarly situated person for 19-29 months.

COBRA alternative Health Insurance

• The individual health insurance market.

It’s also an alternative to COBRA. Before the advent of The Affordable Care Act(ACA), the individual health insurance market had a bad history of excluding people with pre-existing conditions.

Today, the cover is easily available through the Health Marketplace/Exchange regardless of medical history. This can be done during the annual open enrollment period (November 1 to January 15), and at any time during the special enrollment period (usually triggered by a qualifying life event).

You have less than 60 days to choose a plan, and it’s effective from the first day of the month after losing your insurance.

• Spouses/partner’s employment-based health plan.

Leaving your current employment triggers a special enrollment period that allows you a path to your spouse’s/partner’s plan. This is possible even if the spouse is not currently enrolled in their employment-based health plan.

The triggering event provides a 30-day window for signing up outside the usual Open Enrollment Period.

• Trade/professional group plan.

It’s easy to find pre-negotiated affordable premiums through national organizations that are mandated to offer benefits to independent workers.

The National Association for the Self-Employed offers these benefits to its members ($120 yearly membership fee). The Freelancers Union, which has no membership fees offers this service as well.

They normally don’t request any proof of self-employment for admission.

• Children’s Health Insurance Program (CHIP).

This is available to families (Low- and moderate-income families) whose income disqualifies them from Medicaid. It opens access to the family kids to low-cost coverage through CHIP (jointly funded by states and the federal government).

Short Term Health Insurance vs COBRA

Short-term insurance can also be referred to as temporary medical insurance. It’s meant to provide health care benefits for a specific period of time for a specific need and within the state’s insurance regulations.

Despite not being ACA-compliant as it doesn’t cover the 10 essential health benefits required by plans. It’s still proving to be a hit with millennials and other younger healthy individuals.

This is because it offers the best fit for certain situations, and at a fraction of the cost. It’s better than purchasing a full plan that may not be suitable when you are unemployed.

The monthly cost of short-term health insurance is significantly less than comprehensive insurance plans. Because;

• The products are underwritten. Medical questions to qualify for coverage tends to favor healthy individuals who essentially qualify for lower premiums. You have to answer questions related to your medical history to qualify for coverage.
• Allows a wide selection range for deductibles, co-payment, and out-of-pocket maximum options. Can fit any budget.
• The cost of continuing their health care coverage under COBRA can be prohibitive after employers remove subsidized premiums.
• Ease of signup and access to care.

Choose COBRA over Short-Term Health Insurance if the following applies to your situation;

• Remember Short Term Health Insurance is not ACA-compliant and will not provide Minimum Essential Coverage (MEC). This is particularly key if you have a pre-existing condition, or will need maternity, or mental health care urgently.
• If any member of your family needs ongoing treatment, you should continue with COBRA-based health insurance for them but opt for Short Term Health Insurance for the rest of the family members.

Bottom line

COBRA may be a convenient option for retaining health insurance for individuals who have just lost their employer-sponsored benefits. However, this convenience comes at a steep cost and may necessarily not be the best fit for their health needs.

• On your exit, it’s advisable to try and negotiate for a COBRA subsidy as part of a severance package.
• It’s also advisable to consider finding lower-cost coverage on the health insurance marketplace and consider if you are eligible for a premium subsidy to reduce your monthly costs.
• Use your Health Savings Account (HSA) to cater for your COBRA premiums (Under normal circumstances, insurance premiums are not eligible.). On the next enrollment plan, enroll in a less expensive plan like High-Deductible Health Plan (HDHP).
• Lastly remember, COBRA will have an effect on your income taxes since your contribution will no longer be deducted from your pre-tax income.