How Does COBRA Insurance Work?

COBRA insurance covers the same medical services as employees can receive.
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If you get health insurance at work, it's possible to lose your job and keep your coverage. The federal Consolidated Omnibus Reconciliation Budget Act (COBRA) normally allows you to keep your policy in force for 18 months after you and your employer part ways. Usually, any health-care plan offered by private employers with at least 20 employees has to offer the COBRA option. COBRA usually costs more than you paid as an employee.

Qualifying Event

You're entitled to enroll in COBRA when you have what the U.S. Department of Labor calls a qualifying event. This includes quitting your job, getting fired or having your hours cut. If you were covered through your spouse's employer's plan, getting divorced is a qualifying event. You aren't qualified if you're fired for gross misconduct. Your health plan should give you the information you need to enroll. You have 60 days from the qualifying event to apply.

Benefits and Costs

COBRA coverage has to give you the same benefits as the employees still covered by the employer's plan. The premium is the same except for a 2 percent extra for administrative expenses. However, before the qualifying event, your employer may have paid part of that premium for you. In COBRA, the employer can pay some or none of that premium. That can leave you paying significantly more for the coverage than you did before. If the premiums go up for employees after you leave, your costs go up too.

Losing Coverage

There are exceptions to the 18-month rule. Your employer can terminate your COBRA early if you become eligible for Medicare. If the company stops offering health coverage, your policy goes away with the rest of the plan. You also lose your insurance if you stop paying premiums or do anything that would cost an employee her coverage, such as insurance fraud. You can end COBRA coverage yourself whenever you choose. Check your plan documents for how to cancel and whether you can get any premiums refunded.

COBRA Alternatives

You may have cheaper alternatives to COBRA. If your spouse is enrolled in her own employer's plan, losing your job triggers a special enrollment period allowing her to cover you on her policy. Losing your regular employee coverage also allows you, as of 2015, to look for a policy in the Affordable Care Act's health insurance marketplace. If you sign up for COBRA, you can't stop and switch to ACA or a spousal plan later -- you may have to wait until your COBRA expires.

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