Monday, March 21, 2005

A COBRA Primer Part 2…

There’s a lot of confusion about how long COBRA Continuation lasts. Generally, you can stay on COBRA until:
- 18 months from date previous coverage ends, OR
- 29 months if you become disabled during the first 60 days of your COBRA Continuation, OR
- 36 months of you were covered under a spouse’s or parent’s plan, and the spouse or parent becomes eligible for Medicare, dies, or becomes divorced or legally separated, OR
- If/when your previous employer goes out of business or drops the group plan altogether.
Remember, though, that COBRA is very complicated, and that these are general guidelines only.
When one elects COBRA one pays the full premium for the coverage. Since most employees only pay part of the premium while employed, it can come as quite a “sticker shock” to see the true cost of the coverage. And the employer can (and will) add a 2% “handling” or administrative fee on top of that. And the employer can charge 150% during the 11 month disability extension. Ouch!
There’s one more issue that needs to be addressed. While COBRA Continuation may seem like the easiest way to go if you quit or lose your job, it’s usually not the cheapest, and that 18 months goes by pretty quickly. For those with major health problems, or if you’re pregnant, it may well be the best route. But if you’re healthy, it’s generally better to get off of COBRA as quickly as possible. Individual major medical plans are usually cheaper, and you don’t have to worry that the coverage will run out in a year and a half. This is important:
Even if you’re in the hospital, in the middle of a claim, when the clock hits 18 months (or 29 or 36, see above), you’re done. There is no extension of coverage, it just ends. Needless to say, this can be a problem.
OTOH, I get calls from folks who’ve been told that they should skip COBRA and purchase a Short Term Medical plan instead. STM plans have some attractions: they are usually quite inexpensive compared to “regular” individual medical plans, they require little (if any) underwriting, and they can be issued almost immediately. But, there are drawbacks as well: they don’t cover pre-existing conditions, they’re also limited in how long they’ll last, and they are not always considered “prior coverage” for HIPAA eligibility. So be careful in considering them.
Have a great week!
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