Unemployment is rising, and with the economy slowing, it is likely that many more will find themselves without income -- and possibly without health insurance. That's why the government enacted COBRA, or the Consolidated Omnibus Budget Reconciliation Act, in 1986.
Within that huge legal document is health insurance protection for those who lose jobs or who find themselves suddenly without health insurance because of death or divorce. Basically, it provides that the employee can continue on the company health insurance plan -- but only if he or she pays the full cost for that coverage.
As you can well imagine, adding a huge expense for health insurance just when you've become unemployed is not a pleasant thought. But if you, or a family member, have a pre-existing medical condition, it might be the only option for coverage. Weighed against losing your home to medical bills, an expensive COBRA plan may be the least of the bad alternatives.
What few people know is that for healthy individuals and families, there very well might be less expensive alternatives to COBRA policies. So here's a look at how COBRA works for extending health insurance coverage, plus an easy way to check for cheaper plans.
How COBRA works
Employers must offer to extend health insurance coverage if they employ at least 20 people and offer an employer-sponsored plan. You are eligible for coverage whether you are fired, resign or simply leave work to retire -- unless you are fired for gross misconduct.
COBRA coverage extends for 18 months in most cases. But it is extended for 29 months if the employee is disabled -- or 36 months if you are widowed and your spouse was covered under the plan or are a dependent child, or if the worker goes on Medicare and COBRA covers the spouse. As noted above, you must pay the full cost -- 102% of the cost, to be exact, to cover the extra expense of handling your account! And the coverage extends to your spouse and family if they were previously covered under the company plan.
You don't have a lot of time to think about the alternatives because you must elect COBRA within 60 days of being notified of the "qualifying event" -- of receiving your termination notice, for example.
That's why it's important to understand both how COBRA coverage works and your alternatives. The best place to start is
, a Web site developed by eHealthInsurance.com, the nation's unique source for complete online information and quotes on individual health policies, no matter where you live.
Cobra vs. private insurance
A recently released study by the Henry J. Kaiser Family Foundation says that in 2008, the average annual premiums for employer-sponsored health insurance are $4,704 for single coverage and $12,680 for family coverage, which works out to an average of about $400 a month for an individual, and $1,078 for a family.
you can search for individual or family policies offered in your state. You might be surprised that by increasing the deductible or co-payments, you can find affordable private policies. Yes, you might have to take responsibility for more of your costs through a higher deductible, but you'll be covered for major illnesses and won't risk losing your home over medical debt.
That's better than being among the 30% of those eligible who decided to go completely without health insurance because they figured it was too expensive.
When you MUST consider COBRA
If you have a pre-existing condition, you're pretty well restricted to using this extended coverage, and hoping you'll find another job with health insurance before the time lapses. (That's the tragedy of tying health insurance to jobs in America. With our transitory job market, and recessions, people who have paid premiums for their health insurance can be left uncovered because of job loss.)
And even if you do find other coverage, there may be a period where you won't be covered for that specific illness or a pre-existing pregnancy. Or those with pre-existing conditions may qualify for a state HIPPA plan, which is intended to cover these situations through "high-risk" pools administered by the various states.
But if you are at risk of losing your job, it's wise to consider the options in advance, so you'll be prepared to make a smart decision about whether to extend your employer's coverage or find coverage on your own. Knowing where to get the information and how to search makes this traumatic process much easier. And that's The Savage Truth.
Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated. She was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. Savage currently serves as a director of the Chicago Mercantile Exchange Corp.