COBRA Coverage

Under federal law, if you work for a company that regularly employs 20 or more workers and has group health insurance, you are entitled to continue under the employer’s group plan even if you leave employment (voluntarily or are laid off for any reason other than gross misconduct) or your hours are reduced below the level entitling you to employer-paid coverage. This is referred to as COBRA continuation coverage or simply COBRA. Your state may have its own “mini-COBRA” law, which may expand your rights (contact your state insurance department for details).

Being eligible for and electing COBRA coverage gives you 2 key benefits:

1. Health insurance at an affordable group rate.
2. A deduction for premium payments if you itemize your medical expenses.

You can continue COBRA coverage for up to 18 months or until you become eligible under a new employer’s plan, you qualify for Medicare, or you fail to make your COBRA payments (usually there’s a 30-day grace period). The coverage period can be extended to 29 months if you become disabled within the first 60 days of COBRA coverage. Your family can retain COBRA coverage for up to 36 months if their eligibility results from your death.

You usually must pay the cost of the full cost of coverage, plus up to 2 percent as an administrative fee (102% of the premiums). But you enjoy the group term rates, which may be less than what you could purchase on your own. Your payment of premiums under COBRA is a deductible medical expense (explained earlier).

If you are a displaced worker, you may be able to claim a tax credit for your COBRA premiums, as explained earlier in this chapter.

Under a special rule for those involuntarily terminated from their jobs on or after September 1, 2008, and before June 30, 2010, there is federal assistance for COBRA premiums. An assistance-eligible individual pays only 35% of COBRA premiums for 15 months; the federal government pays the other 65% of premiums for this period (the employer pays this portion and receives reimbursement from the government via a reduction of employment taxes).

If your employer is subject to COBRA, you must notify the employer about a qualifying event and opt for coverage within 60 days of that event (no extensions are granted). A qualifying event includes:

• You terminate employment (voluntarily or involuntarily, as long as you are not terminated for fraud or other gross misconduct).
• Your parent has health insurance through his or her employer and you attain the age at which you no longer qualify (generally age 21 or upon graduation from college).
• Your spouse has health coverage through his or her employer and you divorce your spouse.

COBRA may not be less costly than coverage you could obtain on an individual basis. You can reduce your current level of coverage under COBRA, but you can’t increase it. For example, if you had dental coverage but now wish to eliminate it (and the expense) under COBRA, you can do so. But if you didn’t have dental coverage, you can’t add it under COBRA.

COBRA does not apply to long-term care insurance. You may be able to pick up the long-term care policy individually when you leave employment, but your employer is not required to offer you this coverage through COBRA.