COBRA: Keeping Your Group Health Insurance

By: AARP Education & Outreach | Source: AARP.org | January 26, 2010

What is COBRA

"COBRA" is an acronym consisting of the initials of the 1985 federal budget legislation, the Consolidated Omnibus Budget Reconciliation Act. Some of the provisions in COBRA provide some protections for workers and their families who would otherwise lose their health insurance because of changes in their work or family lives, such as losing jobs or getting divorced.

Who Can Get COBRA Benefits

For you and your family to get COBRA benefits and continue in your group health plan, you must meet certain conditions:

• Your health plan must be from an employer with 20 or more workers or from certain state or local governments. Federal workers are protected under a law similar to COBRA. Check with the person at work who manages your health plan to be sure your plan is covered by COBRA.
• You must have been covered by a group health plan before the changes in your work or family life took place. For family coverage, your family also must have been covered by the group health plan before the changes took place.
• You must have lost your health insurance coverage because of specific changes or events in your work or family life.

FYI: If you are in a group health plan offered by an employer with fewer than 20 workers, you may be able to get benefits similar to COBRA under state law. Check with your state insurance department.

Covered Work and Family Life Changes

The kind of change you had in your work or family life determines whether or not you can get COBRA benefits. It also determines how long you, your spouse and children can continue to be covered by your group health plan.

FYI: Some states let you keep your group health insurance longer than the COBRA benefits allow. Check with your state insurance department to learn more.

The Cost of COBRA

COBRA coverage can be expensive because you must pay both your share of the monthly premium and your employer's share, plus an administrative fee of 2 percent.

For example, if your group health plan costs $390 each month, your employer might have paid $330 and you paid $60. If you lose your group insurance and qualify for COBRA benefits, you have to pay the entire $390 yourself. You can be charged up to 2 percent more for an administration fee. In this example, your COBRA premium would be $398.

If you have family coverage in a group plan, your monthly premium could be more like $280. When you add in your employer's share, which could be two to three times your share, your COBRA costs could jump to well over $1000 a month.

New COBRA Provisions Expanded into 2010

Because of new provisions first effective March 1, 2009, and extended in December 2009, your costs for this continuing coverage under COBRA may be lower. You must meet all of the following:

• You are eligible for COBRA any time between Sept. 1, 2008 and February 28, 2010;
• You elect COBRA when it is first offered or during the special additional election period;
• You qualify for COBRA because you were involuntary laid off between Sept. 1, 2008 and Dec. 31, 2009.
  
  For individuals with adjusted gross incomes between $125,000 and $145,000, the premium subsidy is reduced. Individuals with adjusted gross incomes over $145,000 will have to repay the subsidy. For couples with adjusted gross incomes between $250,000 and $290,000, the premium subsidy is reduced, and those with over $290,000 will have to repay.

• If you lost your job between Sept. 1, 2008 and Feb. 16, 2009 and didn’t sign up for COBRA, or if you signed up but are no longer enrolled, you have a new chance to sign up. You have a special election period in which to sign up; that period began Feb. 17, 2009 and ends 60 days after you get a notice from your plan. You will get a notice from your plan about how to sign up and what the new lower cost to you will be.
• If you were laid off after Sept. 1, 2008 and have been paying full COBRA premiums, you should contact your plan to get the documents you need to establish your eligibility for premium assistance. If you are eligible, your cost will be reduced by 65 percent for up to 15 months, beginning Feb. 17, 2009.
• Under the original rules, the subsidy was only available for nine months. Because of the December 2009 extension, you can continue to receive the subsidy for a total of 15 months.
• If you dropped your health insurance when your subsidy ended, you have 30 days to pick up your coverage again at the subsidized rate after getting notice that you can return to your coverage.
• You will need to make retroactive premium payments if you dropped your coverage. If you paid the full COBRA premium so you could continue health insurance coverage, you will either get a refund or the excess money you paid will be applied to your future premiums.

Important Deadlines

You or your employer must complete the following steps within the listed deadlines to get COBRA benefits:

• Your employer must tell your health plan if you are fired, quit, have your work hours reduced, enroll in Medicare, or die, within 30 days of the event.
• If you get your health insurance through your own or your spouse's job and separate from or divorce your spouse, you or your spouse must tell your spouse's employer about these changes in writing within 60 days.
• If your spouse and children have had health insurance coverage through your job and lose it through separation or divorce, you must tell your employer about these changes within 60 days.
• If your child has had health insurance through your job and is now no longer a dependent, you must tell your employer within 60 days.
• You must notify the plan administrator within 60 days if Social Security determines that you are eligible for Social Security Disability benefits and you are in your initial 18-month COBRA period. You must also notify the plan administrator within 30 days if you are no longer disabled.

Once your health plan has received this information, it must notify you within 14 days to confirm that you are entitled to COBRA benefits.

When COBRA Benefits Run Out

When your COBRA benefits run out, you may be able to convert your group insurance to an individual insurance policy. Under a conversion option, the insurance company that gave you group coverage will offer you individual coverage.

A conversion option makes it easier for you to get individual insurance, because you don't have to prove you can be insured. Otherwise, to prove you can be insured, you must get medical exams and tests that rule out certain medical problems the insurance company does not want to pay for. If it turns out you do have these problems, an insurance company may be able to refuse to sell you a policy or charge you more.

Benefits under the individual policy will probably be different from your group policy and you might have to pay more for them. However, it usually is worth checking into this option. You can always compare costs and benefits under the conversion policy with other individual plans.

Check with the benefits manager at your former workplace to find out whether or not its group insurance has a conversion option. Also, call your state insurance department to find out about any other rights under state law.

If you can't convert your group insurance to individual insurance, you will need to look at other individual insurance policies.