If you’ve recently lost your job, it doesn’t necessarily mean you’ve lost your insurance. You may qualify for COBRA. At this point, you may be asking how a snake is going to help you with health insurance as you’re feeling the painful bite of unemployment. You’ve also lost your health insurance coverage that you had through that employer. That’s perfect timing — you can’t simply buy a new individual health insurance policy because you can’t afford the premiums since you’re without a job. It’s not as though you could pay for any medical fees out of pocket without it being a hard blow right now either.
“Have no fear — COBRA is here!”
So what does a snake, have to do with your health insurance? In some ways, it could be viewed as an insurance superhero, as it can allow you to continue your health insurance coverage if you lost your job. Of course, nothing is for free, and it may not be ideal, but it’s certainly not the same sting of having no health insurance options at all. There are stipulations, but if you can navigate the ins and outs of the plan and make it work for you, you just may find some charm in COBRA.
What is COBRA?
COBRA health coverage is the result of a law that was passed in 1986. If employers offer a group health insurance plan, they must also allow any of the insured the option to continue health coverage if they lose their job due to a “qualifying event.” Before COBRA, when employees lost their job, they were immediately uninsured, turning a bad event into a potential disaster. What COBRA does is provide a cushion so that you don’t have to be uninsured and unemployed. You have time to find a new health insurance plan.
FAQ #1: Who can receive COBRA benefits?
As long as the parameters of a qualifying event have been met, anyone who was on your policy the day before the event can receive COBRA benefits the day after the event. Obvious this means you but it can also mean your husband or wife and your children.
FAQ #2: When does COBRA coverage begin and how long does it last?
COBRA coverage begins the date your health insurance policy ends because of a qualifying event. For an employee covered under a qualifying event, COBRA coverage can last for 18 months from the date you elect coverage. However, dependents can receive up to 36 months of coverage if you switch to Medicare, get divorced, or die. Otherwise, they’re covered for 18 months as well.
FAQ #3: What is a qualifying event?
A qualifying event must occur before you’re eligible for COBRA benefits.
- Death: If you die, you obviously won’t need to worry about health insurance but it’s nice to know that any dependents will be covered.
- Termination: If you get fired, you’ll probably be stressed, which can lead to health problems. Lucky for you, COBRA continues your health insurance.
- Divorce: If you get a divorce but had health insurance through your ex, don’t fight about it in court. You’re eligible for COBRA through their employer.
- Moving to Medicare: When you become eligible for Medicare but are covered under an employer plan, your dependents are qualified for COBRA.
- Growing Up: Family plans only insure children up to a certain age. At that point, they must obtain their own insurance plan but COBRA is provided so they have time to research the market.
FAQ #4: What does COBRA insurance cover?
When you choose to accept COBRA coverage, the beauty of this plan is that nothing about your policy changes except for the price. All your coverage limits, deductible amounts, and co-pays stay the same.
FAQ #5: Do all companies offer COBRA?
Not all companies can offer COBRA continuation just like all companies can’t offer health insurance. Employers who have 20 or more employees are required to offer COBRA, but if you work for a small business, the chances of continuing your health coverage are slim.
FAQ #6: How do I sign up for COBRA insurance?
It takes multiple parties to put a COBRA insurance plan into place. First, an employer needs to speak with the health insurance provider to inform them that an employee is eligible for COBRA. After that, a notice is sent to the employee, requesting acceptance or denial of the insurance continuation.
Normally, eligible employees have 60 days to accept coverage. Your received premium payment is a signal of accepting coverage, and there’s something to note about that 60-day period in which you can decide. Although that may translate to 60 days to try finding coverage that’s more affordable, that’s also 60 days worth of premiums you have to pay as soon as you’ve accepted COBRA. For example, if your COBRA premiums are $400 a month, you hold off on accepting COBRA, but then decide on Day 59 to accept it, your premium payment for those 60 days must be paid and received by midnight on the 60th day.
Since coverage begins on the first day that you were no longer able to have group coverage, coverage would then begin retroactively. This can be discouraging when realizing you just paid premiums for two months of coverage you didn’t use. However, premiums have to be paid before COBRA would have paid for anything, so no matter how long you wait, the premium has to be received for COBRA coverage to pick up tabs and be in effect. If you don’t want to get the feeling of paying for coverage that you didn’t use, opt for it early on. Remember, you can cancel as soon as you find a new policy, a new group policy, or quite technically, can cancel by way of not paying the premiums.
FAQ #7: Do I have to get COBRA?
You have the right to opt-out of COBRA, but be aware that being uninsured has risks. If something happens, you’ll have to pay for medical costs out of pocket, and if you remain uninsured too long, it can be prohibitive to becoming insured once again.
FAQ #8: Why should I choose COBRA coverage?
Choosing COBRA can seem like an expensive option, but it’s better than being uninsured. When you’re considering it, consider your personal circumstances. If you’re young and healthy, it might be cheaper to find a private health plan. On the other hand, if you have pre-existing conditions, it’s probably better to pay the COBRA premiums for a couple of reasons.
One, pre-existing conditions can make finding personal insurance difficult. Secondly, if you fail to take the COBRA insurance and also have pre-existing conditions, your premiums will increase more than you’ve ever experienced. A lapse in coverage and pre-existing conditions can both cause premiums to rise drastically just as individual factors. When they’re both factors, you’re facing premiums that can make COBRA premiums seem affordable.
FAQ #9: How much does COBRA cost?
COBRA is expensive. You’ll have to pay the full amount of the policy’s premium which was shared by you and your employer before. There are also administrative fees that can be tacked on but, but you may be able to opt out of dental and vision plans to save money.
FAQ #10: Can I extend my COBRA Coverage?
Maybe. If you’re healthy, you cannot extend COBRA. By the time your COBRA coverage period is finished, you need to have another form of insurance or else you’ll be uninsured — exactly why you shouldn’t prolong insurance shopping. However, if you’re considered legally disabled, you can get an 18-month extension.
FAQ #11: Can I lose COBRA coverage?
Yes, your COBRA coverage can be canceled. This can happen if you don’t pay your premiums or if your employer discontinues the group health plan. You can also cancel COBRA coverage if you find another health insurance plan.
Losing your job is stressful, but compared to finding affordable private health insurance, it can seem like a walk in the park. While COBRA will never be considered an affordable health plan, it’s certainly better than being uninsured. Health disasters don’t happen according to your insurance status, so you should never have any gaps in coverage. If COBRA is your only health insurance option, accept the coverage. If the premium is too high for you and it makes you nauseous to just think about them, let it be the fire under you that pushes you to start searching for better insurance and another job immediately.
Please be advised that, based on current IRS rules and standards, the advice contained herein is not intended or written by the practitioner to be used and cannot be used by the taxpayer for the purpose of avoiding penalties.
MillerMusmar CPAs is an established accounting firm with offices in Reston, and Virginia. We have a twenty-five-year history of providing top quality auditing, tax, and accounting services to clients throughout the Washington Metropolitan area and internationally. By combining the expertise of a mid-sized firm with the personal attention, we are both large and small enough to deliver a responsive service to our clients. For more information, please visit our website at www.MillerMusmar.com.