Locking In Your COBRA-Defined Coverage
The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 was designed to help employees who leave their jobs and are, as a result, without medical insurance coverage. If your former employer had 20 or more employees, COBRA allows you to continue medical insurance coverage for up to 18 months after leaving your company.
The fine print? Well, it's a doozy. You have to pay the entire cost of your insurance — the portion you paid before (it was probably deducted from your salary) and the portion your employer paid on your behalf, which may have run several hundred dollars per month. (Your former employer is also allowed to charge you a 2 percent administration fee.) The coverage you receive — including deductibles and limits on coverage — should be identical to the coverage you had as an employee.
When you're laid off, you should receive information about continuing your medical coverage under COBRA. If you don't receive it, ask for it! You usually have 60 days to elect to continue your coverage (and when you sign up, the coverage is retroactive to your last day on the job) and pay the first payment. If you fail to make the payments, which are usually due monthly, the coverage will be terminated.
Before deciding whether to accept COBRA coverage, call around or search on the Internet for short-term health-care coverage. If you're willing to go with a high-deductible plan (which means that you don't get any benefits until your medical expenses total a ridiculous amount, but you're covered up to a few million dollars if a catastrophe occurs), you may be able to pay hundreds less per month for insurance and still have coverage if a catastrophe occurs.
It's no small irony that when you can least afford to pay the entire portion of your medical insurance costs, you have to, in order to continue your coverage. However, if you're tempted to just go without insurance, don't! Doing so may turn a bad financial situation into a catastrophic one.
Many conditions, including pre-existing ones and pregnancy, aren't covered (or aren't covered until a year after the policy begins), and a few of these policies can't be renewed after they expire (usually in six to nine months).
COBRA's biggest benefit could be that even though it expires 18 months after you sign on, if you still haven't found work, you're eligible for insurance policies that aren't allowed to exclude pre-existing conditions.
