COBRA Coverage Insurance Guide: What You Should Know to Help Your Clients

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According to a recent study by Goldman Sachs, 44% of retirees are concerned about their healthcare needs in the future.

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Add to this concern the connection between healthcare and employment — roughly half of Americans receive health insurance through their employer — and healthcare coverage can become a major stressor. During your clients’ working years, they’re working hard to save up for retirement costs (like future healthcare) while relying on their current employer for their existing  healthcare needs. 

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But what if they lose a job, need to step out of the workforce, or simply plan to retire early? How do they handle a lapse in coverage?

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Luckily, several options exist for people looking for short-term health insurance after losing employer coverage. One of those options is COBRA coverage insurance. This insurance coverage allows employees leaving the workforce to maintain their current coverage at a higher cost. 

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You already know healthcare is a critical aspect of comprehensive financial planning — but that doesn’t mean understanding the intricacies of different policies and plans like COBRA is easy. This guide is meant to help you understand the basics of how COBRA might fit into your clients’ health and financial plans. 

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What is COBRA Continuation Coverage?

The Consolidated Omnibus Budget Reconciliation Act, or COBRA, is a law that provides short-term health insurance to employees after losing workplace health insurance coverage. 

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Usually, employers with more than 20 employees have to offer COBRA insurance. Those who’ve lost a job or experienced a reduction in work hours, thus making them ineligible for their workplace plan, are usually eligible for COBRA. Though COBRA is a short-term solution, it is generally more expensive when compared to workplace insurance premiums. 

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Common Questions About COBRA Coverage Insurance

Health insurance is complicated, and COBRA is no exception. Here are some common questions your clients may have about COBRA continuation coverage.

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Who is COBRA for?

As mentioned above, COBRA health insurance is for employees who (voluntarily or involuntarily) lose their jobs or whose work hours are reduced and therefore lose their employer-sponsored health insurance. COBRA continuation coverage may extend to the employee’s spouse and dependents too. 

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However, if the employer stops offering coverage to its employees for any reason — like going out of business or employing less than 20 people — the employee will no longer qualify for COBRA insurance.

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How Long Does COBRA Last?

COBRA continuation coverage typically lasts for 18-36 months. The typical maximum coverage period is 18 months, but certain qualifying events or situations can extend coverage. Some examples of qualifying circumstances and events include:

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• The employee or one of their dependents is disabled.
• The employee and their spouse legally separate.
• A dependent child loses dependent status.

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An employee who becomes eligible for COBRA coverage will receive a notice detailing the length of their coverage and if/how they qualify to extend that coverage.

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How Much Does COBRA Cost?

COBRA insurance is typically expensive — that’s because the employee has to pay the full premium, meaning any portion that the employer previously subsidized is now their financial responsibility. There’s also an additional 2% administration fee. The cost of COBRA will depend on the plan premium, but average monthly costs range from $400–$700 for an individual (more for a family).

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What Does COBRA Insurance Cover?

COBRA coverage is the same coverage offered in an employer-sponsored plan, meaning employees can continue seeing their approved network of healthcare providers. Any changes to the employer-sponsored plan apply to COBRA coverage too. 

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How Do You Apply for COBRA Coverage Insurance?

When an employee loses their workplace health insurance coverage, they’ll receive notification of their COBRA eligibility from their previous employer, insurer, or third-party administrator. This notice includes all the information needed to sign up for COBRA coverage, including premiums and terms.

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After receiving the enrollment paperwork, an employee has 60 days to enroll in COBRA insurance. The coverage is retroactive, meaning it will backdate to the date you lost coverage, eliminating any lapse in insurance between leaving a job and enrolling in COBRA. 

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What Are Mini-COBRA Plans?

While COBRA insurance is federally required for employers of more than 20 people, some states have “mini-COBRA” legislation that covers employees of smaller businesses with less than 20 employees. Employees who work for smaller businesses can check to see if mini-COBRA plans exist in their state.

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What Are Alternatives for COBRA Insurance?

COBRA usually isn’t the only option for people experiencing a lapse in healthcare coverage. And because it’s usually expensive, it might not be the smartest option. Below are some alternative options for departing employees who need healthcare coverage. Not all of these options will be available to everyone.

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• Individual Marketplace policies
• Spouse’s health insurance plan
• Medicare (starting at age 65)
• Short-term health insurance (not available in every state)

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Pros and Cons of COBRA Coverage Insurance

As you can already tell, there are both pros and cons to COBRA continuation coverage. Here are some of the major points you’ll want to help your clients consider if they’re faced with a gap in health insurance coverage.

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Pros

• Clients don’t have to worry about a change in benefits, coverage, or providers because they’ll have the same benefits they had before with COBRA coverage.
• Clients won’t experience a lapse in coverage since COBRA coverage is retroactive, so long as they enroll in the 60 day window.
• Spouses and dependents can also continue coverage through an employee’s COBRA plan.

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Cons

• Clients will pay a higher premium for the same coverage since they’ll pay their share  and the employer’s share of the cost.
• COBRA coverage is only a short-term solution — clients will have to find another form of coverage when their COBRA coverage expires.
• Clients is still subject to employer coverage changes. For example, if an employer stops offering coverage to its employees for any reason, former employees will no longer have access to COBRA coverage.

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Help Your Clients Decide if COBRA is Right for Them

A gap in health insurance coverage can be an uncertain and even scary time for your clients. As a comprehensive financial planner, you can help them plan for and deal with the financial impact of this situation. But you don’t need to know everything about COBRA and alternative healthcare plans to help your clients — that’s where we come in.

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At Caribou, we help professionals in the financial services industry advise their clients on one of the most complex areas of their financial lives — healthcare. Caribou can help you expand on your current financial planning services and address one of your clients’ biggest financial concerns.

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To learn more about a partnership with Caribou, click here to schedule a conversation today. o learn more about why healthcare is an important pillar of comprehensive financial planning, download our free whitepaper.