Individual health insurance may be a better choice than COBRA

By Frank N. Darras

DarrasLaw


As of March 1, employees who have lost their jobs through no fault of their own will be entitled to a 65 percent federal subsidy for up to nine months on their monthly COBRA payments. Initially, this may be a good deal, but it's a better idea to encourage people to start looking around for individual health coverage, as there may be additional savings if they do their homework.

The COBRA act provides for continued insurance coverage on the group policy without having to produce evidence of insurability. This means that no medical records, health history, physical exam or any other type of health underwriting is necessary. It is designed to keep the insurance company administering the plan for a former company from excluding coverage of any preexisting conditions, or refusing to provide coverage to the person who has been laid off or to his spouse or dependents.

The cost of COBRA can be relatively expensive because even as a terminated employee, one is paying for the "group" policy of everyone at the former company. Those rates can be high due to such as demographics, the health plan's design, and the company's group health premiums that consist of a composite average.

When people have to tighten their belts and begin looking at ways to save money, they should carefully research different individual health plans. If they are in good health and have some money set aside, they may want to find a carrier that provides standard coverage and a choice of deductible. If they have enough savings to cover a high deductible in the event of a catastrophic circumstance, they should choose the high deductible and pay lower premiums to get them through.

If they're planning to get an individual policy, they should consider if any family members have pre-existing conditions. Determine whether they have already paid their maximum out-of-pocket expenses this year. In either case, if the answer is yes, keeping the COBRA may be the best bet.

Reviewing each situation and evaluating family expenses along with their health history will lead to a well-educated decision. Just because COBRA is offered does not mean it is the best deal or that anyone has to keep it. Careful research may result in saving hundreds of dollars per month by choosing an individual policy.

COBRA facts, as related to the recently signed stimulus package:
    1) The American Recovery and Reinvestment Act of 2009 (ARRA) provides a premium reduction for certain qualified individuals and expanded eligibility for COBRA.

    2) If employment was terminated between September 1, 2008 and December 31, 2009, COBRA enrollees may be eligible to pay a reduced premium that is 35 percent of the premium costs for up to 9 months. If they had declined to take COBRA for that time period or chose to discontinue it, they may have another opportunity to elect COBRA coverage and pay a reduced premium.

    3) If they were enrolled in COBRA prior to the ARRA's enactment, they are not eligible for the premium reduction.

    4) If a company closed or went bankrupt and there is no longer a health plan, the former employee is not eligible for COBRA. Union members are covered by a collective-bargaining agreement that provides for a medical plan.

    5) Even if an employee does not elect to take COBRA coverage when they are laid off, spouses and dependent children have an independent right to take the coverage.
Advise clients always to speak to a trusted advisor to help them understand the fine print and get the coverage needed for them and their loved ones. Encourage them to be a smart shopper, always get competent advice and make sure their new policy is in effect before canceling the COBRA coverage.

For detailed information go to the U.S. Department of Labor web site, http://tinyurl.com/6qv5c5.

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