How Does COBRA Work?

What is COBRA?

COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1985, was initiated to provide emergency coverage for employees who receive health insurance through their employer, and for one reason or another, lose their job (for example, have been laid off) and find themselves without any health coverage. COBRA allows these employees to continue their group insurance coverage if they chose to even after they leave their position.

How Do You Apply For Cobra Coverage?
After you have been terminated, your employer should provide you with details as to how you can obtain COBRA coverage.

Any Specific COBRA Rules?
First, COBRA coverage also applies to the employee's family. In addition, an employee can either choose to continue with COBRA or choose not to from the moment he has lost his job - he cannot use this coverage intermittently (i.e. start COBRA three months after he lost his job - in this case he will pay retroactively for those three months).

How Long Can I Carry COBRA coverage After My Job Loss?
COBRA coverage can last only a limited amount of time, typically about 18 months. This should give enough time to obtain a different source of health insurance. Hopefully by then the recession will be over as well, and the number of employed people would be on the rise.

What are the Advantages of Cobra?
The advantage of COBRA is that it is prevents an ex-employee from the need of obtaining a new health insurance - at least for a while. There problem is that getting such insurance can prevent one from getting treatment for pre-existing conditions. For example, a pregnant woman who is laid off and loses her insurance will have a hard time obtaining a new insurance. Thanks to COBRA, however, this is no longer an issue, as she can simply continue her existing coverage.

And the Disadvantages?
Note that depending on the employer, although employees are eligible to continue their previous health, dental and vision coverage, the employer no longer needs to sponsor this. This effectively means that the ex-employee pays the full cost of his health coverage, which will be much greater than what it used to be.

Personally speaking, I was using the COBRA scheme for a while, and as far as I remember, I paid about four times as much as I paid before, and this is after limiting the coverage to myself only. This truly makes one realize how big of a benefit health insurance is, and how much companies pay for health coverage for their employees.

COBRA Health Insurance and the Stimulus Plan
Thanks to the economic stimulus package (which started in February 17, 2009), certain people who lost their jobs are eligible to receive partial payment for their COBRA premium. We will discuss the eligibility criteria in the next article in this series.

In this article we introduced described what the COBRA plan is, its rules, its advantages and disadvantages. To read more interesting articles that will help you better understand our health insurance system, please visit our web site, The Guide To Health : A Comprehensive Resource For Health and Dental Insurance.

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