Monday, August 15, 2016


It happened again on Friday. Another COBRA victim. I have talked with three people in the last few months who lost money due to COBRA. There is talk of ending or, at the very least, amending the Consolidated Omnibus Budget Reconciliation Act (COBRA). That should be a goal for the spring of 2017.

What is COBRA? This is from the Department of Labor:

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified individuals may be required to pay the entire premium for coverage up to 102 percent of the cost to the plan.

COBRA generally requires that group health plans sponsored by employers with 20 or more employees in the prior year offer employees and their families the opportunity for a temporary extension of health coverage (called continuation coverage) in certain instances where coverage under the plan would otherwise end.

In English – You get to keep your health insurance policy if your ex-employer 1) had a policy, 2) had more than 20 employees, and 3) if you pay the full monthly premium plus up to 2% for processing. You may keep the policy for up to 18 months, 36 months if you are losing coverage due to death or divorce.

COBRA was very important. Prior to the Patient Protection and Affordable Care Act (PPACA or Obamacare), unhealthy individuals and families could be declined for coverage due to preexisting conditions. COBRA guaranteed 18 months to find an acceptable option.

COBRA also allowed someone who had already met an annual deductible to retain coverage for the balance of that calendar year. This may still prove useful even under the new law.

COBRA, retaining the ex-employer’s policy, may also be less expensive than purchasing a new policy. This is more likely if the individual is in his/her late fifties or early sixties.

So far, so good. What could be bad?

Christopher (name changed) worked for over twenty years at a local service organization. His position was consolidated with two others and he was let go. This was in October. The first six months of COBRA were paid by his ex-employer as part of a generous severance package. Chris was shocked by the $1,100 bill he received in late April for his May premium. He had no idea. He was referred to me and we met a few days later. I was forced to deliver terrible news. Chris missed the Annual Open Enrollment. Discovering that you have expensive COBRA does not qualify for a Special Enrollment Period. Christopher must keep this policy for the balance of 2016 if he wants to retain PPACA compliant coverage. What looked like a lifesaver had become cement shoes. His ex-employer didn’t understand how COBRA works in this new environment.

Another issue is that COBRA and Medicare are like oil and water. If you are over 65 and work for a business that has over twenty employees, your group health insurance is primary. Medicare is secondary. Most of these people save their money and don’t enroll in Medicare Part B. But, COBRA doesn’t count. Failing to enroll in Medicare Part B when you become eligible may result in a penalty and being forced to wait until the annual enrollment period the following January. This is an expensive common mistake.

Angela (name changed) made the above mistake. She was supposed to enroll in Medicare Part B six years ago, a few months into COBRA. She didn’t. Angela got a new job with benefits about a year later. Now, at age 71 and ready to retire, she will be forced to wait until next July for Medicare to begin. Angela will pay more than twice as much for inferior coverage due to her error six years ago.

My last example is Charlotte (ditto) who visited my office on Friday. Her last day at a major Cleveland employer was June 30th. She spent twenty-nine years at a really big company. Charlotte signed up for Medicare Part B. Since she didn’t have the time to do any research and had zero help from H.R., she enrolled in her employer’s retiree COBRA plan, a mediocre $400 Medicare Supplement-like policy. A month later she realized that her friends all have better coverage for a lot less.

Charlotte paid a price for convenience. Even though she is 66, this was her Medicare Initial Enrollment Period. You have just one bite of the apple and she picked a bad one. She still has options, but she has forfeited some of the flexibility and guarantees that had been available in June.

There is still a place for COBRA under Obamacare, but it is not as important as it once was. So maybe it is too early to unleash the mongoose, but I’m keeping mine fed and ready.