How Does Cobra Insurance Work?
Everyone likes knowing they have the option to elect COBRA insurance but no one really seems to understand how it works or how to get started or if they should. The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a health safety net. Usually, an eligible person receives a letter from an employer or health insurer, outlining its benefits, usually after they are terminated from a job but sometimes earlier. This notification can be confusing due to legal jargon, which leaves people confused. Most people who consider electing it are unsure as to whom they need to contact to begin coverage within the 60-day deadline. If you’ve recently lost your employer-sponsored health benefits, you’re probably eligible for COBRA insurance, but keep in mind that costs are high and you may find a more affordable option for health insurance through an insurance agent. The best option is to compare health insurance quotes with an agent and also find out how much it will cost to retain your current health insurance through COBRA. Only then can you compare coverages and prices.
What Is COBRA Insurance?
Naturally, you’re wondering, how does COBRA insurance work? Did your spouse retire and elect Medicare coverage? Or did you lose your job because you were laid off or fired? Maybe you still have your job but lost your health benefits due to a cut in the number of hours you work. In all of these examples, you’re probably eligible for COBRA because your employer is no longer obligated to pay a share of your health insurance premiums. Other instances in which you’re eligible for COBRA coverage to include divorce or legal separation from the covered employee or the death of the covered employee.
In 1986 the Consolidated Omnibus Reconciliation Act (COBRA) made it legally possible for employees and their dependents to keep the same health insurance coverage by paying for it themselves if they lost their benefits. This protected demographic also includes retirees, who want to keep their old benefits.
While COBRA coverage costs more because the employer is no longer paying their portion of the cost, it is usually cheaper than buying the same exact health insurance plan as an individual in the marketplace. However, you will find cheaper alternatives to both with the help of an agent.
Note that COBRA may not provide dental insurance, dental treatments, vision care and even prescription drugs. COBRA also does not include life insurance and disability insurance.
Do I Qualify for COBRA?
COBRA applies to health plans offered by private-sector employers and the majority of local and state government employers too. Federal employees have similar protections as COBRA. Some states have mini-COBRA plans for businesses with fewer than 20 employees. Employers with 20 or more full-time employees are usually required to offer COBRA coverage.
You’re eligible for COBRA if you lost health benefits because your hours were decreased; if you were laid off or fired; if your spouse retired and went on Medicare; if you got a divorce from the covered employee (or legally separated); if the covered employee died; or if the dependent child loses dependent child status.
For you to be eligible for COBRA, you had to have been insured in a group health insurance plan on the day before the qualifying event (getting laid off, fired, etc.). The employer must continue providing health benefits to its existing employees of 20 or more people for you to receive the extended COBRA coverage.
You’re not eligible for COBRA if you were let go in a case of gross misconduct. If you do not qualify for unemployment, you may also not qualify for COBRA.
COBRA Insurance Rules
When you elect COBRA, you’re electing to have identical coverage to what you had before you lost your job, unless changes were made to plan benefits for all active employees.
From the qualifying event forward, COBRA insurance covers the insured for 18 or 36 months. The standard 18-month period can be extended if one of the beneficiaries is disabled and meets specific requirements or if a second qualifying event happens (death of a covered employee, legal separation or divorce of a covered employee and spouse, electing Medicare, or losing a dependent child status under the plan).
COBRA Insurance Cost
The first thing employers ask when they are facing the end of a job or a decrease in hours is, What about my health insurance? The second question they ask is, How much is COBRA insurance and COBRA dental insurance? The first question is difficult to answer because the COBRA health insurance cost for one person can be vastly different from someone else’s. Often, it’s because of the differences in the type of health insurance they had prior to losing their employer-sponsored health benefits.
To estimate your COBRA insurance cost, look at how much your employer was paying on your premiums. With COBRA, you’ll be paying what you always paid plus the employer’s portion, with an additional 2% tacked on for administrative charges.
While COBRA premiums are expensive, they are tax deductible if they exceed 7.5% of your income for the year. There’s also a Health Coverage Tax Credit (HCTC), a refundable tax credit, which pays up to 72.5% of COBRA continuation or a qualified health insurance plan of your choice if you qualify (this applies to certain individuals between the ages of 55 and 65). To see if you qualify for an HCTC, visit here.
Is it Possible to Be Dropped by COBRA?
Yes, if you fail to pay your premiums on time your COBRA coverage will end. If the employer extending the COBRA coverage no longer offers a group health plan or if the business dissolves, you will lose coverage. You can also opt to end coverage early if you become eligible for Medicare (your spouse may elect to stay on, however) or if you find another job that offers employer-sponsored health insurance.
Why Would I Choose an Individual Health Plan vs COBRA Insurance?
While you may pay a bit less with COBRA coverage over starting the same plan as an individual or family, you will not be at the mercy of the employer. In some instances, employers change group health plans and you will have to accept new terms under COBRA. Also, if your employer gets rid of the group health plan altogether, you will lose coverage.
There are other reasons to consider buying private insurance on your own rather than getting COBRA coverage. For one, you may find a cheaper alternative to the insurance plan you had at your former place of employment. You’ll also be in complete control of your plan and can make changes to it accordingly. Some people even prefer to carry their own health insurance over an employer’s for privacy reasons.
Whatever you choose to do for your health insurance needs, make sure you consult with a knowledgeable agent first.
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From October 15 - December 7, anyone with Medicare Parts A & B can switch to Medicare Part C (Medicare Advantage); anyone with Medicare Part C can switch back to Medicare A & B; anyone who with Medicare Parts A or B can join, drop or switch a Part D prescription drug plan; and anyone with Medicare Part C can switch to a new Part C plan.
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