The dos and don'ts of COBRA health insurance

Maryalene LaPonsie | July 21, 2011

Although the Patient Protection and Affordable Care Act (PPACA) was passed in 2009 to expand medical coverage options for American families, it is not the first time the government has stepped in to guarantee access to health care. In 1986, the Consolidated Omnibus Budget Reconciliation Act (COBRA) was passed to provide continued medical coverage for those losing their employer-sponsored health plan.

COBRA health insurance allows individuals to maintain their group health plan should they leave their job for reasons other than misconduct or should their work hours be reduced resulting in the loss of medical benefits. The law only applies to employers with 20 or more employees, and there can be some pitfalls. If you think COBRA might be right for you, here's a breakdown of exactly what you need to know.

Do shop around for your health insurance options

First things first--in almost every case, COBRA premiums will make your jaw drop. Most employers pay a significant amount of your health insurance costs, but on COBRA, you get the entire bill. In addition, employers can add up to two percent to the premium price to cover administrative costs. The Kaiser Commission on Medicaid and Uninsured reports the average monthly premium for an individual on COBRA health insurance is $429. For family coverage, the price jumps to an eye-popping $1,170 per month.

COBRA health insurance can make sense for adults with pre-existing conditions. Until 2014, when health reform fully kicks in, these folks have limited options. However, if you are relatively healthy, it might be best to look into buying an individual health plan instead.

Joining a spouse's group health insurance policy is another option. Even for those with pre-existing conditions, states run high-risk pools that are worth a second look. Just be sure to carefully compare coverage levels and out-of-pocket costs to see whether COBRA offers more bang for your buck.

Don't wait until it's too late to sign up

The window to opt-in for COBRA medical coverage doesn't remain open long. You have only 60 days to make your decision. The clock starts ticking from the date of your qualifying event (i.e. loss of employment) or from the date the COBRA election notice is mailed, whichever is later. Once you have opted in, you have 45 days to pay the initial premium amount.

Pay your bill on time

By law, your employer has to give you a 30 grace period in which to pay your monthly premium. If you are late, your COBRA health insurance will be terminated. If you can't make a payment within 30 days, you can call and ask your former employer to grant you some leeway. However, there is no requirement that they will accept a late payment. Once your COBRA health insurance has been cancelled for non-payment, there is no getting it back.

Don't forget to find a new health plan before your COBRA coverage expires

In most situations, you can purchase COBRA health insurance for up to 18 months although some individuals may be eligible for up to 36 months of coverage. Once you've used your maximum allotment of COBRA coverage, some plans will let you convert your group plan to an individual policy. If your plan carries a conversion option, you must be notified within 180 days before COBRA ends.

Remember to review benefits and premiums carefully before signing on. They won't necessarily be the same as your current plan.

If you are unable to convert your policy, give yourself plenty of time to find affordable health insurance. In addition to individual health insurance, high-risk pools and government programs, consider looking for group coverage through a trade group or alumni association.

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