Know your COBRA rights

By Insure.com

If you lose your job, continuing your group health coverage may be a challenge. Whether you receive a pink slip, resign or are cut down to part time, you should know your COBRA rights.

COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1986, is an amendment of the Employee Retirement Income Security Act. It provides a safety net when you lose your group health plan.

Under COBRA, if you voluntarily resign from a job or are terminated for any reason other than "gross misconduct," you are guaranteed the right to continue your employer's group plan for up to 18 months at your own expense. In many cases, your spouse and dependent children are also eligible for COBRA coverage, sometimes for as long as three years.

If you continue your plan under COBRA, you can be charged 100% of the premiums plus a 2% administrative fee. According to a 2009 report by the nonprofit group Families USA, group health coverage for COBRA participants is useful but comes at a high price. The report shows that COBRA eats up 84% of the average monthly unemployment benefit. The report also found that in nine states, COBRA premiums exceed unemployment compensation. Because of its price, many people can't afford to take advantage of the COBRA safety net.

Relief is on the way for those who have lost their jobs since Sept. 1, 2008, or who lose them now through Dec. 31, 2009. Under the American Recovery and Reinvestment Act, you are likely eligible to receive a federal subsidy that will pay 65% of your COBRA premiums for nine months. There are some income restrictions, though, and the termination must be involuntary.

Even if you're eligible for COBRA, you may also want to consider buying individual health insurance or short-term health insurance to bridge the gap until you land a new job with health benefits.

Are you eligible for COBRA?

If your company has 20 or more employees enrolled in a group plan who have worked at least half the year, you are eligible for COBRA coverage. This includes full- and part-time workers.

One of several types of "qualifying events" must occur to make you eligible for COBRA, as the following chart outlines. You then are eligible to buy COBRA for the maximum coverage period as determined by your beneficiary status and the qualifying event.

COBRA coverage periods

Qualifying event	Beneficiary eligible for COBRA	Maximum coverage time
Voluntary or involuntary termination of job other than gross misconduct; reduced hours	Employee, spouse, dependent child	18 months
Employee entitled to Medicare; divorce or legal separation; death of employee	Spouse, dependent child	36 months
Loss of dependent-child status	Dependent child	36 months

Additionally, your spouse or any of your children may enroll in COBRA regardless of your own COBRA-election decision, assuming they were insured under your employer's group plan. Even if you forgo COBRA, any of your qualified family members may elect to continue their health insurance benefits under your former employer's plan. According to the Insurance Information Institute, qualifying events may include:

• You leave a company and become unemployed or self-employed.
• You are a widow or widower or child of an employee who died.
• You are the divorced spouse or child of an employee who has left the company.
• You are the child of an employee and you have reached the plan's cutoff age.

COBRA eligibility also extends to workers in state and local government, as well as to workers classified as independent contractors. Nonprofit organizations with 20 or more employees and a group health plan are also subject to COBRA regulations.

However, the law grants an exemption from COBRA continuation rules to federal employees, certain church-related organizations and firms employing fewer than 20 people. The IRS rules state that employers must figure part-time workers into their employee total to determine if they can claim exemption. Some states have enacted "mini-COBRA" laws that apply to employers with 2 to 19 workers; see Page 3 of  this article for more.

Video: What to do when your unemployment coverage ends

You must be covered under an employer health plan at the time of your job departure to be eligible for COBRA. If your employer has more than 20 workers but doesn't offer health coverage, or offers coverage only to certain groups of employees and you're not one of them, you won't be eligible for COBRA even if one of the qualifying events occurs -- nor will your spouse or children be eligible.

In addition, if your employer goes out of business, you won't be eligible for COBRA because there is no longer a health plan to "continue."

Your COBRA coverage ends when:

• You reach the last day of your 18- or 36-month COBRA coverage period.
• Premiums are not paid.
• The employer ceases to maintain any group health plan.
• The employer goes out of business.
• You obtain coverage through another employer group health plan that does not contain any exclusion or limitation regarding pre-existing conditions. (Eligibility under a spouse's group health plan does not count.)
• You become eligible for Medicare benefits.

Plan selection

Employers can -- but are not required to -- give you the option of dropping such benefits as dental and vision care while you're on COBRA. On the other hand, if you were covered by three different health plans at the same time (such as one each for hospitalization, prescriptions and medical care), you have the right to elect continuing coverage on any or all of them.

Additionally, if your former employer changes its health insurance plan for its current employees, you are entitled to receive benefits under the new plan.

If your employer switches plans, you won't be able to keep the old plan; you'll have to move to the new plan with the rest of the group.

Continued: Separate vs. 'bundled' plans

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