How Does COBRA Work

How does COBRA work? For people interested in keeping their current health insurance after leaving a job, it's important to know. "COBRA" stands for the "Consolidated Omnibus Budget Reconciliation Act" that was passed by Congress in 1986. The act ensures that an employee can opt to continue group health insurance coverage, even when he has left a job.

How does COBRA work?
COBRA allows a former employee to receive health insurance coverage temporarily, as long as certain conditions are met. The employee can keep his coverage as long as he pays the premium for the group health plan. It is often more expensive that when the former employee was employed because, in a group coverage plan, the employer usually pays a portion of that premium. A former employee electing COBRA coverage must pay the entire premium out of pocket.

Many people choose this option because often the group health insurance is more comprehensive than an individual plan, and it is often less expensive, especially for dependents. Finally, the former employee may wish to show continuous coverage of health insurance to any new group health plan with a new job. A person can qualify for COBRA coverage for only 18 months from the qualifying event (such as job loss).

Who can qualify?
To qualify for COBRA, a former employee must have been enrolled in the group health plan of 20 or more employees before termination. The former employee must also have not been dismissed for misconduct-in other words, he should not have been fired. Layoffs, quitting, transferring or experiencing significant reduction in hours are all scenarios where a former employee can qualify for COBRA. Spouses and dependent children can also qualify for COBRA in certain conditions, such as the death of the employee. In that event, the spouse can still have health insurance coverage on a temporary basis while securing another plan.

What is the timeline for COBRA coverage?
To qualify for COBRA, the employee must make arrangements with the employer within 30 days after the circumstances of employment termination (such as a death or layoff). The former employee then has 60 days to decide whether or not to have COBRA continuation. Employees must contact the plan administrator to fill out paperwork and learn how to submit claims. A former employee is not eligible to sign up for COBRA coverage after the time limits have expired.

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