What is COBRA insurance? (and other frequently asked questions)
Next week marks my two-month anniversary at my new job. Huzzah! In addition to celebrating my new, higher salary, I am also feeling simultaneously challenged and less stressed.
I feel challenged because my new job is in an entirely different industry than my former position. But I'm definitely less stressed because the performance expectations are reasonable and my colleagues are fun and friendly. I may even be celebrating a new coworker soon, since the friend who got me into SEO in the first place (and who was also one of my professional references for my current position) has applied for a job in my department.
Saving can Make a Job Transition Easier
While all of these are good things, one aspect of my job transition that was less than festive was the Consolidated Omnibus Budget Reconciliation Act (COBRA) insurance process. Since one of the features of an improved economy is an increased willingness to switch jobs — or even to leave a current job without having another lined up — I thought I would share my experience with COBRA.
If you are planning to leave your job, then saving up in advance can be helpful. But even if you aren't planning to leave your job, it's also a good idea to have an emergency fund in an online high-yield savings account in the event your position goes poof! After all, there is no guarantee that any job will continue on forever.
(Disclosure: I am not an attorney or HR specialist. This is just my experience with, and understanding of, COBRA.)
What is COBRA Insurance?
As I mentioned in my post on intermittent FMLA, COBRA allows employees to stay on a former employer's health plan for a limited time after job separation, provided they pay the full premium (employer share and employee share). Being fired, laid off, or simply quitting your job all fall under the category of job separation.
In other words, if you leave your job for any reason and anticipate a gap in your health insurance, COBRA will help you fill that gap and maintain coverage. However, it is also important to read the fine print; namely, that if you want COBRA, then you have to pay the full premium. Since most companies provide health insurance to employees at a significant subsidy, the full premium is generally more expensive by several orders of magnitude.
When Should You Use COBRA?
Something else to note about COBRA is that since the passage of the Affordable Care Act (ACA or “Obamacare”), COBRA continuation of health insurance coverage may not be the cheapest or best option for coverage. If you are leaving your job to pursue self-employment, for example, then you may be eligible to purchase a plan on the health insurance exchange that is a better fit for your needs.
Job loss and qualified life events
Additionally, you can add or remove plan beneficiaries when opting for COBRA coverage because job loss is usually considered a qualified life event. For example, at my previous job, Jake and I were both on my plan because the coverage was amazing and it only cost $108 per month to cover both of us.
However, when I signed up for COBRA, he used my job separation as a qualifying event through his employer to sign up under their plan. We did this because to be on the plan at my job would cost over $350 per month compared to $43 per month just to cover me.
His employer covers the entire cost of health insurance if it's just for him, compared again to several hundred dollars a month to add me. So I got COBRA just for myself. You can also add or subtract eligible family members such as children to your COBRA plan when you sign up. Evaluate your situation carefully and do what works for you.
Does COBRA Provide Continuous Coverage?
On paper, yes, COBRA allows you continuous coverage. In the real world, however, the answer to this is a bit more complicated. I assumed, because I gave a month's notice when leaving my former position, that the process would be fairly seamless. However, according to the U.S. Department of Labor:
The employer must notify the plan if the qualifying event is the covered employee's termination or reduction of hours of employment, death, entitlement to Medicare, or bankruptcy of a private-sector employer. The employer must notify the plan within 30 days of the event.
A lag within a lag
See that last sentence? This meant that, for me, there was a lag within a lag. My employer notified the plan a week after my last day, and I received the paperwork to sign up for COBRA coverage in the mail a week after my plan was notified. So there was a two-week gap between when I left my former job and when I got the signup materials, called an election notice.
This was a real pain in the neck because I only needed two weeks of COBRA coverage to begin with! While my employment was actually continuous (I left my former job on a Friday and started my new job on the following Monday), I left my former job mid-month and wasn't eligible for my new employer's plan until the first of the following month. You have 60 days from when you receive the election notice to sign up for coverage, so it was actually possible for me to have foregone COBRA coverage completely.
Do You Have to Sign Up For COBRA?
If you will be signing up for a plan on the exchange and/or are able to time continuous coverage between employer plans like Jake was, you may not need to sign up for COBRA. I opted for COBRA because I am recovering from a herniated disc, so I had four or five physical therapy sessions and a specialist appointment during the lag time that couldn't be rescheduled. Not to mention that an accident or illness during the lag could have been very expensive.
I've thought about this, and the ethics are pretty murky. If your lag was short like mine, I don't see any reason (aside from morals) you couldn't wait until the end of the election period to see if anything bad happened and, if you were okay, just never sign up at all. Note that if something happened and you did sign up, you would have to pay for the entire period starting with the date that you lost your original coverage, so you should still prepare to get sick.
My physical therapist appears to only submit insurance claims at the end of the month, since they only ever asked me for my co-pay at my appointments. However, my specialist called me before my appointment to inform me that my insurance had lapsed. My plan co-pay was $30 and they charged $60 for self-pay, which I could submit for reimbursement.
Honestly, that seemed like a lot to go through for $30, so I opted not to do that. I waited until after I was on my new employer's plan to fill prescriptions. If I had needed them during the lag, I could have paid full price and, again, submitted for reimbursement.
Have you ever used COBRA? Do you have other questions about COBRA? Ask or share your experience in the comments below! And stay put for Part II, how the heck you cancel COBRA…