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How COBRA Health Insurance Works

Laura explains what COBRA continuation coverage is, who is eligible for it, and how to apply and shop for health insurance at the lowest possible price. Maintaining coverage after you leave a job protects your health and your financial security. 

By
Laura Adams, MBA,
February 24, 2016
Episode #439

Page 1 of 3

How COBRA Health Insurance WorksA Money Girl reader named Robert E. says, “I was recently laid off from my job and don’t want COBRA health insurance because it’s expensive—but my dental option turns out to be a good financial deal. Can I apply for just COBRA dental insurance without having to get the medical?”

In this post I’ll tell you what COBRA insurance is, who’s eligible for it, and how Robert can apply and shop for the health coverage he needs at the lowest possible price.

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What Is COBRA Heath Insurance?

COBRA is an acronym that stands for Consolidated Omnibus Budget Reconciliation Act. Even though the name of the law doesn't mention anything about health insurance, it offers continuation of group benefits that would ordinarily be canceled when you leave a job.

Don’t confuse COBRA with an insurance plan or company. COBRA is a law that gives you the option to continue an employer-sponsored health plan after you’re no longer employed.

The good news is that COBRA gives you the same benefits and choices you had before you left your company. The bad news is that it lasts only for a limited period of time and it can be expensive, as Robert mentioned in his question. I’ll tell you more about how to cut the cost of health insurance in a moment.

COBRA is generally offered when you work for a private company that has at least 20 employees or for a state or local government agency. It does not apply to plans offered by the federal government (although federal employees get something similar to COBRA), churches, or organizations with religious affiliation, such as certain hospitals or schools.

You can have COBRA coverage for up to 18 months in most cases. If you’re disabled, it may last for up to 29 months. And if you’re a surviving spouse or divorced from a covered employee, COBRA may continue for up to 36 months.

With COBRA, everyone affected by the loss of group health insurance at work is protected—including the former employee, his or her spouse, former spouses, and dependent children—when certain events occur.

Who Can Get COBRA Health Insurance

With COBRA, everyone affected by the loss of group health insurance at work is protected—including the former employee, his or her spouse, former spouses, and dependent children—when certain events occur.

For instance, if you die, leave a job voluntarily, or are terminated for reasons other than misconduct, you (or your surviving beneficiaries) can get COBRA. Let’s say your hours are cut and you’re no longer eligible for benefits, or you get divorced or legally separated from a covered employee. Those are also qualifying events that allow you to get COBRA.

But you’re not eligible for COBRA if your employer discontinues a health plan altogether, declares bankruptcy, or goes out of business. So, in order to get COBRA coverage, you must:

  • have a qualifying group health plan 
  • experience a qualifying event 
  • be the primary insured or a qualified beneficiary (such as a spouse or dependent of the former employee)

If you’re not eligible for regular, federal COBRA, many states offer similar programs called Mini COBRA. The benefits for state continuation plans vary depending on where you live. You can check with your state’s department of insurance to see what’s available.

What COBRA Health Insurance Covers

Now let’s discuss what types of group benefits COBRA allows you to continue. It extends only to medical care, such as health, dental, and vision insurance. You can’t get COBRA for disability or life insurance.

That’s why I recommend that you always purchase a disability and life insurance policy outside of work, in addition to what you get through a group plan. Having your own disability and life coverage protects you and your family if you lose your job and then get injured or die while you have no coverage. That could devastate your finances.

COBRA coverage must be identical to the coverage you were offered at your company before you left. You or your family are entitled to have the same coverage limits, co-payments, and deductibles. While you can’t opt for more COBRA coverage, you can opt for less.

Robert wants to know if he can keep his dental coverage and skip the medical. The answer is yes, as long as you were enrolled in dental before you left your job, you can keep the dental plan and discontinue the medical portion.

If your medical, dental, and vision coverage are with different providers, you’ll need to complete separate COBRA election forms, but all the same rules and eligibility requirements apply for any that you choose to continue. If you’re not sure how to apply for COBRA, contact your insurance provider directly for more information.

See also: When to Buy Life Insurance and How Much You Need

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