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by Hans H. Chen | March 10, 2009

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You've just been fired from a company that had been famed for lavishing its employees with great benefits -- before it ran short on cash and started laying them off. The nagging cough you developed a week before you got canned isn't going away. Now that your former employer no longer needs your services, it's not paying for your health insurance anymore, either. What are you going to do?

Consider COBRA. Named after the 1985 federal law that created it, COBRA allows fired employees, divorced spouses, and slacker twentysomethings to continue the health insurance they enjoyed when they were still employed, married, or listed on their parents' health care plans.

COBRA entitles anyone who has experienced a "qualifying event" to at least 18 months of the same insurance benefits he received before the event. Getting fired or quitting are qualifying events, as is outgrowing a parent's health care plan, which typically cuts off health care benefits to children in their 20s. And divorce can be a qualifying event for someone who enjoyed insurance through an ex-spouses' employer.

"It's an important lifeline for a lot of people," said Danny Devine, a spokesman for the Employee Benefit Research Institute, a think tank in Washington, D.C. that studies employee benefits.

COBRA isn't cheap - you're basically picking up the share of your premium your former employer used to cover, plus a two percent "administrative fee." Average COBRA premiums cost about $400 a month. But because COBRA guarantees coverage for at least a year and a half, $400 a month could be a bargain for someone who, because of existing health conditions, would have trouble getting an individual health insurance policy for less than that.

Statistics compiled by Charles D. Spencer & Associates, a Chicago company that monitors employee benefits across the country, show that people who do elect COBRA coverage tend to file more expensive claims than still employed workers, proof that COBRA participants do tend to be sicker than most.

So what should you know if you're thinking of COBRA coverage?

First of all, make sure your ex-boss has your current address. To meet his legal requirements, your ex-boss needs to tell his health care plan about your termination within 30 days. The health care plan administrator then has 14 days to send a COBRA notice to your last known address via first class mail. Once the plan administrator does so, however, you have just 60 days to activate your COBRA coverage. If you've moved, your COBRA notice may be sitting in some post office dead letter office, along with your right to continued group health coverage.

"Everybody moves, so if the plan [administrator] doesn't know your current address, and you don't get the notice, it might be your fault," said Blair Brininger, a Houston attorney who specializes in employment law.

Assuming you've gotten your COBRA notice, next consider whether COBRA is worth paying for. If you have preexisting health conditions, pay a lot for medicines, are pregnant or plan on getting pregnant, or have been turned down for private insurance in the past, COBRA can ensure you'll be covered in the future without paying astronomical premiums. On the other hand, if you're healthy, you can likely find cheaper insurance than COBRA on your own, especially if you shop around, agree to higher co-payments, and deductables, or elect catastrophic care plans. Or you can go without any health insurance, though experts, of course, caution against this.

"Once college kids are no longer eligible for their parents' plan, that's a qualifying event, and I bet there are a lot of college kids who don't know that," Brininger said. "Of course, they're all healthy so they know they don't need health insurance. They're young and foolish."

Lastly, take your time before paying your first COBRA premium. If you're not sure you need COBRA, take the full 60 days after you receive your COBRA notice to consider the state of your health and likelihood you'll get some other form of less-expensive insurance. After you've chosen COBRA, you can still back out before paying a dime, if it turns out COBRA isn't the most cost-effective plan.

"If there's any doubt whether you need it or not, you should wait your full 60 days before you make your election," Brininger said. "Make it's certified mail, return receipt requested so you have proof you actually made [the election] in case there's a mistake at the insurance company's end. Then, from the day you make the election, you have 45 days before you have to pay. So you make your election on day 55, for instance, wait approximately until day 95 in order to decide whether your premiums are greater than your bills, or vice versa. That's the way to do it."

COBRA plans, in most cases, operate smoothly. But the law surrounding COBRA can be as complicated as the lives of those who choose it. COBRA, for example, cannot force employers to extend benefits to same-sex domestic partners. Benefits can also be withheld from workers fired for acts of "gross misconduct," such as embezzlement. And if someone moves to another state, they may not be able to take their COBRA coverage with them.

In these cases, ex-employees might consider getting their own legal advice. They can also contact their nearest regional office of the U.S. Department of Labor. A list of all offices is online at http://www.dol.gov/dol/pwba/public/contacts/folist.htm.

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Filed Under: Workplace Issues

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