Consolidated Omnibus Budget Reconciliation Act (COBRA): What it’s all about

This federal law can help you keep your group health plan if you quit or lose a job. Here’s how it works.

1. What is the Consolidated Omnibus Budget Reconciliation Act (COBRA)?
2. Who is eligible for COBRA?
3. How does COBRA work?
4. How long can you stay on COBRA?
5. What is a Special Enrollment Period (SEP)?
6. What is the difference between COBRA and Affordable Care Act (ACA) plans?
7. Can you get COBRA instead of Affordable Care Act (ACA) insurance?
8. What are some of the pros of going with COBRA over an ACA plan?
9. What are some cons of going with COBRA instead of an ACA plan?
10. What are some alternatives to COBRA?
11. Is COBRA right for me?

Whether you quit or lose your job, you’ll have a lot to think about. If you’re the lone person supporting your family, that could include finding new employment or getting a part-time gig in between jobs.

But you’ll also need to think about your health insurance. Even though you’ll no longer be with the company you were working for, you can still continue on with their health plan if you wish.

That’s because of a federal law called the Consolidated Omnibus Budget Reconciliation Act, or COBRA. Find out how COBRA works and how it could help you stay covered.

COBRA can be expensive. Call a licensed insurance agent at (800) 827-9990 to talk about other health insurance options.

What is the Consolidated Omnibus Budget Reconciliation Act (COBRA)?

COBRA is a federal law that allows you to continue with your and your family’s group health insurance plan after you’ve either quit or been let go from your job. COBRA typically applies to employers that offer health insurance coverage to at least 20 employees. Some states may also have their own version of COBRA that applies to companies with fewer than 20 employees.

Who is eligible for COBRA?

Depending on which state you live in, COBRA may be available to the following people:

• Employees (i.e., you)
• Spouses
• Former spouses (divorce or legal separation can qualify an ex-spouse for COBRA coverage)
• Children

As an employee, you’d be eligible for COBRA if you’ve either quit or been let go from your job — except for situations where there’s gross misconduct involved (your group health plan must also be covered by COBRA). That, or your hours were reduced to the point that you were no longer a full-time employee.

Losing your job would be considered a “qualifying event.” That triggers a limited window for you to go on COBRA or apply for another type of insurance plan (we’ll talk about that later on).

How does COBRA work?

COBRA allows you to continue using your existing health benefits for a limited period. That means you’d be able to continue seeing your doctors and getting any prescription drugs you might be taking through your former plan. If you also had dental and vision insurance through your former employer, you’d be able to stay on those plans as well.

The big difference is that your employer likely would’ve been covering a percentage of the health insurance premium, or monthly bill. You’d now be responsible for paying it in full, and in some cases, you may also have to pay a 2% administrative fee. This can make COBRA more expensive compared to other options.

How long can you stay on COBRA?

COBRA allows you and your family to continue with your former employer’s health benefits for a limited period — typically up to 18 months, but in some cases, up to 36 months.

What is a Special Enrollment Period (SEP)?

COBRA isn’t your only option if you were to lose your job or have a reduction in hours. That qualifying life event will trigger what is known as a Special Enrollment Period (SEP). It’s a limited window when you can sign up for Affordable Care Act (ACA) health insurance either through the Health Insurance Marketplace or a private insurance company, outside of the annual Open Enrollment Period. If you qualify for an SEP, you need to:

• Have had a qualifying life event, like losing your job and the health insurance you got with it.
• Have proof that it took place as you say it did.
• Apply for insurance within 60 days of it happening (in some cases, you also have 60 days before the event to apply).

In other words, you have the option of using COBRA or buying a Marketplace insurance plan.

Did you know you can buy ACA plans through private insurers? Call a licensed insurance agent at (800) 827-9990 to talk about available plans.

What is the difference between COBRA and Affordable Care Act (ACA) plans?

As noted above, with COBRA, it’s a federal law that allows you stay on the same health insurance that you had with your former employer. The ACA, on the other hand, is a healthcare reform law passed in 2010. (You may also see it called “Obamacare,” after the president who signed it into law, Barack Obama.)

The government launched the Health Insurance Marketplace to help Americans get health insurance coverage regardless of whether they have a pre-existing condition, such as diabetes or cancer. Marketplace ACA plans also include essential health benefits that don’t change from plan to plan, such as:

• Ambulatory patient services (outpatient care you get without being admitted to the hospital)
• Emergency services
• Hospitalization (like surgery and overnight stays)
• Pregnancy, maternity and newborn care (before and after birth)
• Mental health and substance use disorder services, including behavioral health treatment, like counseling and psychotherapy
• Prescription drugs
• Rehabilitative and habilitative services and devices. Those could be services and devices to help people with injuries, disabilities or chronic conditions gain or recover mental and physical skills
• Lab services
• Preventive and wellness services, as well as chronic disease management
• Pediatric services, including dental and vision care — though this coverage isn’t considered essential for adults

Under the ACA, you can buy a health plan from:

• The Health Insurance Marketplace
• Your state’s health insurance exchange (a website where you can buy insurance)
• A private insurance company

But keep in mind that even if you purchase a plan from the same health insurance company you had with your former employer, it may have different benefits than it did under them. It’s important to read, compare and contrast the insurance plan’s brochure with what you had with your former employer.

Can you get COBRA instead of Affordable Care Act (ACA) insurance?

Yes. You can get COBRA instead of ACA insurance, but it might be more expensive. ACA insurance premiums tend to be less expensive — and some people may be eligible for a tax credit that can further reduce the cost of their monthly premium. Also, you can continue renewing your ACA plan for as long as you’re eligible, whereas COBRA typically lasts only up to 18 months, and in some cases, up to 36 months.

What are some of the pros of going with COBRA over an ACA plan?

The pros of going with COBRA over ACA include:

• If you like the doctors you were seeing under your former employer’s health insurance plan, that may be a reason to go with COBRA. It also takes having to find new doctors, like your primary care physician (PCP), out of the equation. Also, if you’re undergoing treatment for an illness, like diabetes or cancer, you may be better off choosing COBRA to ensure that you stay with your care team. If you do decide to switch to an ACA plan, a pre-existing condition won’t prevent you from enrolling in new coverage or having to pay more for it.
• It’s a good idea to check if your employer plan raises costs based on age. With an individual ACA plan, premiums can be up to 3 times higher for older people than for younger ones.

What are some cons of going with COBRA instead of an ACA plan?

Besides the fact that COBRA will likely be more expensive, you may also deal with these issues:

• Limited duration. You can stay on a COBRA plan only for a limited time — typically 18 to 36 months.
• Retroactive coverage. You may have to pay the premiums back to the date of your qualifying event if you wait to accept COBRA.
• Plan changes. Your coverage changes under COBRA if your employer changes the plan’s coverage — even if they’re your former employer.
• Not all plans offer COBRA. Not all employer group plans offer COBRA. That’s because the law applies only to employers with 20 or more employees.
• Limited network. Your plan may not be available to you if you move out of state and the health network is limited.

What are some alternatives to COBRA?

Medicaid. Besides ACA health insurance and COBRA, you might also be eligible for Medicaid. That’s a type of government-run public health insurance program for people with low income. If you meet the income requirements, you may qualify for free or low-cost health coverage.

Short term medical insurance. Depending on which state you live in, you might be able to buy short term medical insurance. It’s a type of limited-duration health insurance plan that lasts for a maximum of 4 months — that is 3 months with a 1-month extension in a 12-month period.

It’s worth knowing that short term medical insurance isn’t a replacement for a traditional health insurance plan. Some insurance companies may also require medical underwriting before getting it. That’s when the insurance company reviews your medical records. Since the ACA doesn’t apply, they may deny you coverage if you have a pre-existing condition, like diabetes or cancer.

Is COBRA right for me?

It depends. If you’re driven by price alone, COBRA might not be the appropriate way to go. But if you’re keen on sticking with the doctors and treatment you know, COBRA could be a better option for you.

You’ll also have to factor in how much you have in savings. For example, without a steady income, it may be difficult to cover the cost of deductibles (what you pay before the insurance company starts to pay for covered services), copayments (a fixed dollar amount you pay every time you use health services) and other out-of-pocket medical costs. In that case, it might more feasible to go with the cheapest option, which could be an ACA plan.

Thinking about going the health insurance route? Call a licensed insurance agent at (800) 827-9990 to talk about available plans.

For informational purposes only. This information is compiled by HealthMarkets Insurance Agency and does not diagnose problems or recommend specific treatment. Services and medical technologies referenced herein may not be covered under your plan. Please consult directly with your primary care physician if you need medical advice.