If you anticipate a change in your life, planning for health insurance after that change is an important part of maintaining your financial security and your health. A popular way to get health insurance after a major life event is to continue your employer-sponsored health insurance using COBRA continuation coverage.
If you get a divorce, become a widow or widower, or lose your job, losing your health insurance can add even more stress when your coping mechanisms are already maxed-out. If you’re scrambling to find a new job, move, learn how to live without a partner, or all of those things at once, choosing a new health plan in the individual market can be overwhelming (to be clear, selecting a new plan isn’t as hard as it might seem, and you’ll definitely want to compare individual market plans with the COBRA offer you receive. But in some cases, continuing your existing coverage via COBRA will be the best option).
With COBRA continuation coverage, you don’t have to pick a new plan. You simply continue the same employer-sponsored coverage you currently have. No starting over with a new deductible and out-of-pocket maximum mid-way through the year. No finding a new healthcare provider because your current healthcare provider isn’t in-network with your new health plan. No transferring medical records or prescriptions. You can continue your current health insurance for up to 18 or 36 months (depending on your circumstances), which should hopefully be time enough to get back on your feet and obtain new coverage.
However, not everyone is allowed to use the COBRA law to continue their health insurance. Understanding whether or not you’re eligible for COBRA health insurance will help you plan for a secure future.
To be eligible for COBRA, you must satisfy all three of the following requirements:
- Your current health plan must be subject to the COBRA law. Not all health plans are.
- You must be considered a qualified beneficiary of your current health plan.
- You must have a qualifying event.
Is My Health Insurance Subject to COBRA?
Not all health plans have to offer COBRA continuation coverage. Your plan does if it’s a group plan offered through a private-sector employer with at least 20 full-time employees (in many states, there are state continuation laws—also called “mini-COBRA”—that give employees at smaller businesses an opportunity to continue their coverage). COBRA also applies to most state and local government health plans.
You won’t be eligible for COBRA if there is no health plan to continue because your employer went bankrupt. In addition, COBRA doesn’t apply to health plans offered by the federal government, by churches, or by some church-related organizations.
For example, when I resigned from my nursing job with Florida Hospitals, I wasn’t eligible for COBRA health insurance. This had nothing to do with me; it was because my former employer, Florida Hospitals, is part of Adventist Healthcare, an organization run by the Seventh Day Adventist Church. Because Florida Hospitals is a church-related organization, its employee health plan isn’t subject to the COBRA law.
But when I quit my job working at a Kaiser Permanente hospital, I was eligible for COBRA health insurance. Kaiser is a large, private-sector, non-church related employer. Kaiser’s health plan was subject to the COBRA law; it had to offer me COBRA continuation coverage.
Am I a Qualified Beneficiary?
To be considered a qualified beneficiary, you must be insured by the health plan the day before the qualifying event happens. In addition, you must be one of the following:
- An employee of the employer sponsoring the health plan.
- A spouse or ex-spouse of that employee.
- A dependent of that employee.
- An agent, director, or independent contractor that isn’t technically an employee, but that participates in the health plan.
- In some cases, you may be eligible if you’re a retired employee, retiree’s spouse, or retiree’s dependent child and you’re losing coverage because your former employer is going bankrupt.
Do I Have a Qualifying Event?
What qualifies as a life event depends on whether you’re the employee losing coverage, or a spouse or dependent of that employee. Your life-event will qualify you for COBRA coverage if you’re the employee and:
- You’re laid off.
- You quit.
- You’re fired, but not for gross misconduct like stealing or assaulting the boss.
- Your employment is terminated for any other reason.
- You’re still employed, but your hours are reduced to a level that causes you to lose your health insurance benefit (this can be a voluntary change in hours that you request, or a change that’s imposed on you by your employer; either way, you’d be eligible to continue your coverage with COBRA).
Your life-event will qualify you for COBRA coverage if you’re the spouse or dependent of the covered employee and you’re losing coverage because:
- One of the above things happened to the employee.
- The employee is becoming eligible for Medicare. If this is your situation, discover your options about losing your health insurance because your spouse is getting medicare?“
- The employee died.
- You’re getting divorced or legally separated from the employee.
- You’re a young adult and you’re losing your dependent status with the health plan. If this is your situation, discover your options about turning 26 & getting kicked off your parent’s health insurance.
How Does My Health Plan Know to Offer Me COBRA?
If you’re eligible for COBRA health insurance, you won’t get a COBRA election notice from your health plan if the health plan doesn’t know about your life-changing event. Someone has to tell the health plan administrator. This is known as “giving qualifying event notice.”
The employer will tell your health plan if your loss of coverage is due to the termination of the employee, death of the employee, employee Medicare eligibility, or reduction of employee work hours. It’s your responsibility to tell your health plan if your loss of coverage is due to divorce, legal separation, or a young-adult losing dependent status under plan rules.
In some cases, you may be tempted to withhold notice. If the employer and health plan don’t know you’re legally separated, you might think you won’t have to pay the COBRA health insurance premiums. You’d just continue on with spousal coverage as though you’re a married couple. Think again.
You’re required to give qualifying event notice in a timely manner. Not giving qualifying event notice is a type of fraud; you’re basically stealing health insurance coverage for which you’re no longer eligible. The employer may demand reimbursement for its share of the monthly premiums paid for the coverage you were no longer eligible to receive. The health plan may demand reimbursement for the health care it paid for while you were receiving coverage fraudulently.
That said, you don’t need to give notice while you’re going through divorce, or legal separation proceedings. You’re not obligated to give notice until the divorce or legal separation actually takes place.
COBRA and the COVID-19 Pandemic: Temporary Provisions Make COBRA More Accessible and Affordable
The COVID-19 pandemic has affected many aspects of everyday life, and COBRA coverage is no exception. As a result of the pandemic, the Department of Labor has issued rules that extend the deadlines for people to elect and pay for COBRA coverage. This relief was initially provided for up to a year, but as the pandemic drags into its second year, the Department of Labor has instructed plan administrators to “act reasonably, prudently, and in the interest of the workers and their families who rely on their health, retirement, and other employee benefit plans for their physical and economic well-being.“
And for six months in 2021, the federal government is also providing subsidies that will cover 100% of the cost of COBRA coverage, for people who involuntarily lost their jobs or involuntarily had their hours reduced. This subsidy, created under the American Rescue Plan (H.R.1319) is available from April 2021 through September 2021, although it does not extend a scheduled COBRA termination date (ie, if your COBRA is ended in July 2021, that would still be the case and your COBRA premium subsidy would also end at that point).
To allow as many people as possible to use the COBRA subsidies, the American Rescue Plan also allows people to re-enroll in COBRA if they previously dropped it (or rejected it from the start) but it would otherwise have been ongoing as of April 2021.
How Should I Decide Whether to Continue My Coverage With COBRA?
There are several factors to keep in mind when you’re deciding between COBRA and a self-purchased plan in the individual market:
- How much will the monthly premiums be? If you choose COBRA, you’ll normally pay the full cost of the health plan (including the portion your employer was paying on your behalf, which tends to be the majority of the total cost), plus a 2% administrative fee. If you choose to buy your own plan in the health insurance exchange, your premium will depend in large part on your income, since premium subsidy availability is based on income. But this is different in 2021. From April through September 2021, the federal government is fully subsidizing the cost of COBRA, as part of the American Rescue Plan that was enacted in March 2021. And premium subsidies are also much larger than usual in 2021 and 2022, also as a result of the American Rescue Plan. You may find that you’re eligible for premium-free COBRA or a premium-free plan in the marketplace, in which case you’ll still need to consider the following points in order to make your decision.
- How much have you already spent towards your out-of-pocket maximum under your employer’s plan? If you switch to a self-purchased plan, you’ll have to start over at $0. This won’t be an issue if you’ve spent little or nothing on out-of-pocket costs so far in the year, but it could be the deciding factor if you’ve already met or nearly met your plan’s out-of-pocket maximum.
- Are your healthcare providers and other healthcare providers in-network with the available individual market plans in your area? Even if you switch to an individual market plan offered by the same insurer that provides or administers your employer’s plan, the provider network might be very different.
- Are any medications you take included in the formulary (covered drug list) of the available individual market plans?
[Below is a description of how COBRA election rules normally work. But again, the rules are different during the COVID pandemic. You may find that you have additional time to make a decision about electing COBRA and paying your premiums, and there is also a COVID-related enrollment window in 2021 for individual/family health plans, which doesn’t require a qualifying event. All of this is out of the ordinary, however, and the rules will settle back to normal once the pandemic subsides.]
If you have the option to continue your health plan with COBRA, you don’t have to decide right away. You’ll have a 60-day window during which you can sign up for COBRA (it starts on the day you get the COBRA notification, or the day that your employer-sponsored coverage would otherwise end—whichever is later).
So if your coverage is scheduled to end on June 30, you could think about it for a while and then sign up for COBRA in August. You’d have to pay the premiums for July and August at that point, because COBRA is designed so that it’s seamless coverage—the plan you had through your job just continues to cover you, without any breaks.
And you also have a special enrollment period during which you can pick a plan in the individual market, either through the exchange in your state, or directly through an insurer (make sure you use the exchange if you’re eligible for premium subsidies, as they aren’t available outside the exchange).
Your special enrollment period for individual market coverage starts 60 days before your employer-sponsored plan ends, and continues for another 60 days afterward. You have access to the special enrollment period regardless of whether you have the option to continue your employer-sponsored plan with COBRA. And your special enrollment period in the individual market continues for the full 60 days after your employer-sponsored plan would have ended, even if you elect COBRA during that time.
So you can take your time and compare COBRA with the options that are available in the individual market. But once your COBRA election window closes, it can’t be reopened (again, this is different in 2021; to allow people to take advantage of the COBRA subsidy that’s available from April through September, the rules have been changed to allow people to opt back into COBRA if they previously rejected or terminated it and it would otherwise have been ongoing during mid-2021).
And if you miss your special enrollment period for individual market coverage, you’d have to wait for the next annual open enrollment period (November 1 to December 15 in most states) if you decided you wanted to enroll in an individual market plan instead of COBRA (if you elect COBRA and then fully exhaust the coverage, you’ll have an opportunity to enroll in an individual market plan—or a plan from a new employer—at that point, as the termination of your COBRA coverage would trigger a special enrollment period. But voluntary termination of your COBRA plan would not trigger a special enrollment period).