Losing your job is stressful enough without the added burden of paying for a medical emergency or hospital stay. But tucked into that sheaf of papers your former employer handed you lies a few pages of comforting news. You're probably already familiar with COBRA, or, more specifically, the federal law called the Consolidated Omnibus Budget Reconciliation Act of 1985, which guarantees that losing your job doesn't mean losing your health insurance. But while COBRA can help ease some tension, it's not a panacea for all conditions. Here's what you need to know before you sign up for COBRA, and what to do if you decide it's not for you.
What is COBRA?
First, though, a few basics: Under COBRA, you, your spouse and your dependent children can choose to continue being covered by your former employer's group health plan for up to 18 months (or up to 29 months if someone in your family is disabled) after you leave your job. It doesn't matter if you were laid off, fired or you quit; you're eligible as long as your termination isn't due to "gross misconduct." Eligibility means you'll be able to keep your health, dental, employee assistance and flexible spending benefits, although COBRA doesn't allow for life or disability insurance. (COBRA also ensures that you won't lose your health benefits if your spouse dies while you are insured under his or her company plan, or if you become legally separated or divorced. In that case, you and your dependents can keep your coverage for up to 36 months.)
Federal COBRA protection applies only if you worked for a company that had at least 20 employees, though many state laws require smaller companies to offer similar coverage. (Check with your state department of insurance to find out more about the rules in your state. The National Association of Insurance Commisioners' Web site has links to each state's insurance division.)
COBRA Costs Can Bite
COBRA coverage isn't cheap. While your old employer will continue covering you under its health plan, very few continue pitching in for the cost of the premiums. Instead, you'll foot the entire bill, plus a 2 percent administration fee.
Before you consider paying for COBRA benefits, see if you're eligible for health coverage under your spouse's employer-sponsored plan. Just be sure your spouse's plan covers the health services you'll need and allows you to keep your doctors, if that matters to you.
If you're single, or if your spouse's plan doesn't suit your needs, you'll have to pay for your own coverage. COBRA benefits may be expensive, but you'll pay less under a group health plan than you would if you tried to buy the same benefits in an individual policy. Keep in mind, however, that many company health plans tend to be comprehensive, covering basic expenses like routine doctors' visits and prescriptions. If you don't need such generous coverage, it pays to shop for an individual policy that covers only the major bills (and covers them to the highest maximum levels). You'll pay lower premiums if you can afford to cover smaller medical costs out-of-pocket and agree to higher deductibles.
Timing Is Key
Shortly after you leave your job, your employer (or health plan administrator) will send you information outlining your COBRA options. (If you leave of your own accord, it's a good idea to contact the plan administrator yourself right away.) If you decide to continue your group coverage under COBRA, you must notify your employer or health plan of your choice within 60 days from the date you lost your coverage or the date the eligibility notice was sent, whichever is later.
Tip: Don't rush to buy coverage. If you're job hunting, wait until close to the 60-day deadline -- but don't miss it! If you get a job with a company offering immediate health coverage, may never need to buy COBRA coverage. If you don't find a job before the 60-day period ends, you can elect to get COBRA and you'll be covered retroactively to the day your employer-sponsored coverage ended.
What's more, you generally have another 45 days from the day you elect COBRA coverage to pay the first premium. (The first payment is often higher than the regular payments, since it's retroactive back to the day you lost your coverage.) There's also a 30-day-grace period after each regular premium payment comes due.
When COBRA Doesn't Cover You
If you're not eligible for health coverage under COBRA because you worked for a small company or your employer went out of business altogether -- or if COBRA coverage is just too expensive -- you need to find your own health insurance.
Workers in good health (with no preexisting conditions) should have little problem buying an individual policy, though it pays to shop around since costs and benefits vary widely from insurer to insurer. Contact your state department of insurance for a list of carriers selling individual policies where you live, or speak with an insurance agent. Ask friends and coworkers for agent referrals or contact the National Association of Health Underwriters.
Many professional associations, alumni groups and unions provide health insurance at group rates to their members. Contact any organizations you're affiliated with; or to find out if your alma mater offers coverage, call the Canter Insurance Agency (formerly Alumni Insurance Agency and Administrators) at 800-726-2422.
If money's tight, consider buying a short-term health insurance policy. These inexpensive policies, written for one- to 12-month terms, carry high deductibles, but typically cover major medical expenses such as emergency care, surgery, hospitalization, X-ray and lab tests. Short-term policies usually do not cover prenatal care, immunizations or child wellness care.
If you have trouble finding individual health coverage because of a preexisting condition, ask your former employer or plan administrator if you can convert your group policy to an individual one without a medical exam. If you can't, go back to your state insurance department for information on insurance for high-risk individuals.
And remember, you can generally write off medical and dental expenses that exceed 7.5 percent of your adjusted gross income. For more information, see IRS Publication 502, "Medical and Dental Expenses."
Whatever you do, try not to let your health coverage lapse. Another federal law, the Health Insurance Portability and Accountability Act (HIPAA), guarantees that you won't be denied future individual health insurance as long as you haven't had a gap in your coverage of 63 days or longer. Let your coverage lapse and your health insurance woes could continue to plague you long after you've found another job.