How Does COBRA Health Insurance Work? comments

By Wendy Mihm | January 31, 2011

What is COBRA, Anyway?

A king cobra is a big, scary venomous snake found in the plains and rainforests of India, China and…

Oh come on, it’s a little bit funny.

What Does COBRA Stand For?

Ok, smarty pants.  Let’s start with the acronym then.  COBRA stands for Consolidated Omnibus Budget Reconciliation Act.  But since that’s probably not very helpful, let’s talk about what COBRA actually does. 

What Does COBRA Do?

COBRA allows employees and their dependents to remain on a former employer’s plan after they are no longer employed, as long as the employee left under certain qualifying conditions.  This can be especially helpful when either the employee or someone in her family has a pre-existing condition that would make it difficult to get insurance under an individual or family plan.  Now, there are some caveats to this previous statement, so let’s look at those next.

First, in 2014, if the recent “Obama Health Care” plan stays in place, “guaranteed issuance” will become the law.  This will mean that insurance companies will not be able to turn someone down because they have a preexisting condition.  At that time, COBRA may not be as appealing as an option. 

Second, if adult dependents 26 and under suddenly find themselves unemployed, they may now choose to go back on their parents’ plan and receive guaranteed issuance.  This may make COBRA a less appealing option for someone 26 or under. 

Finally, anyone under the age of 19 who successfully purchases health insurance today should also receive guaranteed issuance.  In theory, this should make COBRA less appealing to them, should they suddenly find themselves unemployed.  In reality, however, many health insurance companies are not offering plans at all to such young consumers.  Given that they are under 26, they still have the option to go back on their parents’ plan and receive guaranteed issuance.

How Expensive is COBRA?

COBRA has a reputation for being quite expensive.  In fact, it is precisely 102% of the total costs of the plan while the employee was still working.  It just seems expensive because now the enrollee must pay her share, plus the employer’s share, plus 2%.  Where this additional 2% came from, I do not know.

Here’s a video that sums up COBRA nicely.  I promise there are no snakes in it.


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