How to Avoid Getting Stung by COBRA

COBRA, a program passed in 1986 that allows laid-off employees to continue using their previous employer's health plan temporarily, is underused, expensive and may become irrelevant.

COBRA, the Consolidated Omnibus Budget Reconciliation Act, provides for the continuation of group health coverage that otherwise might have been terminated. The legislation applies to health plans provided by businesses with 20 or more full-time employees. It allows laid-off individuals to stay insured for up to 18 months (and in certain cases, 36 months), so they can find a new job and get new coverage.

However, COBRA can be pricey, especially for those who had all or a portion of their health insurance paid for by the employer. Under COBRA, individuals usually must pay the full premium, with an additional 2% often added on to cover administration costs.

According to a 2009 report from the Families USA Foundation, monthly premiums for COBRA health insurance average $1,069 for family coverage and $388 for individuals. Given the fact that unemployment checks average $1,278 nationally, those costs can be tough to absorb. Only about 7% of unemployed workers can afford to pay for COBRA health insurance, according to a report from the National Coalition on Health Care.

So should you opt for COBRA or look around for alternatives for your health insurance?

COBRA's advantages: In a nutshell, COBRA is a simple way to stay insured, since it enables you to keep your current coverage without interruption. It also reduces the hassle of paperwork and a possible physical examination, which often are required for new coverage. Consider keeping COBRA if any of the following apply to you: