Fill-the-Gap Health Coverage Protects Workers

If you’re like most Americans, you get health care coverage through work. Thus, losing your job can also mean losing your health insurance. With today’s rapidly escalating medical costs, loss of insurance can cause a financial crisis if you or your family suffer a significant medical problem.

However, if you lose or change your job, you can usually extend your employer health coverage another 18 months thanks to a federal law called the Consolidated Omnibus Budget Reconciliation Act, better known as COBRA.

COBRA, passed into law in 1986, aims to fill in the gaps of health coverage caused by periods of unemployment or insurance waiting periods at new jobs. It also covers retirees who do not yet qualify for Medicare and spouses and children who lose health care benefits because of death or divorce.

Roughly one in every 10 workers had a “qualifying event” that allowed them to elect COBRA coverage in 1991, according to a recent study by RAND Corp. in Santa Monica. More current statistics are not yet available.

Although many experts believe that the health care proposals being debated by First Lady Hillary Rodham Clinton’s presidential task force could ultimately make COBRA unnecessary, those who lose their jobs in 1993 are likely to need the law.

“Universal health care is still a long way off,” says a Labor Department spokeswoman. “COBRA is really the only option for someone who loses their job and still needs health insurance.”

But COBRA is no panacea. Workers who opt for it are likely to find coverage expensive. And in some cases employers can fail to provide it--or drop coverage--when plan costs get out of hand.

However, employers can drop COBRA coverage only if they drop coverage for all workers. If they attempt to discriminate against former workers, the company can be reported to both the Internal Revenue Service and the Labor Department. If violations are uncovered, the company is subject to hefty fines and penalties.

There are three elements that qualify workers for COBRA benefits: Your employer must have a health plan. The company must employ 20 or more workers for at least half the calendar year. And there must be a “qualifying event” to trigger COBRA.

For workers, a qualifying event occurs when you quit, get fired, retire or lose health benefits because your hours were scaled back.

Your family members can qualify for COBRA coverage if they were covered under your employee plan at the time of your death or divorce. Children can also get COBRA if they lose their status as dependents by dropping out of school--or simply aging.

Family coverage lasts up to three years--twice as long as worker coverage--because framers of the law believed it might take longer for non-working spouses and children to find other insurance.

Once you qualify for COBRA, the system works just like your old employee health plan--with one exception. You pay the entire cost of insurance, plus 2% in administrative fees. If you’re accustomed to employer-subsidized health care, that’s a big difference.

Indeed, where subsidized plans can cost as little as a few dollars a month, COBRA premiums average about $140 monthly for single coverage and $360 a month for family coverage, experts say. Often the premiums are much higher, especially for those employed by small companies with high health care claims. Still, in many cases, the coverage costs significantly less than privately purchased health insurance.

Employers must notify you within 14 days of a qualifying event regarding your eligibility for COBRA and the cost. But given the high cost, only one in every four workers who qualifies opts for the coverage, according to RAND.

How does one decide whether to take COBRA? Slowly.

The law allows you 60 days to decide whether you want it. And there’s no penalty if you say yes but change your mind before sending in a premium.

You get another 45 days to send your first payment. That payment must be sufficient to cover the previous three months, however, or you’ll be canceled and there is no opting back in. After that, you’ve got to make payments by the last day of each month or your coverage gets canceled.

Individuals who are eligible for COBRA are wise to spend that 60 days shopping around--and figuring out whether they’re likely to have significant medical bills.

Near the end of the 60 days, if you want coverage and can’t find a cheaper policy, opt in. Employers don’t like this concept of “adverse selection”--usually only the sickest and oldest buy--but it’s what the law allows. And, in this case, the employee is in the driver’s seat.