Understanding COBRA Health Coverage

by Tony Novak

As more people face job cuts in this slowing economy, the issue of COBRA medical insurance becomes more important. This is a very brief review of a few of the most important points if you are suddenly faced with the need to pay for your own medical coverage.

The acronym “COBRA” was brought about by a tax law change that required employers with more than 25 employees to offer temporary health insurance in the event of lay-offs and other circumstances that interrupt coverage under employee benefit plans. It simply means that an ex-employee pays the former employer in order to continue to stay on the company’s medical insurance plan. You must make this election within 30 days of your job termination by delivering the appropriate payment for your insurance to the employer. COBRA ensures that you will have access to continued coverage, but usually at a higher price than other types of medical insurance. COBRA is meant only as a temporary solution, not as a permanent medical plan. And, depending on the specific insurance plan, the COBRA coverage may not be effective if you move to another residence away from the insurance plan's coverage area.

SMALL BUSINESSES are exempt from COBRA, meaning that they do not offer the option of medical benefits to an ex-employee. Some companies continue to offer ex-employees medical benefits by simply not informing the insurance company of the termination. Be careful, this can backfire. Most small group medical pans do not allow coverage for ex-employees.

DIRECT CONVERSION of your medical insurance is available with most insurance companies regardless of whether you use COBRA or not. If you are on a group insurance policy, simply call your insurance company and ask them if you can convert to an individual insurance policy. Do this as soon as possible after you know that you are being laid-off. Sometimes this option is less expensive than COBRA and may give you access to a wider range of plan options like low cost, high deductible catastrophic coverage. But also be aware that many auxiliary benefits like dental insurance will not be available.

SHORT TERM MEDICAL INSURANCE is easy to purchase in most states. This is usually much less expensive than COBRA but it does not cover the expense for any pre-existing medical condition. It would not be appropriate, for example, if you were pregnant. Most of these policies today are purchased directly on the Internet. www.MedSave.com offers short term medical coverage to residents of 46 U.S. states and foreign countries. Despite the name “short term”, you can usually re-apply for this insurance when it expires and thereby continue to do this for as long as you need it.

For INTERNATIONAL COVERAGE, you need a separate type of policy since most U.S. policies do not provide significant coverage overseas. This coverage is also inexpensive and easy to buy online. You can specify your departure date and return date so that you pay for only the coverage that you need.

About the Author

Tony Novak, MBA, MT is a writer and financial adviser in Narberth, PA focusing on tax and employee benefit issues. His businesses www.MedSave.com and Freedom Benefits Association provide online benefits enrollment for thousands of individuals and businesses nationwide.