Lessen the Bite From COBRA? That's Slithery

COBRA can have quite a financial bite. Do you have to feel its sting? Or are there alternatives when you lose work-based health insurance? Those can be tricky questions.

COBRA is the temporary medical insurance named for the Consolidated Omnibus Budget Reconciliation Act, the federal law that gives people who have lost employer-sponsored health benefits the right to continue with the same coverage at their own expense for at least 18 months.

Navigating COBRA is about as much fun as playing with an actual snake. It's important to do your homework before deciding to either use or refuse it, says Ankeny Minoux, president of the nonprofit Foundation for Health Coverage Education. It's essential to find out if you qualify, if it's cheaper to buy insurance through the private market, or if there are ways to reduce COBRA's costs.

You'll Have Time to Make Up Your Mind

COBRA isn't just for fired and laid-off employees. Anyone covered under a company's health plan -- including a spouse, domestic partner (although this varies from state to state) and children -- is eligible for COBRA coverage if they lose health insurance due to a "qualifying" event such as job loss.

You're also eligible if you've lost your insurance because of divorce or if your hours have been cut, says John Parker, an independent health insurance broker at the Parker Agency in Niantic, Conn. Additionally, children who age out of a parent's plan or family members of an employee who ages into Medicare can apply for COBRA.

You have up to 60 days after you lose your coverage to decide whether to take advantage of COBRA, and another 45 days after that to pay the first premium. That means, for example, that if you think you might be between jobs for just a short time, you could try going without insurance for up to 60 days. If you're then hit with big medical bills during that time, they will be covered retroactively if you say "yes" to COBRA by the deadline and pay the premium.

With COBRA, you Pay What Your Company Paid

"As long as you can pay, you can have it," says Minoux. There's the rub: COBRA is expensive. You're "responsible for 100% of the insurance premium. Employees don't realize how much their employers pay on their behalf every month," she says.

The average cost of employer-sponsored health plans in 2011 was $5,429 for singles and $15,073 for families, according to a survey by the Kaiser Family Foundation. An employee typically paid $921 toward the cost of single coverage and $4,129 for a family plan. Under COBRA, the entire bill is yours.

"No matter how you look at it, COBRA will feel burdensome for people who had been bringing in a salary but now aren't," says Sonya Streeter, a policy analyst with the Kaiser Family Foundation. Few people take advantage of COBRA because "the insurance cost goes up at the same time income has dropped."

Private health insurance policies cost far less, on average, than COBRA: $2,196 for singles and $4,968 for families in 2011, according to eHealth Inc.

Private Plans Are a Better Bet for Some

The healthy and the young will likely be better off buying individual health insurance policies on the open market, where those groups in particular can find premiums cheaper than COBRA, Parker says. They also could opt for inexpensive short-term gap insurance policies covering only catastrophic illnesses and accidents.

Lower-cost alternatives are more difficult to come by for those who are pregnant, have a chronic disease such as diabetes, need expensive medication or have pre-existing conditions. "Insurers charge very high premiums for perceived high risk," Streeter notes.

People with medical conditions "might have no choice but to pay the hefty price tag for coverage through COBRA," Minoux adds.

Still, "it pays to shop around," she says. "If you are turned down by one insurer, try another."

Anyone with health issues might also qualify for a state high-risk insurance pool, but "premiums are high and there may be a waiting period of up to one year," Streeter says. The national health care reform law has established insurance plans administered by the federal government and the states for people who've been denied coverage because of a pre-existing condition. But those plans are not an option unless you've been without insurance at least six months.

Taming the COBRA

There are ways to trim COBRA's costs, such as by mixing it with private insurance, Parker says. For instance, if a private insurer won't provide affordable coverage for one family member, use COBRA for that person and then buy individual policies for the rest of the family.

Also, note that COBRA allows you to choose any health plan offered by your former employer, so you could opt for one that is less expensive. And, if another job is on the horizon, your new employer might pay your COBRA premiums until you are eligible for the new company's benefits, Parker says.

Remember, sometimes COBRA isn't even an option. If an employer goes out of business, an employee is fired for committing a crime, or the company discontinues its health insurance for its entire workforce, COBRA isn't offered. Companies with fewer than 20 employees are exempt from the COBRA law, but their employees may qualify for a state-run "mini-COBRA" plan, Streeter says.