How much does COBRA Insurance cost?

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Having insurance is a critical part of life, and many people get their insurance through their employers. But whether it be because you quit your job or you got fired, you are likely going to want to keep your insurance, and you can keep your insurance if you have COBRA insurance. But how much does COBRA cost?

The cost of COBRA insurance is determined by the amount of money taken from each monthly paycheck and what the business or employer pays. There is also a 2% service charge. Typically, the company’s HR representative can determine the amount an employer is paying to calculate the cost of COBRA.

To learn more about COBRA insurance and how much it costs, keep reading.

What is COBRA Insurance?

COBRA is a federal law and stands for “The Consolidated Omnibus Budget Reconciliation Act.” It allows you to stay on your company’s group health insurance plan after you leave the company, so long as it meets COBRA requirements. COBRA allows those who have quit, lose their job, or are qualified because of special circumstances to temporarily continue their employer-sponsored group health insurance coverage by paying what the company was paying for them during their employment.

In order to qualify for COBRA, one of the requirements is that the company has at least 20 employees. However, many states have mini-COBRA laws that apply to smaller companies. Once on COBRA, former employees can remain on the group insurance plan for 18 months.

While COBRA laws mainly apply to the employee who was working for the business, specific circumstances can allow spouses or dependents to also qualify for COBRA insurance. These circumstances include:

• The employee becomes eligible for Medicare.
• Divorce or legal separation from the employee.
• The child of the employee is turning 26 and is no longer eligible for the parent’s health plan.
• An employee passes away and the covered relatives want to keep the employer’s coverage.

How COBRA Costs Are Determined

Since COBRA can be used to stay on your previous employer’s health insurance for up to 18 months, it is a great opportunity for those to have a cheap, temporary insurance option as they look for a new job. The cost of COBRA health insurance is what your employer has been paying towards your insurance premiums plus what you’ve been paying yourself. There is also a 2% service charge.

While this is often the easiest way in order to get health insurance while unemployed, this option is often considered to be too expensive, as the employer typically pays the vast majority of each payment. In a recent study, it was found that employers typically pay around 83% of the health insurance premiums for a single employee and 73% of the insurance premiums for families who are on a group plan. Because of this, COBRA can be much more expensive than you might originally think.

Calculating COBRA Premiums

There are just two factors that you are going to need to know about in order to calculate what your COBRA premiums are going to cost: the employer’s contribution and your personal contribution.

In order to find your own personal contributions, look at your paycheck and previous pay stubs. On your pay stubs, the amount of money that was taken out of your paycheck for taxes and health insurance premiums will be shown. In order to find out how much your employer contributes without directly contacting your previous employer, contact the HR department and ask how much your employer is contributing toward your monthly COBRA insurance coverage.

An example of this is:

• Your contribution: $125 per paycheck X 2 = $250 per month
• Your employer’s contribution: $400 per month
• Total contribution: $250 + $400 = $650 per month
• Service charge: $650 x 2% (or 0.02) = $13 per month
• COBRA premium: $650 + $13 = $663 per month

How COBRA Affects Your Taxes

You should be aware that using COBRA will increase the amount of taxes you pay. This is because your insurance payment was deducted from your paycheck pre-taxes while employed. Once you are using COBRA, you will have to pay these insurance premiums after your paycheck has had taxes taken. So, if you choose to use COBRA health insurance, your income tax will go up because your insurance premiums are no longer deducted from your paycheck before taxes.

Pros and Cons of COBRA Insurance

Pros

There are quite a few pros to continuing to use COBRA health insurance after you leave an employer. The first of these is the fact that the coverage will be offered immediately, and that there will be no waiting period after the qualifying event. This means that you won’t have to worry about any period of time when you wouldn’t have health insurance.

The next major pro is the fact that you are going to get to stay on the exact same plan as your former employer. This means you aren’t going to have to worry about changing doctors or health care providers. You also won’t have to worry about getting a new plan that your doctor might not accept, saving you a lot of time and trouble.

“COBRA may be your best choice, as well, if you have met your annual deductible and expect to need health care or prescription medications during the rest of the year.”

Cindy George, personal finance editor for GoodRx

Cons

There are some negative aspects to continuing to use COBRA health insurance after you leave an employer. The first of these is the fact that you are now going to have to pay for 100% of the insurance premium, which will likely be a heavy financial burden. Along with this, the amount of time you have to use COBRA is limited, ranging from 18 months to 36 months depending on your situation. This means that you are going to have to look for new health insurance soon after you start using COBRA outside of an employer.

What Benefits Must Be Covered By COBRA?

If you choose to use COBRA, you’re going to automatically have the same benefits that were previously offered under your employer’s plan. While receiving continuation coverage, you will be eligible for the same benefits, choices, and services that a current employee would have under the employer’s plans.

If your former employer changes their plan while you are using COBRA, you will still be able to receive all of the benefits that have come from the change. Along with this, if a child is born or adopted by a former employee who is under COBRA, the child will automatically receive coverage under the plan.

Who is Eligible for COBRA Insurance?

Qualifying Events For Employees In The Workplace

There are 4 different qualifying events that can make an employee eligible for COBRA health insurance.

1. You Quit Your Job: If you quit your job, you are eligible to sign up for COBRA for you and your dependents.
2. Retiring From Your Job: Retirement is also viewed as quitting your job so the same rules apply.
3. Lay Off, Furloughed, or Fired: Except for those fired for gross misconduct, those who have been involuntarily terminated are eligible for COBRA.
4. Reduction of Hours That Would Lead to Loss of Health Insurance: If your employer requires that you work a certain number of hours to qualify for health insurance and your hours are reduced, you can sign up for COBRA.

Qualifying Events For Spouses and Children

For spouses and dependent children, there are 3 ways they can become eligible for COBRA health insurance.

1. Lost Insurance Due To Separation Or Divorce: If this happens, you are eligible for COBRA, but it is recommended that you keep your plan administrator in the loop on any important dates in relation to stopping coverage.
2. Lost Insurance Due To Loss Of Dependent Status: Once a child or young adult is no longer a dependent on their parent’s taxes, they can choose to keep the same coverage they had from their parents. They can stay on COBRA for up to 36 months.
3. Death Of The Covered Employee: COBRA laws allow for widows and dependents to continue being on the same workplace health insurance they had before the employee’s death.

How To Apply For COBRA Insurance

Once you have qualified for COBRA, you will receive a COBRA election notice within 14 days of your qualifying event. This notice will give you all of the critical information you need, including:

• How to enroll in COBRA.
• How long you have to make your COBRA decision.
• How to notify your plan administrator.
• The date COBRA coverage starts.
• The maximum duration of coverage.
• Monthly payments.
• When payments are due.

Typically, the employee, spouse, or former dependent has to fill out their COBRA form requesting coverage and make a payment within the first 45 days.

When Do You Lose COBRA Eligibility?

The first and easiest way to lose eligibility for COBRA is to not apply by the deadline indicated on the COBRA election notice. Once you do have COBRA, one of the easiest ways to lose eligibility is to turn 65 and become eligible for Medicare. When this happens, COBRA will no longer be offered to you.

You can also choose to end your eligibility. After this option, there are no other ways to lose eligibility, although you will have to stop using COBRA when your allotted time runs out.

Depending on the reason you are eligible for this insurance, you can continue using COBRA for different amounts of time. These reasons and durations of eligibility are shown in the tables below.

How long can an employee or former employee keep COBRA?

The reason you’re eligible for COBRALength of COBRA eligibilityTermination of a job as long as not for gross misconduct.18 monthsReduced hours so you’re no longer eligible for an employer-sponsored health plan.18 monthsTotal disability.29 months

According to Health Care Reform & COBRA

How long can a spouse of an employee or former employee keep COBRA?

The reason you’re eligible for COBRALength of COBRA eligibilityThe employee was terminated from a job, as long as it was not for gross misconduct.18 monthsEmployee got reduced hours so you’re no longer eligible for an employer-sponsored health plan.18 monthsEmployee becomes eligible for Medicare36 monthsDeath of employee.36 monthsDivorce or legal separation from the employee.36 months

According to Health Care Reform & COBRA

How long can a dependent child of an employee or former employee keep COBRA?

The reason you’re eligible for COBRALength of COBRA eligibilityThe employee was terminated from a job, as long as it was not for gross misconduct.18 monthsEmployee becomes eligible for Medicare.36 monthsDeath of employee.36 monthsDivorce or legal separation.36 monthsTurning 26 and no longer eligible for parent’s health plan.36 months

According to Health Care Reform & COBRA

Can You Extend Your COBRA Coverage?

You can receive an extension to your COBRA coverage. However, there are only two ways for this to happen. The first is that one of the members of your family who is using COBRA is disabled and has been determined as disabled by the Social Security Administration (SSA). This will give an 11-month extension to the COBRA coverage that you and any family members can receive.

The other way that you can get an extension to your COBRA coverage is if a second qualifying event were to occur while you were already on COBRA. This only applies if your COBRA coverage is under 36 months, as this is the longest that someone can be eligible for COBRA.

What Are Some COBRA Alternatives?

There are a variety of different COBRA alternatives, however, thanks to the Affordable Care Act (ACA), you can find a health insurance provider for relatively cheap. With these plans, you will often receive a variety of subsidies that will help make your own health insurance plan more affordable.

Typically, you can only register for a health insurance plan between the annual open enrollment period (which is November 1 to January 15 in most states), but if you have a qualifying life event, which most people who are eligible for COBRA have, you can register for a plan at any time of year.

No Insurance? 

When it comes to your healthcare, most people think that their only options are to pay for expensive Health Insurance or try out your luck being uninsured.

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If you don’t know what a Health Share is, you can start here to learn how it works and why it’s a great alternative to health insurance. If you are looking for affordable healthcare, I highly recommend checking out my article about the Best Health Share Plans.