First of all, what is COBRA? It stands for Consolidated Omnibus Budget Reconciliation Act. That’s quite a mouthful!

Put more simply, it’s a way for people to continue coverage under an employer’s health insurance after they’ve left the organization. That’s important for two reasons. First, it can be risky going without any insurance and taking a chance on a costly medical situation arising without the financial back-up of insurance. And, second, almost all Americans are still required to carry health insurance in 2018 or face tax penalties under the Affordable Care Act (ACA).

Another option, of course, is to let the employer coverage lapse and find a new policy through an agent, broker or a health insurance marketplace. While COBRA offered an important option for employees when it was enacted in 1985, its attractiveness has lessened with the alternatives available under the ACA.

Should I Take COBRA Coverage?

Is your employer required to comply with COBRA? In terms of size, the answer is yes for employers with more than 20 full-time workers and no for those under that threshold. However, some states have “mini-COBRA” laws that cover small employers. Other exemptions include the federal government and organizations such as churches. Also, if a company goes out of business or stops providing health insurance completely, COBRA doesn’t apply.

An important consideration is the potential cost of COBRA compared to buying insurance yourself. Why is COBRA often so expensive? While most employees do cover a portion of their health insurance cost, the employer covers the majority of it. But you may end up paying the full cost of that coverage under COBRA.

This calculation can be further complicated by the group leverage an employer has when negotiating insurance premiums compared to you as an individual purchasing coverage on the open market. In other words, does the employer’s group “discount” outweigh paying a higher share?

Here are the key events that can trigger your eligibility for COBRA coverage:

• Quitting or being laid-off/terminated (except for “gross misconduct”)
• Reduction of hours leading to loss of coverage
• Disability leading to quitting or termination

Under the first two conditions, coverage can continue for 18 months. Under the third situation, that term is extended to 29 months. Spouses and dependents can also obtain COBRA coverage under certain circumstances related to Medicare eligibility for the employee, divorce or separation, death, and a child who turns 26.

Keep in mind that you need to have been covered under the employer’s plan as of the day before that event, and the event must be the cause of losing your coverage.

And here are some important timeframes to note:

• Employer has 14 days to notify employee of COBRA eligibility
• Decision to sign up or decline must be made within 60 days
• First premium is due within 45 days of signing up
• Three months is maximum without insurance before tax penalty

What Are My Alternatives to COBRA?

You may be thinking, “If I can’t afford COBRA, what do I do?” Or, “My situation is different now, so what are my options?”

You don’t need to accept COBRA coverage just because it’s easy. You have an opportunity to take a fresh look at your needs. You may be able to find similar coverage at less cost. Or you may want to change your insurance to modify what it covers, rebalance deductibles vs. premiums, etc. For some people, coverage for specific medications and conditions can be an important factor. But be aware that the available network of providers varies, sometimes significantly, from plan to plan.

It’s important to think through your options carefully to make an informed decision.

Under the Affordable Care Act, loss of insurance from a change in employment status counts as a “qualifying life event.” The important thing here is that you can sign up for new insurance any time, not just within an open enrollment period. That means you can select a new plan that works best for you within the three-month period for avoiding tax penalties.

Also, keep in mind that you can opt out of COBRA coverage at any time. So it may make sense to accept COBRA while you look for a more affordable or suitable alternative.

Options include insurance through a new job, coverage under a spouse’s employer, a plan through a health insurance marketplace/exchange (federal or state), direct purchase, or enrolling in Medicaid if you qualify. You may be eligible for an insurance premium subsidy for a plan purchased through a marketplace or exchange.

Another alternative to Medicaid is a discount insurance plan. But both of these options count as an interruption in coverage that be a negative factor when seeking insurance again in the future. A medical discount plan may offer cost savings, but it’s not considered “insurance.” All it provides is discounts from participating providers, but it does not provide payment for medical bills.

Changing jobs is always a stressful time. Unfortunately, it also often involves making important decisions about healthcare coverage. But it’s an opportunity for talking to the right people, gathering the right information and finding the right plan that meets your needs as you make that transition.