COBRA

When an employee is terminated from employment, whether through lay off, voluntary termination, or due to disciplinary reasons, the employer, under the Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions mandated in 1986 must continue to provide group health coverage that otherwise would be terminated.

COBRA contains provisions giving certain former employees, retirees, spouses and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available in specific instances. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer formerly paid a part of the premium.

Asset Protection

During this phase of your working life, you need to think of health insurance as asset protection rather than being able to visit the doctor for $20 per visit. Spending $200 on a doctor's visit will not destroy you financially, but an expensive surgery could. Paying the COBRA premium can also greatly reduce your staying power between jobs. Let's look at an alternative.

Medical Entitlement

The ability to visit the doctor's office and only pay $20 - $40 for the visit is a wonderful benefit your employer gave you. But is is a benefit, pretty much like your paycheck was. The health plan at your job was more a medical entitlement your employer provided through a health insurance company. In other words, your employer wanted to alleviate you of the burden of having to worry about medical costs if an issue arose in your family that could seriously impact your budget. Issues at home have a way of impacting performance at work. Unfortunately, if you are on COBRA, your employer is no longer paying for that medical entitlement, you are. Look at these two examples:

COBRA Number of Insured: 4 Copay: $20 Annual Deductible: None No Co-insurance Lifetime Max Benefit: $2,000,000 Premium: $995.35/mo Total Premium $11,944.20/year Maximum employee out of pocket: $0 + copays Annualized cost worse case: $11,944.20

Individual Medical Plan Number of Insured: 4 Copay: Not available, now pay $125 per office visit Annual Deductible: $1,000 Co-insurance: 80/20 after deductible = $2,000 Lifetime Max Benefit: $5,000,000 Premium: $295.94/mo Total Premium: $3,551.28/year Maximum employee out of pocket: $3,000 Annualized cost worse case: $6551.28

On COBRA, this family will spend $12,000 per year, whether or not they use it. With an individual medical plan, this same family will cut the cost of insurance 70%, and if there is a worst case scenario, medical costs for the year are still 46% less expensive than COBRA.

Imagine, your employer approached you and said, "We're going to give you a choice of health plans. We have this Mercedes of plans (the one on the left costing $12,000) or we'll give you the $12,000 a year and you can find your own plan. Whatever you save, you can keep and do with what you wish." Which plan would you select now? The one on the left, or the one on the right?

Well, now you are faced with that decision. Only it's not your employer's money, it's yours. And it's coming out of a bucket of money that is currently not being replenished.

I got "Bitten by the COBRA." Click here to listen to my story.

The Solution

Not everyone can qualify for an individual plan. If you would like to see if you do, you can download the preliminary qualification questionnaire by clicking here. Adobe Reader is required to view this file. Please visit www.adobe.com to install the reader for free.

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