A significant limitation of job-based health insurance is that you can lose coverage when you or your spouse change employment. To protect you and your family, the federal government passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) in 1985.
One provision of COBRA requires certain employers to offer temporary continuation coverage to employees and their family members when they become ineligible for a job-based group health insurance plan. When an employer provides you COBRA continuation coverage, you have the option to “continue” to be covered by your job-based health plan even though you’re no longer eligible for it. The idea is to help you and your family avoid a coverage gap.
Continuation coverage is temporary. In most situations, you and your family can remain on COBRA for up to 18 months. And exceptional circumstances may allow you to extend it for up to 36 months.[1]
COBRA generally applies to companies with 20 or more employees, and some states have passed mini-COBRA laws that extend the continuation coverage requirement to smaller companies.[2] However, COBRA continuation coverage is not always available. For example, if your employer is going out of business or decides to cancel its health insurance plan, continuation coverage won’t be available. The plan can’t cover you if it no longer exists.
Note: Today, with the availability of guaranteed-issue individual and family health insurance coverage, COBRA is less critical. When Congress passed COBRA in 1985, individual health insurance often required medical underwriting. You could be denied coverage due to a health condition.
Deciding whether to continue coverage on COBRA
When you lose your job-based health insurance, you have two options:
- Replace it with a new health insurance plan
- Continue it temporarily via COBRA
Your employer and your insurance company will provide you with information on the cost to stay on your coverage. You will have up to 60 days to make a decision.
Note: It’s essential to make a health insurance decision within 60 days of losing your job-based coverage. If you fail to decide within 60 days, you will lose the option to enroll in COBRA, and your special enrollment period for individual and family coverage will expire.
Most of the time, you will want to switch to a new health insurance plan when you lose their job-based coverage. The primary reason for this is cost. Under COBRA, you pay the whole premium, which makes COBRA expensive.
Most individuals and families will be able to find affordable coverage via one of the following options:
- Purchasing individual and family health insurance coverage with a premium tax credit.
- Enrolling in a government health program
- Obtaining group coverage through your spouse's employer
- Securing group coverage from your new employer
The primary benefit of continuing coverage via COBRA is that it maintains the same benefits. Your deductible won’t reset, and you’ll be able to see the same doctors. Suppose you or a family member are receiving care for a medical condition, or you’ve already met your annual deductibles and out-of-pocket maximums. In that case, it might make sense to elect COBRA even if it’s more expensive.
Note: If you’d like help choosing between COBRA continuation coverage and a new health insurance plan, sign up for LegUp Health. LegUp Health specializes in individual and family health insurance coverage, and we’re here to help you make a confident decision.
Notes
[1] For details on COBRA eligibility and timeframes, check out this guide from the Department of Labor (DOL).
[2] For example, Utah has a mini-COBRA law.
