COBRA Discussion

What is it?
Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions in 1986. It applies to employers with more than 20 employees that offer a group health insurance plan for those employees.

COBRA allows terminated employees to continue their health insurance coverage under their former employer's group plan - it basically is a provision that gives citizens that have lost their jobs the right and opportunity to maintain health insurance until they can make other arrangements.

If you were paying the complete premium being charged to the employer, it's a good deal. However, if the employer was paying a good portion of the premium, you will pay the full amount which can be shocking. Employees generally have no idea how much their employers are actually having to pay for group insurance, so when the full amount of the group policy falls on the employee, the employee is often unable to afford the premium. Not only that, but since the employer administers COBRA, they are entitled to charge an additional 2% of the premium for an administrative fee.

The Group Insurance Myth
There is a myth out there that insurance through a group plan is always less expensive than getting your own individual coverage. That is far from accurate.

More and more companies are offering individual coverages and very often you can get much better rates on your own. With technology, it is no longer true that costs are higher for insurance companies to administer individual policies than groups.

Why might it be cheaper to have an individual policy?
Here are a couple of reasons why you may be able to get better premiums on your own.

First, group insurance rates are based on the health risks of the insured group. You may be much healthier than the group as a whole and, therefore, able to get rates that are better for you.

Second, corporate employers may be able to negotiate for what they deem are good group rates. However, if the employer is in an expensive state like California, the rates that seem good to a California employer may actually be higher than an employee in another state could get themselves.

The Bottom Line
The bottom line with COBRA is not to assume that it is necessarily the best deal for you when you leave employment. It may be the best choice, and it may be the only option if faced with a sudden loss of employment, but do your homework.

For more on COBRA Click Here for FAQs on the U.S. Department of Labor site.