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.
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.