COBRA is it…
A renegade motorcycle gang?
An 80's hair metal band?
The villains from G.I. Joe?
If you answered none of the above, you're correct! Because while all of these sound pretty badass (or terrifying if you're hearing Cobra Commander's voice in your head right now), the grown-up version of COBRA has more to do with health insurance coverage than destroying the world.
COBRA is a law that ensures that if you're unemployed, you can retain your health insurance. Learning about the ins and outs of COBRA probably doesn't like much fun, but knowing your options will make losing your job way less stressful. Let's dive in.
What is COBRA?
COBRA stands for The Consolidated Omnibus Budget Reconciliation Act of 1985, which makes it sound like a metal band your Uncle Jerry started in his garage. It's a federal law that requires employers with 20 or more employees and group health care benefits to continue health care coverage for employees and their families if they become unemployed.
How is COBRA different than unemployment insurance?
The only thing that COBRA and unemployment insurance have in common is that you won't need them until you're unemployed. Beyond that, they're very different.
First, while COBRA is a federal law, it's not paid for by the federal government or even your employer. You pay your COBRA insurance premium yourself, and while you do still have access to the group plan rate, your employer will stop subsidizing your health insurance when you’re fired or laid off. Also, your employer is legally allowed to charge you a 2% administrative fee on top of your premium.
Second, unlike unemployment insurance, which is only for people who have involuntarily lost their jobs, you can use COBRA even if you leave your job voluntarily. If you quit because your boss won't stop listening blasting Kenny G, you still qualify for COBRA. There are other types of life events that can trigger COBRA, which we'll talk about next.
Finally, COBRA doesn't just cover you. It also includes everyone who's under your existing health insurance plan, like your spouse and your dependents.
Who qualifies for COBRA?
If your employer offers group health insurance to more than 20 full-time employees, then they are mandated to provide COBRA coverage. But, you actually have to be enrolled in that group health care plan for at least one day to qualify for COBRA.
Also, your employer needs to continue offering the plan after you no longer work there. That means that if your employer goes out of business, you may not qualify for COBRA.
Then, you, your spouse, or your children must experience a qualifying event. Qualifying events for employees are:
If your insurance plan covers your spouse, then, besides the events listed above, there are additional qualifying events:
If your insurance plan also covers your kids, then the qualifying events are the same as your spouse with an additional one:
If one of these things happens to you, your spouse, or your children then you qualify for COBRA!
What does COBRA cover?
COBRA covers the same thing that your existing health care plan includes. Remember, COBRA means that your employer is keeping you on your current policy and you pay the full premium without a subsidy.
How much does COBRA cost?
The cost of COBRA varies based on your insurance plan. If you’re planning for unemployment and want to figure out your COBRA costs now, take what you currently pay for health insurance and add back your employer’s subsidy.
For example, if you currently pay $130 per month and your employer pays $520, then your total monthly premium will be $650.
Then, add the 2% administrative fee by multiplying your monthly premium by 2%. Finally, add the administrative fee to your premium. In our example, the administrative fee is $13, and the total monthly premium is $663.
How long does COBRA cover me?
COBRA lasts for up to 18 months from the date that you enrolled in COBRA coverage. Your spouse and children’s coverage can be extended to 36 months if you switch to Medicare, get divorced, or if you pass away.
How do I get COBRA if I’m unemployed?
With most qualifying events, your employer is required to notify your health insurance provider of the change. Then you’ll receive an election notice that will have all the information you need to sign up for COBRA.
You have 60 days from receiving your notice to sign up for COBRA. If you miss the 60-day window then you won’t be able to sign up for COBRA at all, so you def don’t want to lag on signing up.
If you become divorced, legally separated, or your child loses their dependent status then it’s your responsibility, not your employer’s, to notify your health insurance provider of the change.
Do I have to use COBRA or do I have other options?
There’s no mandate that you have to use COBRA. You could also purchase an insurance plan from the open marketplace. Since you have 60 days to sign up for COBRA, there’s time to weigh your options and figure out which one is the most affordable for you.
If you’re worried about how you’ll cover the cost of COBRA without a job, consider a service like Otherhood, which provides a income in the event of unemployment. Otherhood offers a custom savings plan based on your expenses, which include your monthly COBRA premium. Every month, you receive a direct deposit (just like a paycheck), so you can stay on top of your monthly bills, stress-free. And if your employer is an Otherhood partner, they can help you save through pre-tax contributions and matching. If not, refer your employer and we'll get them setup in no time.