COBRA continuation coverage lets you stay on your employer’s group health insurance plan after leaving your job. COBRA stands for the Consolidated Omnibus Budget Reconciliation Act. It’s shorthand for the law change that required employers to extend temporary group health insurance to departing employees. Let us explain how it works.
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How COBRA Continuation Coverage Works
Say you’re an employee and you’re covered by your employer-sponsored group health insurance plan. Now say you’re leaving your job, either voluntarily or involuntarily. Before COBRA, you would lose your access to group health insurance coverage. But the COBRA continuation coverage requirement changed that.
Since COBRA, employers have been required to extend group health insurance coverage to employees who separate from service, whether they leave of their own free will or are terminated (for any reason other than gross misconduct). This applies if you have your hours reduced from full-time to part-time, too. The requirement generally applies to companies with 20 or more employees, but some states have so-called “mini-COBRA” laws that extend the continuation coverage requirement to smaller companies.
Continuation coverage applies to anyone else who would normally get access to employer-sponsored coverage, such as the employee’s spouse, ex-spouse and children. That means that even if you don’t leave your job but your spouse does, he or she can join your health insurance plan. It also means that if you’re covered by your spouse’s health insurance and you divorce, you can still get continuation coverage under your ex’s group health insurance plan.
As these examples illustrate, the point of COBRA continuation coverage is to help Americans avoid a gap in health insurance coverage. That’s a particularly relevant concern now that going without health insurance for more than three months straight in a given year will trigger a tax penalty that adds to your tax liability.
But COBRA continuation coverage isn’t a free ride. If you claim COBRA continuation coverage, your employer isn’t required to put any money toward your health insurance premiums. Take a look at your current health insurance plan and you may see that the total monthly premium is much more than what’s taken out of your paychecks. Your employer probably covers most (or all) of your monthly premium.
If you leave your job and opt for COBRA continuation coverage, your employer can (and probably will) stop contributing, leaving you on the hook for the full premium amount. The good news is you have the option of COBRA continuation coverage for up to 18 months, or until you find coverage under another group plan (meaning you get another job or join your spouse’s group plan). The bad news is that you’ll pay the full premium for your coverage.
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Should You Take Advantage of COBRA Continuation Coverage?
It’s great to know that COBRA continuation coverage is there for you, but is it your best option when you’re leaving your job or facing another qualifying life event? That depends.
First, it’s important to find out how much you would have to pay in monthly premiums for yourself and any other people covered under your insurance. Once you have that number, you can compare it to your other options. For example, you could join your spouse’s health insurance plan, or your parents’ plan if you’re under 26. Alternatively, you could shop for a plan on the Health Insurance Marketplace (a.k.a. Obamacare), in which case you might be eligible for a Premium Tax Credit.
If one of the non-COBRA options we’ve outlined is cheaper, you may prefer to switch plans and opt out of COBRA continuation coverage. However, you might have to switch doctors if you change your insurance and you’ll undoubtedly have to deal with some paperwork and bureaucracy. Only you can decide which health insurance coverage option is best for you based on your budget and your preferences.
Bottom Line
COBRA continuation coverage is a great safety net for people who lose their access to group health insurance. Depending on your circumstances and the Health Insurance Marketplace premiums you’re eligible for, COBRA may or not may not be your best option. If you experience a qualifying life event, it’s important to weigh your options in time to take advantage of COBRA or seek other coverage before you miss deadlines or experience a lengthy gap in health insurance coverage.
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