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How COBRA Health Insurance Works

COBRA health insurance can be a great option for those who have recently lost their job or who have lost health care due to reduced hours.

a guide to cobra health insurance

(Photo: alexskopje / iStock / Thinkstock)

Typically, COBRA is proposed as an option by your former employer if you depended on your job for health insurance. COBRA, which stands for Consolidated Omnibus Budget Reconciliation Act, is a federal law designed to help the newly unemployed, and those dependent on them, to continue their health coverage.

The basics of COBRA health insurance

Essentially, under COBRA health insurance, you receive the exact same health care as you had when employed for a temporary amount of time. Generally, you won’t have to switch doctors or anticipate other changes to your medication or medical care. The plan counts as “minimum essential coverage,” so you don’t need to pay a fee to the government like those without health insurance. But you’ll likely pay a higher premium and an additional 2 percent fee.

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The price of COBRA insurance premiums

Typically, an employer pays around 90 percent of a health insurance premium, while the employee pays around 10 percent. If your employer doesn’t offer assistance in paying for your continued health coverage under COBRA, you may have to pay 100 percent of your health insurance premium. However, it’s also possible to deduct your COBRA health insurance expenses on your annual tax returns if they exceed 7.5 percemt of your annual income. To get an idea of what your COBRA health insurance would cost, you can consult your company’s HR department and ask them the price of the full premium.

Who qualifies for COBRA health insurance?

Aside from being laid off, COBRA health insurance is also an option if you voluntarily quit your job, and you can continue on the COBRA plan for up to 18 months. In addition, if an employee who was enrolled in COBRA as part of a family plan dies, spouses and dependents can still receive health care through the plan. If a young adult comes off of dependent status because of school status or age, they are also entitled to continue with COBRA.

Reasons you won’t qualify for COBRA

It’s important to note that if you worked for a smaller employer of less than 20 employees, you likely will not qualify for COBRA health insurance. In addition, if your employer stops offering company health insurance, or the company goes out of business, you also will not be able to apply to COBRA.

a guide to cobra health insurance

(Photo: Ingram Publishing / iStock / Thinkstock)

The advantages of COBRA health insurance

So how do you know if it’s a good idea to choose COBRA or an option in the federal Insurance Marketplace? Although COBRA is most likely going to be the more expensive option, there’s a good chance that your employer’s health plan offered more extensive health coverage. If you like the doctors that are available under your employer’s plan and the quality of medical care you received, it might be worth paying the higher premium. If you’re considering finding a plan through the Marketplace, be sure to do thorough research on the coverage available and the doctors and services would have access to.

Other health insurance options

If at some point you feel you need to reconsider your health care options, it’s usually possible to switch to a Marketplace plan. If your COBRA costs suddenly change because your former employer ends financial assistance for your plan, or if your COBRA health insurance is running out, you can change to a Marketplace plan at any time.

However, if you decide to end COBRA early in your coverage period, you have to wait for an upcoming open enrollment period to apply in the Marketplace. If you simply want to end COBRA because it’s too expensive and no other conditions have changed, you won’t qualify for a Special Enrollment Period. The situation is different if you’re looking to enroll in Medicaid. As long as your meet all of the qualifications, you can drop your COBRA health insurance and enroll in Medicaid at any time.

How to decide on your family’s health plan

If you’re certain you want to continue your employer’s health insurance with COBRA, remember that you are basically agreeing to an 18-month commitment, and you won’t be able to find alternative health insurance unless you qualify for a special enrollment period.

Regardless of whether you choose COBRA health insurance or another plan, the most important thing is to make sure you have health insurance coverage. You don’t want to have to pay the penalty fee for being uninsured, and in case any unexpected medical conditions arise for your family, you’re going to want some kind of reliable insurance in place. If COBRA health insurance provides more benefits than your other options, it can be a great health care choice for you and your family.

Have any advice for those enrolling in COBRA? Share below!

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