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?
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:
- You have good coverage and don't mind paying a bit more for it.
- You've had recent health problems, have an existing condition or are taking medications, and you don't want to change your coverage right now.
- You've been turned down for health insurance at some point because of medical conditions.
COBRA's biggest drawback is its cost, not only the out-of-pocket expense, but the fact that your health-care expenses are no longer paid for with pre-tax dollars, a benefit some employers offer. It also expires after a set period, so it's not a long-term solution. Consider looking for an alternative to COBRA if these points apply to you:
- You have no pre-existing medical conditions and are in relatively good health.
- You have budget issues and would like to keep your health insurance costs as low as possible.
- You don't anticipate needing any medical procedures in the immediate future.
Alternatives to COBRA:
There are several alternatives to COBRA, but it might take some work on your part to find them.
First, and easiest, if your spouse is employed and insured, consider adding yourself to his or her policy. This option is likely the least expensive way to stay covered, with the least hassle involved. Check with your spouse's employer to find out if and when you're eligible for coverage. (Your job loss may make you eligible to enroll outside the open-enrollment period.)
If you don't have access to someone else's policy, check the prices of individual health policies, which vary by state. You might find competitively priced individual plans if you live in Florida, California, Utah, Texas, Georgia, Washington or Arkansas. Coverage will be more expensive in states such as Maine, New Jersey, New Hampshire and Connecticut. Be sure to compare plans from several providers before you sign on the dotted line.
Check sites like
, which can help you evaluate health-insurance options and compare plans in a handful of states, including California, Nevada, Texas and Virginia. If you don't live in those states, try eHealthInsurance.com, where you can compare individual plans from insurers like
. Also check out the site for the
, which can guide you to an agent in your area who can recommend individual health-insurance plans.
One final note: With COBRA, you have a 60-day grace period to formally elect coverage. You'll have to pay premiums during this time, but you can use the grace period to search for other options. If you find better or less expensive coverage, you can go with that. If not, or if you decide to stick with COBRA for another reason, you can notify your previous employer's plan administrator or benefits manager of your decision to elect COBRA coverage.
Bob Feeman is a former editor of Robb Report and Smart HomeOwner magazines, and now writes full time about a variety of subjects. He's based in Maine.