Understanding COBRA and Health Coverage After Retirement

When you retire, your employer must present you with the option to extend your health coverage through the federal Consolidated Omnibus Budget Reconciliation Act (COBRA). This act applies to companies with more than 20 employees, and the extension is granted for at least 18 months. The catch, though, is that your employer will not continue to pay a portion of your premium. Instead, you will have to pay 100 percent of your monthly premium, which can more than double the expense of your health care coverage. The question, then, is whether COBRA is worth the cost?

Are You Eligible for Medicare?

COBRA is not the only solution presented to retirees for health care coverage. Most older Americans rely on Medicare as their primary source of medical coverage. If you are eligible, you may opt to replace your private plan with this public option. Your state may also fund a public option for seniors, which can be less expensive than COBRA. It is important to keep in mind, however, that the expensive private provider plan you enjoy under your current employer may have more full coverage than a Medicare option.

Are You in Good Health?

As you age, you must make more important decisions on health care coverage. Younger persons in good health can often reduce coverage, opting for "catastrophe only" protection. This means they will elect to receive benefits only for a very large claim. These individuals are less likely to see a physician for matters like infections, viruses and regular checkups. As you age, you will need to see a physician more often for even routine matters. Your health should play a factor in your choice to remain fully insured or to opt for a less expensive plan.

Do You Have Alternative Provider Options?

If you have no preexisting medical conditions and are in generally good health, it makes sense to shop around for other private options in lieu of your COBRA extension. For example, nonprofit health insurance companies or very low coverage options can be much cheaper. The savings will not be as large if you happen to have costly pre-existing conditions. Ask other seniors or self-employed persons in your area about their choices for providers and networks. You may find there are alternative options that give you what you need for less money than your current elections. If you do change, be prepared to find new doctors in some cases.

Do You Qualify for Involuntary Job Loss Benefits?

If you are retiring as a result of a job loss, you may qualify for a reduction in your COBRA premium through a government subsidy. This is an option only if you were involuntarily terminated. You may ask yourself whether you are eligible for unemployment benefits as an indicator of whether you will qualify for the reduction. Once you qualify, you may see as much as a 60 percent discount in the amount you will have to pay to continue your health coverage with COBRA. More often than not, this will be the cheapest option, and you will not have to switch providers or physicians.