August 11, 2020
When change happens in your life, it’s important to maintain the financial security of your health by modifying your health insurance along with it. If you have lost, quit, or retired from your job, you are likely on the hunt for a new health insurance plan.
Many people immediately opt in for COBRA (The Consolidated Omnibus Budget Reconciliation Act) insurance, which extends your former employer’s policy for 18 months after your last day on the job.
This is because choosing a brand new health plan altogether (in the marketplace) may seem overwhelming when compared to extending a policy that you’re already familiar with through COBRA health insurance. However, it’s important to understand the eligibility, costs and details of COBRA to make sure you are making a good decision.
The Consolidated Omnibus Budget Reconciliation Act lets you temporarily keep the same health insurance plan you had at your old job. The idea behind it is to help you and your family avoid any points in time where you are without health insurance coverage. You won’t need to start over with a new deductible and upfront out-of-pocket expenses, nor find new doctors within a new network. You will be continuing with your current health insurance.
COBRA only applies to employees whose health plan is subject to the COBRA law. Most employers with group health plans offer this option, however, not all health plans do. In some states, there are other variations of coverage for employees who work for smaller companies (less than 20 employees) and don't have access to COBRA. You won’t be eligible for COBRA if your employer went bankrupt or if your health insurance policy was offered by the federal government or a church-related organization.
On average, COBRA insurance costs $1084 monthly. This amount will vary based on receiving individual or family coverage. Knowing your monthly premium will help you decide whether or not COBRA is the right option for you and your family. Figuring this out involves two simple steps and can be done in a matter of minutes.
Your first step is to determine your monthly premium with your former employer. Open your last pay stub, and look for the Insurance Deductions section. There you’ll find a few numbers that outline how much you paid and how much your employer paid (your employer likely subsidized, or paid for, part of the group insurance costs). Add up both of those numbers to know your current monthly premium. For example, if your employer paid $684 and you paid $375 in insurance premiums, then your total monthly premium is $1059.
Next step: Add a 2% administration fee to your monthly premium calculated in the first step by multiplying your previous monthly premium by 1.02 (Eg. $1059 X 1.02 = $1084). This is for any costs the employer takes on for the paperwork of extending your coverage. (It’s important to note that some people choose for an additional 11-month disability extension of coverage, during which your premium can be raised to 150% of the plan’s cost in the first 18 months).
There you have it! You have successfully calculated the amount it would cost every month to continue to receive health insurance under COBRA insurance law. This amount may seem expensive, as you are now paying the entire cost of your insurance rather than sharing the cost with your employer. However, it will likely still cost you less than individual health insurance. Be sure to compare the costs and the coverage while making this decision.
You have 60 days from your last day at work to choose to extend your health insurance coverage with COBRA. Even if you wait until day 59, you’ll have to pay your monthly premiums for the last 2 months upon your first payment, since it covers you from the day that you lost your health insurance. This also means that you’ve been covered for those two months, so you can claim any medical expenses from during that time.
Once those 60 days are up, your opportunity to sign up for COBRA is gone. If you didn’t sign up for any health insurance plan during that time, you might have to go uninsured until the next open enrollment period. That’s a risky thing to do, as you and your family won’t have insurance in the case of a medical emergency.
In the case where you’ve been recently employed somewhere new, but are waiting weeks to months for your benefits to kick in, you might consider filling the gap with short-term health insurance to cover yourself in the event of a medical emergency.
Your employer will give you COBRA information, including the steps to follow to extend your coverage. Contact them within a couple of weeks of leaving your job if you have not received that information.
Your coverage will end after 18 months from your last day of work. In some cases (known as ‘qualifying events’), coverage can be extended by up to another 18 months. Premiums will likely change during this extension period, and the length of the extension will depend on certain circumstances to the qualified beneficiary, such as a divorce, death, or becoming disabled.
Your coverage can end prior to the end of the 18-month period if you fail to make a payment. Make sure you are paying your monthly premiums as you will not be able to get coverage back once you’ve lost it due to a missed payment.