COBRA is a federal law (Consolidated Omnibus Budget Reconciliation Act of 1985), which allows for the retention of Group Health Insurance for qualified beneficiaries who may have lost insurance through unemployment, divorce, or death. To be a qualified beneficiary, the individual would have either had a termination of their job (for anything other than gross misconduct) or quit voluntarily.

Most employers offer benefits after a probationary period and when an employee changes from one employer to another, there often may be a three to six month window when health insurance would not be available. COBRA was created to help bridge the gap to allow individuals to continue with their existing group health insurance until they could become eligible for new coverage.

The thing that most people complain about is the high cost of COBRA. Why it seems to be so expensive is that most group health insurance provided through employers is also primarily paid for by the employers as a part of the employee's benefits. The premiums paid by the employee are generally just a small portion of the true cost of this insurance. The employer picks up the largest portion of the payments. When the individual is first faced with the true cost of the group health insurance, it seems highly inflated when compared to the partial premiums that had been routinely accepted as the cost for the insurance.

While it is true that COBRA premiums can be high, in recent years, insurance companies are beginning to fill in the gap with individual plans as alternatives to COBRA. However, before signing up for one of those plans, be very careful, because these plans can be a tremendous disadvantage compared to the group health plan coverage that is provided with COBRA.

Individual plans offer insurance tailored to the needs of the individual. For instance, if a person rarely goes to the doctor, the benefits may not cover routine examinations. Instead, the individual plan may cover catastrophic care in which the individual would be hospitalized or for emergency care such as a broken bone. Covering insurance this way helps the individual to keep the overall costs down by concentrating on things other than routine visits.

Caution must be used when giving up COBRA for one of these plans because there are other factors to take into consideration. One area that is problematic is whether there are current pre-existing health conditions. The individual insurance will often reject coverage for these conditions. It may reject such conditions forever or for a limited time, depending on the seriousness of the condition. Pre-existing conditions can include things such as diabetes, high blood pressure, heart ailments or rheumatoid arthritis. These are just a few of the things that may exclude one from individual insurance.

Overall, in these cases, staying with the COBRA coverage is probably the best thing to do because being in the group health insurance has spread the risks over a larger group that kept the costs down and provided extra benefits. This is important because with some pre-existing conditions, there are numerous routine visits per year for maintenance. Often lab work is needed to follow up on the progression of the condition. The prescription drug coverage may be significant as well as all plans are based off of a formulary and changing insurance means that those particular drugs may no longer be covered under the individual plan. Prescription benefits are generally sold separately under individual insurance plans.

Sometimes these pre-existing conditions will preclude ever being accepted by individual insurance plans and it would make sense in these cases to continue with the COBRA coverage until it was no longer available. Another alternative for those individuals faced with the loss of insurance and less than desirable individual insurance is through the state high-risk pool. Check with the state department to find out about this coverage. The high-risk pool coverage may be the necessary way to go to ensure coverage once the COBRA runs out.

The main thing is to do research before letting COBRA go altogether. The good news is that there is a window of time from when first unemployed and when the first COBRA premium is due in which other options can be thoroughly explored. The qualified beneficiary is allowed 60 days in which to elect COBRA and then has another 45 days in which to submit the premiums. One caution about waiting is that COBRA, like most insurance, requires no lapse in coverage so although it may be almost three months before a premium is paid, all back months will have to be paid with the initial premium so now instead of paying one high premium, the individual will have three months worth to pay which can be quite a bit of money at one time.

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