When you leave a job or are laid off, you have the option of COBRA coverage to continue with your health insurance.
What’s COBRA? First, the name: it stands for Consolidated Omnibus Budget Reconciliation Act (COBRA), the federal spending bill that authorized it. COBRA mandates that employers who maintain at least 20 regularly employed employees and who offer group health coverage must offer COBRA coverage. COBRA coverage allows you to buy up to 18 months of health insurance coverage after leaving your current employer. COBRA is a safety net for people and families who are switching employers or are laid off.
Your state may also offer “mini-COBRA” laws that determine any eligibility requirements past the federal mandate. Check with your state’s insurance department or your employer’s HR department for more info.
Your employer doesn’t have to continue long-term care insurance through COBRA coverage, so you may want to purchase an individual LTC plan. See Long-Term Care Insurance.
Let’s take a closer look at what COBRA coverage is and how it works.
How COBRA Works
You may be eligible to deduct any COBRA premiums you pay from your taxable income. If you’re eligible to claim medical deductions, you can count COBRA premiums. See Deducting Medical Expenses.
COBRA coverage can extend your insurance coverage if both you and your employer meet the minimum requirements. Your employer must regularly employ 20 or more employees. Your employer must also offer group health insurance for the employees.
Requirements you have to meet for COBRA coverage:
- You must have left the job voluntarily or retired, or were laid off. If you’re fired for fraud or gross misconduct, you’re not eligible for COBRA.
- Your hours haven’t been reduced below the level qualifying you for health care coverage through your employer.
If you’re eligible for COBRA coverage, you usually pay the full cost of coverage – meaning you pay the same premiums that were paid while employed. If your employer paid some or all of that cost, you’ll pick up the full cost with COBRA. There may also be an administrative fee of up to 2% added. COBRA coverage may or may not be cheaper than purchasing an individual or family plan through a Health Insurance Marketplace or other third-party provider.
When can I apply for COBRA coverage? You have up to 60 days after a qualifying life event to apply for COBRA coverage. Qualifying life events include:
- Voluntary termination or retirement
- A child ages out of coverage
- Filing for divorce while covered on your spouse’s health plan
Length of COBRA Coverage
COBRA covers you and your family for up to 18 months. You may end your COBRA coverage earlier if:
- You become eligible for health coverage with a new employer.
- You become eligible for Medicare.
- You fail to make payments. (There is normally a 30-day grace period, but check with your employer about this.)
Your coverage can extend to 29 months, but only if you become disabled within 60 days of enrolling in COBRA coverage. Otherwise, the limit is 18 months.