 Personal Finance PowerPoint Presentation Consolidated Omnibus Budget Reconciliation Act otherwise known as COBRA, prepared to get financially fit by practicing personal finance. Remember that insurance is part of our long-term risk management strategy where we follow the adage of measure twice, cut once, putting a formal process in place, which will be something like set our goals, develop a plan to reach the goals, put the plan in action, review the results, repeat the process periodically. We're now looking at COBRA that most of this can be found at Investopedia All About COBRA Health Insurance, which you can find online. Take a look at the references, resources, continue your research from there. This is by the Investopedia team, updated March 3, 2022. So we've been talking about different types of insurance, focusing in now on the health insurance, noting that the health insurance can be more complicated than other types of insurance due to, in part, the health industry being more complicated or complex in and of itself and the different laws and regulations around it. Clearly, one of the things that we want to be careful of with insurance is having gaps where we don't have insurance or for switching insurance from one place to another, or if we're getting our insurance that's linked to, say, a place of employment, if we're moving employment, then what's going to happen with our insurance policies? How can we make that transition move smoothly? So now we're talking about all about COBRA Health Insurance. This is the Consolidated Omnibus Budget Reconciliation Act, otherwise known as COBRA. Aren't COBRAs poisonous? No. Well, this is a different COBRA. This is the Consolidated Omnibus Budget Reconciliation Act. So this is like a beneficial health beneficial thing, COBRA, here. It's a health insurance program that allows eligible employees and their dependents that continue benefits of health insurance coverage when an employee loses their job or experiences a reduction of work hours. So if you're no longer eligible for the health insurance possibly because your hours got reduced and or you're changing jobs and your health insurance is through the employer, we want to be careful that we don't just simply lose the insurance. And so you got that kind of transition period, which this can help with. Below, we'll explore the basic details of COBRA, how it works, its eligibility criteria, pros and cons and other features. What is COBRA Health Insurance? You might ask large employers in the United States, those with 50 or more full time workers are required to provide health insurance to their qualifying employees by paying a part of insurance premiums. If an employee becomes ineligible to receive an employer's health insurance benefits, which can happen for a variety of reasons such as getting laid off or falling below a minimum threshold number of hours worked per week, the employer may stop paying its share of the employee's insurance premiums. In this case, COBRA allows employee and their dependents to retain the same insurance coverage for a limited period of time provided they are willing to pay for it on their own. So it's a way to kind of basically say, OK, we're going to extend the fact that we want to stay on the insurance at least for a limited time instead of just simply being dropped at that point in time, especially since part of the payment might be being paid by the employer. So under COBRA, former employee spouses, former spouses and dependent children must be offered the option of continued health insurance coverage at group rates, which otherwise would be terminated. So note when you're talking about getting we noted in prior presentations that health insurance is often connected to the to the work. And that in the past, because there was a benefit kind of program. And oftentimes in the past, we had more families or households, which had one income households and people stayed in one job for a longer period of time. That's kind of changing these days. But there's still benefits to the group plan often offered through work, which means it's the first place people look oftentimes for health insurance, because you might get a group plan, which is cheaper possibly. And there's sometimes tax incentives and benefits that make it affordable to get the health insurance through the employer. But clearly that causes problems if there's some kind of change and we don't want the health insurance to just be taken away automatically so that so that you're without health insurance, at least for a period of time. So they're required that you are at least offered the capacity or the ability to continue the health insurance. So but you're going to have to pay for it in that case. So it's an offer to continue the health insurance that you're going to be paying for, even though you no longer have the wages coming from the employer in the same way. So while these individuals are likely to pay more for health insurance coverage through the COBRA than they did as employees. So you might think, well, I'm going to get COBRA. That means I'm going to get the same deal for the health insurance or possibly they're required to keep me on the health insurance without paying or something like that. That's not the deal here. The deal is that you might have to pay for it and possibly pay more because the employer is no longer paying their half because the employment situation has changed. But they give you the offer to keep on the insurance instead of just completely taking it away in like a sudden fashion. So because employer will no longer pay a portion of the premium costs. So COBRA coverage might be less expensive than an individual insurance plan would be. So then you're going to be considering is it worthwhile then since I'm going to be paying for COBRA to pay for the COBRA or going to an individual insurance plan or you might have some time to make that transition depending on where you are and where's the window of opportunity to buy other types of insurance using the COBRA. It's important to note that COBRA is a health insurance coverage program and plans may cover costs towards prescription drugs, dental treatments and vision care. It does not include life insurance and disability insurance qualifying for COBRA health insurance. There are different sets of criteria for different employees and other individuals who may be eligible for COBRA coverage. In addition to meeting these criteria eligible employees can typically only receive COBRA coverage following particular qualifying events as discussed below. Employers with 20 or more full-time equivalent employees are usually mandated to offer COBRA coverage. So note you have this kind of size requirement. This is typical when you have government regulations because they typically would want to put those regulations on the larger companies and are skeptical to put them on smaller companies which may not be able to handle the more burdensome regulations they might have to maneuver a bit more quickly when you're smaller business. So the working hours of part-time employees can be clubbed together to create a full-time equivalent employee which decides the overall COBRA applicability for the employer. COBRA applies to plans offered by private sector employers and those sponsored by the majority of local and state governments. Federal employees are covered by a law similar to COBRA. So if you're on the federal side of things typically the benefits for the federal employees are typically pretty good. So you got an equivalent or similar type of thing you would expect there. Additionally, many states have local laws similar to COBRA. These typically apply to health insurers of employers having fewer than 20 employees and can be called many COBRA plans. Those many COBRAs are even more dangerous than the big COBRAs oftentimes because their head whips around faster. I've heard but we're not talking about snakes here. This is a good COBRA health insurance. But in any case a COBRA eligible employee must be enrolled in a company sponsored group health insurance plan on the day before the qualifying event occurs. The insurance plan must be effective on more than 50 percent of the employer's typical business day in the previous calendar year. So the employer must continue to offer its existing employees a health plan for the departing employee to qualify for COBRA. In case of the employer going out of business or the employer no longer offering insurance to the existing employees for instance if the number of employees drops below 20 the departing employee may no longer be eligible for COBRA coverage. So obviously if the if the business is having trouble and they're downsizing or closing up the business and laying people off or doing stuff and that's kind of different than if someone is being laid off and the business is continuing on as usual other than that for example. So the qualifying event must result in a loss of the employee's health insurance that's kind of the point they're trying to mitigate the loss of the health insurance so you don't get stuck without the health insurance and then possibly having more difficulty to get health insurance once you're without it. So the top type of qualifying event determines the list of qualified beneficiaries and conditions vary for each type of beneficiary. Employees, employees qualify for COBRA coverage in the event of the following voluntary or involuntary job loss such as the 2020 economic crisis except in cases of gross misconduct a decrease in the number of hours of employment resulting in loss of employer insurance coverage. So you might say that you're that you're going away from the job or you might just have a reduction of hours which no longer allows you to get the coverage so both of those events could would result possibly in the coverage being kind of yanked out from under you unless there was something that would prevent that from happening the COBRA is allowing you hopefully to prevent that from happening so you can still pay for the insurance although again it's not free in that case it's just that hopefully the insurance company won't just pull the insurance out which could cause problems. So spouses in addition to the new qualifying events for employees above their spouses can qualify for COBRA coverage on their own if the following conditions are met the covered employee becomes entitled to Medicare divorce or legal separation from the covered employee death of the covered employee so whenever you're talking about health insurance through the work we often have this situation that if one person qualifies then you get the family that's going to be qualified with that health insurance and any kind of event that's going to result in the changing of the health insurance we got to think about the other people that possibly are affected as well so dependent children qualifying events for dependent children are generally the same as for the spouse with one addition so the additional item loss of dependent child status as per the plan rules so the employer must notify the plan within 30 days of the qualifying event that is applicable to the employee so the qualifying event coming up the the employer is going to say ah we're going to yank your health and so they're not just going they're not just going to not talk to you hopefully and then just yank your health insurance out because whatever the qualifying event happened happened right they should be notifying you about the fact that the qualifying event is going to be happening which would be nice and then possibly giving you the capacity to pay for the COBRA so that you so that you can plan from that point in time although you would still have to be paying for the COBRA so the employer or beneficiaries must notify the plan if the qualifying event is divorced legal separation or a child's loss of dependent status COBRA benefits and available coverage for qualifying candidates COBRA rules provide for the offering of coverage that is identical to what to that which the employer offers its current employees so that's kind of the idea here you were on the plan before we're going to keep the plan status basically under the COBRA kind of situation instead of just yanking that out or making some substantial change to it so any change in the plan benefits are active or for active employees will also apply to qualified beneficiaries all qualifying COBRA beneficiaries must be allowed to make the same choices as non COBRA beneficiaries essentially the insurance coverage for current employees beneficiaries remains exactly the same for ex-employees beneficiaries under COBRA so you must be given at least 60 days in which to choose whether or not to elect continuation coverage so you're given the option hopefully you're not going to just jank the insurance away give you the option to elect the COBRA coverage which you can then choose to do again you still have to have payment for the insurance coverage but that can help you to to not have that sudden event of also changing your insurance plan all of a sudden so even if you waive coverage you can change your mind if it is within the 60-day election period from the date of the qualifying event COBRA coverage extends for a limited period of 18 to 36 months depending upon the application scenario one can qualify to extend the 18 month maximum period of continuation coverage if any one of the qualifying beneficiaries in the family is disabled and meets certain requirements or if a second qualifying event occurs potentially including the death of a covered employee the legal separation of a covered employee and spouse a covered employee becoming entitled to Medicare or a loss of dependent child status under the plan cost of COBRA health insurance how much does it cost the term quote group rate end quote may be incorrectly perceived as a discount offer but in reality it may turn out to be comparatively expensive so you might be thinking well if the thing is under COBRA they I should have a continuation of the same kind of payment structure I had before but that's not really the case because you might have had part of it being paid by the company now you could still have a benefit because you might be under the the group rates because that's going to be the idea the employer might have some kind of group health insurance kind of system but those group rates could be comparable to other health insurance once you don't have the the payment partial payment by the employer for example so it still could be costly situation during the employment term the employer often pays a significant portion of the actual health insurance premiums so you got to keep that in mind because this can be a shock to many people they because more benefits that go are actually paid by the employer and then you don't actually physically pay and see come out of your checking account people tend to start to think that the actual bill is less than that as opposed to you're getting paid you're getting a form of salary in another way the employer is paying for benefits so when all of a sudden you're paying the full amount again it can be kind of a shocking or jarring type of event for example an employer may pay 80 percent of the premium costs so the fact that the employer is paying that when you are working for them is really basically a form of wages but oftentimes it's beneficial for the employer to do that and the employee because you have might have tax benefits to basically do that but it complicates and confuses what you're actually earning what they're actually paying you so while the employee pays the remainder after employment the individual is required to pay the entire premium and at times it may be topped up with an extra two percent toward administration charges costs may not exceed 102 percent of the cost of the plan for employees who haven't experienced a qualifying event therefore despite the group rates being available for the cobra continued plan in the post-employment period the cost to the ex-employee may increase significantly when compared to prior insurance costs in essence the cost remains the same but has to has to be borne completely by the individual with no contribution from the employer cobra may still be less expensive than other individual health coverage plans it is important to compare it to coverage for former employee might be eligible for under the Affordable Care Act especially if they qualify for a subsidy so in other words you might be comparing it then to other types of plans in that situation and if your income is lower and you think you're going to qualify for a subsidy then the Affordable Care Act purchasing a plan on the marketplace then could be cheaper because you're basically getting a subsidy possibly in that situation so even though you have the capacity to go into cobra you might then realize you might say hey this got expensive all of a sudden and now my income is below to the point where I could get possibly a subsidy with the Affordable Care Act if I purchased it on the marketplace which might be cheaper so the employer assuming resources department can provide precise details of the costs those who lost health insurance due to a job loss during the 2020 economic crisis qualify for a quote special enrollment end quote period on the federal exchanges which give them 60 days to sign up that may have been a way to find a cheaper insurance option then cobra you've got like a window to go into these other exchanges so that's another reason why you don't really want the insurance to just be yanked away from somebody because you would like someone to go from a covered period to another covered period and be able to make the transition you know appropriately so sometimes you got to wait for the window to open up before you can get the other insurance so early termination of cobra health insurance cobra coverage can be prematurely in the following cases cobra coverage can end prematurely in the following cases failure to pay premiums on time that's a way to to cancel any kind of thing right you stop paying them employers ceasing to maintain any group health plan so the employer saying i'm not doing any health plan anymore well then you would think that you wouldn't qualify for cobra because it's not just you in that case there's stopping the health plan in general a qualified beneficiary gaining coverage under another group health plan for instance with a new employer becoming eligible for medicare benefits or engaging in miscontact conduct such as fraud pros and cons of cobra health insurance and individual who opts for cobra coverage is able to continue with the same physician health plan medical network providers cobra beneficiaries also retain existing coverage for pre-existing conditions and any regular prescription drugs so it's you're just continuing on with the cobra it's just that now you've got you've got to pay it yourself and you've got the other kind of limitation terms and how long you can have cobra and whatnot the plan costs may be lower than other standard plans and it is better than remaining uninsured as it offers protection against high medical bills to be paid in case of any sickness so clearly you don't want to go uninsured for multiple reasons one you want to make sure that you have insurance in the event that some big thing happens so some big medical problem happens that you wouldn't have insurance coverage for that time frame so it's not just like well i'm going to miss a couple doctor visits or something no i mean you're trying to get insurance against the big thing the big event that could happen and make sure that you have the risk mitigation there and two once you lose the insurance maybe it's more difficult to get insurance although they've got these rules against uh barring someone for pre-existing conditions and whatnot but still it would be kind of nice not to have a gap of no insurance basically would be the idea so nonetheless it's important to keep in mind the downside of cobra some of the most prominent of these include the high cost of insurance when it is born entirely by the individual the limited period of coverage under cobra and the continued dependency on the employer if the employer opts to discontinue the coverage an ex-employee or related beneficiary will no longer have access to cobra if the employer changes the health insurance plan a cobra beneficiary will have to accept the changes even if the change plan doesn't offer the best fit for the individual's needs a new plan may change the coverage period and number of available services for example and it may increase or lower deductibles and co-payments so for those reasons individuals eligible for cobra coverage should weigh the pros and cons of cobra against other available individual plans to select the best possible fit so you don't want to just say oh i got cobra so i'm just going to go on cobra i'm just going to ride it out on cobra because you might not be the best fit for you it still could cost more you might not you might be able to get access to the marketplace for it you might want to think of cobra more as that short-term kind of fit until i can find a more long-term option so that i don't go for a period of time without any insurance a potential cobra beneficiary also can explore for example whether they may qualify for a public assistance program such as Medicaid or other state or local programs however such plans may be limited to low-income groups and may not offer the best care and services compared to other plans healthy individuals can explore the option of a low-cost health discount plan so that would be another option that you could do if you don't have a job at that point in time you might be going for the cheaper premium and possibly looking for any other kind of tax benefits and or the the payments the subsidies but these plans don't count on insurance coverage which can make it difficult to get health insurance in the future since signing up for one of these plans means that insurance coverage is considered to have been interrupted managing a high cobra premium if you're considering cobra coverage but you're concerned about the differences between the cost of insurance coverage through this program and the cost of insurance with the support of an employer there are a number of important considerations to keep in mind when you lose your job you generally use your flexible spending account that's the fsa if you have one if a job loss is threatened you are allowed to spend your entire year's contribution to the fsa before you become unemployed if you were if you were going to contribute $1,200 for the year but it's only january for example and you've only had $100 withheld from your paycheck for your fsa you can still spend all of the $1,200 that you are planning to contribute say by seeing all of your doctors and filling all of your prescription immediately upon choosing cobra you can change your plan during the employer's annual open enrollment period and opt for a less expensive plan like a preferred provider organization ppo or health maintenance organization that's the hmo we talked about them in the past if if available a refundable tax credit called the health coverage tax credit the hctc can be utilized by qualifying individuals to pay up to 72.5 percent of qualified health insurance premiums including cobra contribution coverage the hctc the hctc program was due to expire on december 31st 2020 but the internal revenue service has extended the program through december 2021 uh tax deductions might also help reduce the burden of higher premiums while filing the annual tax returns you are allowed to deduct cobra premiums and other medical expenses exceeding 7.5 percent of your adjusted gross income agi on your federal tax return but you must itemize your deductions on schedule a you can achieve additional savings by reducing other healthcare expenses such as switching to generic drugs or buying larger supplies at a discount and visiting a low-cost community or retail clinic for basic health care services finally you can utilize the funds of your health savings account the hsa to pay cobra premiums as well as medical expenses which could significantly reduce the sting of losing your health insurance benefits it's important to note that making timely payments on cobra premiums is essential to maintaining coverage for the duration of your eligibility the initial premium payment is due within 45 days of the date of your cobra election and failure to make that payment could lead to the loss of your cobra rights payment is typically designated to cover a period that is retroactive going back to the date of the loss of coverage and the qualifying event that established eligibility if you do not make your cobra payments on time but you do with within the grace period for that period of coverage there is the possibility that your coverage will be canceled until payment is received at which point coverage will be reinstated government jurisdiction over cobra several agencies of the federal government are responsible for administering cobra coverage currently the department of labor and treasury maintain jurisdiction over private sector group health plans while the department of health and human services is responsible for public sector health plans however these agencies are not necessarily heavily involved in the process applying for cobra coverage or related aspects of the continued coverage program the labor department's regulatory responsibility includes the disclosure and notification of cobra requirements as stipulated by law and the center for medical and Medicaid services provides information about cobra precisions for public sector employees the american recovery and reinvestment act of 2009 signed into law by president biden on march 11th 2021 continued a provision that provided a 100 subsidy of the cobra premiums beginning april 1st 2021 and ending september 30th 2021 employers recoup the premiums through the medicare tax credit the american rescue plan act of 2021 signed into law by president biden on march 11th 2021 contains a provision that provides a 100 subsidy of cobra premiums beginning april 1st 2021 and ending september 30th 2021 employers recoup the premiums through the medicare tax credits you are eligible for the cobra premium subsidy if you lost coverage due to a reduction in hours or involuntary termination of employment your employer must treat quote assistance eligible individuals end quote who have cobra coverage during the six month subsidy period as having paid their premiums in full if however you are eligible for other group health plan coverage or medicare you will lose eligibility for the cobra subsidy you are required to self report your eligibility for other coverage to the cobra plan and will face a tax penalty if you do not applying for cobra health insurance how do you get it done in order to begin cobra coverage and individuals must confirm that they are eligible for assistance according to the requirements listed above typically an eligible individual will receive a letter from either an employer or the health insurance outlining the cobra benefits they should get information based on on the cobra a big package of stuff that you could take a look at and contemplate some individuals find this notification difficult to understand it sure is can be kind of confusing with a lot of stuff in it but because it includes a large amount of required legal information and language it sure does so if you have any difficulty determining whether you are eligible for cobra or how to begin coverage through this program contact either the insurer or your former employer's HR department for individuals either not eligible for cobra or those searching for alternatives there are other options in some cases a spouse's health insurance plan may be a possibility so if you're married and you're saying okay my health insurance we were on this health insurance through my work the next place to go and say well do we have health insurance possibly through the spouse's job or some other job as well because that might be the first place you kind of consider for the health insurance because of the group benefit possibility and possibly the tax benefits that would be related to it or you might explore your options on the federal health insurance marketplace or a state insurance marketplace so next you would probably say well if I don't have my income maybe my income is below a certain threshold I might have some tax benefits and other subsidy benefits if I go to the health insurance marketplace which you might first go to the state marketplace if you have one in your state and if not the federal marketplace loss of a job will open up special enrollment periods so you got usually there's an enrollment period that you got to kind of sign up for and you might be able to get a special enrollment period in the event of the loss of the job so as indicated above Medicaid programs and other short-term policies designed for those experiencing a gap in health coverage may also be available to you health insurance professionals typically discourage individuals from electing to go uninsured entirely as the possibility of severe downside is higher especially during an uncertain time so if you're not working and you're just bowling about you're going doing random stuff then you're probably more likely you're going to injure yourself in the first place and you don't want to have no coverage during the time in case you get some big injury that's going to be really costly so you typically want to have some kind of insurance at least against that big item that big problem that could always possibly happen that's the risk we're trying to mitigate fortunately individuals eligible for COBRA coverage have at least 60 days to elect the participate in the program what's the bottom line just give me the bottom line COBRA is a convenient option for retaining health insurance if you lose employer sponsored benefits and sometimes it is also the best option however the cost is often high and the plan is not always the best one to fit an individual or a family's needs