Can Employees Pay Their Own Benefits When Laid Off?

COBRA entitles laid-off workers to pay for continued health insurance coverage.

The federal Comprehensive Omnibus Budget Reconciliation Act (COBRA) of 1986 included a series of provisions to help laid-off workers maintain health insurance plans after separating from their employers. Among other things, COBRA entitles these workers to pay for continued coverage for up to 18 months at their own expense.

Criteria

Under the provisions of COBRA, laid-off workers can maintain their group medical and dental insurance benefits no matter what the reason for their separation. This includes those terminated for wrongdoing or criminal behavior. Regardless of any tensions or problems in the employer-employee relationship, companies must inform former employees of their rights under COBRA.

Cost

Former employees electing COBRA continuation coverage must pay the full cost of their policies. Typically, employers subsidize premiums, leaving employees to pay only a portion of their insurance costs. After termination, COBRA subscribers must pay the entire premium themselves, including the amount that was formerly paid by the employer. As a result, continuation coverage can be considerably more than during employment. For example, an employee who may have paid $50 per month in health insurance might need to pay $600 a month under COBRA coverage.

Process

Upon separation, employers must issue a letter to former employees informing them of their COBRA rights, premium costs and process for electing coverage. Those who elect COBRA coverage must usually wait several weeks for their former employer to activate the continued coverage, which can begin retroactively to the date when employer-sponsored coverage ended. However, those awaiting COBRA coverage to begin usually have to pay their medical expenses out of pocket until their insurance is restored, at which time they can apply for reimbursement.

Other Benefits

Some life insurance plans will also allow former employees to continue subscribing. Premiums will also go up if the employer subsidized the coverage. However, no law compels life insurance plans to continue coverage and many do not. Other benefits typically have no option for continuation.

References

• U.S. Department of Labor: An Employer's Guide to Group Health Continuation Coverage Under COBRA
• FindLaw: New COBRA Guidance Requires Employers To Overhaul Notices And COBRA Procedures; July 2004
• U.S. Department of Labor: COBRA Continuation Coverage Assistance Under ARRA
• U.S. Department of Labor: FAQs for Employees About COBRA Continuation Health Coverage