Is COBRA a Viable Option for Clients Who Have Lost Their Employment?

COBRA allows former employees to continue with their employer's group health plan and might be a good choice for individuals who are temporarily unemployed.

Under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), most employers with group health insurance plans are required to provide their employees the chance to continue their health coverage, even if they have left their position with the company. Employers often pay some portion of their employees’ monthly premiums during the course of their employment, but if an employee is laid off or terminated, COBRA allows a former employee to continue coverage while paying the full amount, along with administrative fees.

Let’s take a closer look at how COBRA works in the State of California as well as some noteworthy benefits and drawbacks of the program.

What Is COBRA?

In California, COBRA applies to businesses with more than 20 employees that have group health insurance plans.

Employees who formerly held positions with companies offering COBRA coverage have three basic options when it comes to continuing their healthcare coverage:

  • Continue with COBRA Coverage:
    Former employees might go this route if they have preexisting medical conditions or are currently undergoing medical treatment for a chronic condition. Another reason for individuals to opt for COBRA would be if they really liked their current plan and network.
  • Apply for Special Enrollment:
    Former employees who choose to opt out of COBRA coverage can apply for health insurance through Covered California. Due to their change in employment status and need for a new plan, former employees will qualify for special enrollment. However, these individuals only have 60 days before and after their employer-sponsored coverage ends to select a plan through Covered California. If they miss out on this window, they are required to wait until Open Enrollment to enroll a plan (unless another qualifying life event occurs in the meantime).
  • Seek Alternative Coverage:
    Former employees who are not interested in continuing their employer-sponsored coverage through COBRA or who choose not to shop for a new plan through Covered California can also seek alternative coverage on the individual market or through their spouse’s employer-sponsored plan.

What Are the Benefits of COBRA?

Continuing coverage through COBRA does offer a two distinct advantages, depending on your client’s circumstances. Both are related to ensuring a smooth health coverage transition.

First, individuals who enjoyed the coverage they had through their employer might want to continue on with the same plan despite the fact that they are now required to pay the full premium. This is especially advantageous for individuals who are confident about their upcoming job prospects and do not anticipate using COBRA coverage for very long.

Another distinct advantage is also related to convenience and stability. When you choose to opt for COBRA, the claims process does not change. Individuals use the same insurance card as before and are not required to get caught up to speed on any other rules, regulations, or procedures.

What Are the Limitations of COBRA?

COBRA can act as a smooth transition for individuals who are anticipating a quick reintroduction back into the workforce, but what are the disadvantages? Well, unfortunately, there are several. First, COBRA is only a temporary solution. Usually, the longest a former employee can use the program is 18 months from their final day of employment, although individuals with disabilities may be able to extend their coverage. If individuals are worried they might not be able to find new employment within this time frame, they may want to consider other options.

Another potential drawback to COBRA coverage is the cost. While an individual’s former employer likely covered a substantial portion of the health insurance premium, the full cost while utilizing COBRA must be paid by the individual (which can be a significant amount, depending on the plan). It goes without saying that unemployed individuals are more likely to experience financial hardships, so paying their full monthly premium for what was employer-sponsored coverage might not be practical for many individuals. Some individuals could even be charged an additional administrative fee up to 2% of their premium because they are using COBRA.