- Candace E. Duecker, CFP®, CDFA®
Continuation of Health Coverage
COBRA benefits have crossed my path on different occasions so I thought I’d share the some information as it is a benefit often available to divorced spouses; though, I find this to be less commonly known.
First, what is COBRA?
COBRA is the Consolidated Omnibus Budget Reconciliation Act which provides for the continuation of group health coverage that otherwise might be terminated. This law became effective in 1986 and amended the Employee Retirement Income Security Act, the Internal Revenue Code and the Public Health Service Act. According to the Department of Labor, employers with 20 or more employees on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA.
This benefit is available when covered employees voluntarily or involuntarily cease employment with a company subject to COBRA for reasons other than gross misconduct or lose health benefits due to a reduction in hours. These qualifying events pertain to the covered employee and immediate family members. In addition, other qualifying events include the covered employee becoming entitled to medicare, divorce or legal separation, and death of the covered employee.
Coverage is not subject to pre-existing conditions and can last up to 18 or 36 months depending on the qualified beneficiary and qualified event. Specific to divorce, qualified beneficiaries of the covered employee are entitled to 36 months of continued health coverage. Generally under all circumstances, COBRA coverage must be elected within 60 days following the qualifying event. If you initially waive your benefit, you can revoke the waiver so long as it's within the election period.
In my career, have personally leveraged COBRA benefits when changing employers. For 90 days, I was covered under the former employer’s comprehensive health plan which lined up perfectly with the initial eligibility to enroll in the new employer’s plan. In some cases, former employers will pay for the COBRA coverage as part of the exit agreement so don’t be shy in asking for this.
For my (non-divorce) financial planning clients, COBRA has come up in retirement planning conversations. Those seeking retirement before age 65 can be quite shocked at how their financial plan can be impacted when seeing the cost of coverage between retirement from their employer and eligibility for Medicare. When suitable, COBRA can be a potential strategy to help bridge this gap.
Those seeking divorce, sometimes delay the process because of concerns around healthcare coverage. I find this is especially prevalent among stay at home parents or spouses who might not have access to benefits from their own employer or business. In other words, individuals who are desiring divorce but are depending on their spouse’s health plan for benefits. COBRA can provide some peace of mind to pursue independence knowing that an individual doesn’t have to stay married to maintain health coverage.
As far as cost goes — generally speaking, the qualified beneficiary is responsible for the premium payment which can be up to 102% of the cost for similarly situated individuals covered under the plan who have not incurred a qualifying event. So COBRA coverage can be expensive. There may be other options to consider during transitions in health coverage so do some research to see what works best for your financial situation.
For more information, visit the Department of Labor’s page on Health Plans & Benefits: Continuation of Health Coverage - COBRA.
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