Does My Deductible Start Over With COBRA?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law providing a temporary extension of group health coverage for individuals and their families after certain qualifying events. These events can include job loss, reduction in work hours, death of the covered employee, divorce, or a dependent child losing eligibility. A common concern for many individuals is how COBRA impacts their existing health insurance costs, particularly their deductible.

Understanding Health Insurance Deductibles

A health insurance deductible represents the amount an individual must pay out-of-pocket for covered medical services before their insurance plan begins to contribute to the costs. For example, if a plan has a $1,000 deductible and a medical bill is $2,000, the individual pays the first $1,000, and the insurance then covers the remaining amount, subject to other cost-sharing. This deductible applies over a plan year, resetting annually.

Deductibles differ from other cost-sharing elements like copayments and coinsurance. A copayment is a fixed amount paid for a service, such as a doctor’s visit or prescription, while coinsurance is a percentage of the cost paid after the deductible is met. Copayments usually do not count towards the deductible. These, along with the deductible, contribute to an out-of-pocket maximum. This maximum is the total amount an individual will pay for covered services in a plan year before the insurer pays 100%.

Deductible Continuity with COBRA

When an individual elects COBRA continuation coverage, their health insurance plan remains the same as the one they had through their employer. This means that any amounts already paid towards the annual deductible for that plan year carry over and do not reset. The progress made in meeting the deductible is tied to the specific group health plan and its plan year, not solely to employment status.

This continuity reflects COBRA’s aim to provide uninterrupted health coverage under the original plan’s terms and conditions. However, there are scenarios where deductible progress might not carry over. If the employer changed insurance plans shortly before the qualifying event, or if the individual chooses a different plan option under COBRA, a new deductible period could begin. As long as the exact same health plan is continued, the deductible progress is preserved.

Other Cost Considerations with COBRA

While the deductible carries over, the overall cost of COBRA coverage is much higher than what an employee paid previously. Under COBRA, the individual is responsible for paying up to 102% of the full cost of the health coverage. This amount includes both the portion the employee previously paid through payroll deductions and the portion the employer contributed, plus an additional 2% for administrative fees. This can result in monthly premiums that are substantially more expensive than active employee contributions.

Copayments and coinsurance continue to apply under COBRA, just as they would have under the original employer-sponsored plan. These cost-sharing amounts, along with the deductible, contribute towards the plan’s annual out-of-pocket maximum.

COBRA Enrollment and Payment

After a qualifying event, the plan administrator must provide a COBRA election notice. This notice outlines the right to elect continuation coverage. Individuals have a 60-day period from the date of receiving this election notice, or the date coverage would otherwise end, to formally elect COBRA.

To elect COBRA, individuals must complete and submit the required forms as instructed in the election notice. Once elected, an initial premium payment is due. Federal rules allow for an initial payment period of at least 45 days after the COBRA election is made. Subsequent monthly payments are due on the first day of each month, with a grace period. Failure to make timely payments within these grace periods can result in the termination of COBRA coverage.