How to get COBRA if you lose your job-based health insurance, step by step

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Over half of Americans get health insurance through an employer, according to the Commonwealth Fund. If you get laid off, quit your job, or reduce your hours, you have a few options for obtaining health insurance, including COBRA.

Named for the Consolidated Omnibus Budget Reconciliation Act of 1985, COBRA allows you to continue receiving the exact same health coverage you've been getting from your employer after leaving the company, as long as you weren't fired for gross misconduct and you're not covered by another plan elsewhere.

But there's a catch: While you'll retain coverage at group insurance rates, you'll have to pay both the employer's and the employee's portion, plus an administrative fee, which can drive up the cost of coverage significantly above what you're accustomed to paying.

While there are likely cheaper alternatives — like using the special enrollment period for job loss to buy coverage in the Health Insurance Marketplace — it's worth considering COBRA.

Private sector and state or local government employers with 20 or more employees offer COBRA continuation coverage. Many states have laws similar to COBRA that cover companies with less than 20 employees. Full-time employees count as one person, while part-time employees count as one-half.

If you have left your job or had your hours reduced for reasons other than "gross misconduct," you're eligible to keep your health coverage for up to 18 months as long as you continue making the premium payments.

Of course, there's a caveat: The employer's health plan must be active for current employees. If it's not — whether the business shut down completely or it suspended the health coverage benefit — you won't be able to elect COBRA.

Your former employer is required to notify the insurer in charge of the health plan of a qualifying event — in this case, termination or a reduction in hours — within 30 days. 

After that, the plan administrator has 14 days to send you a notice in the mail with information about your coverage, where you should send your paperwork, and most importantly, how much it will cost. According to COBRA rules, the total premium cannot exceed 102% of the cost of health coverage for a current employee. That means you could be responsible for up to the sum of your premium, plus your employer's portion, plus a 2% admin fee.

If you don't want to wait for a letter, contact the health plan administrator or the company's benefits manager for more information.

After receiving an election notice, you have 60 days to elect to receive health coverage. If your plan also covered your spouse or dependents while you worked at the company, they would be covered under COBRA as well. 

To elect coverage, follow the instructions in the notice.

If you elect COBRA coverage, you have 45 days to pay the first month's premium from the date you mailed in your election form. If you pay in full and on time, you'll be retroactively covered. If you miss the payment, you could lose your ability to receive COBRA coverage entirely. 

Coverage can last up to 18 months from the initial qualifying event (the date you were laid off), or longer in special circumstances such as retirement, disability, death, or divorce. If your monthly premiums aren't paid in full and on time, the employer stops offering a group health plan, you become entitled to Medicare, you become insured by another plan, or you engage in fraud or otherwise shady conduct, your coverage could be terminated.

Editor's note: A previous version of this article incorrectly stated that the total premium for COBRA cannot exceed 102% of the individual employee's portion of the premium. The total premium cannot exceed 102% of the total cost of coverage, meaning it cannot be more than an employee's portion, plus the employer's portion, plus a 2% admin fee.

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