How to Calculate Cobra Insurance
Losing your job can result in losing more than income—you may also lose employer-sponsored health coverage. To help unemployed, uninsured Americans at risk for financial ruin in the event of a medical emergency, Congress in 1985 enacted the Consolidated Omnibus Reconciliation Act, also called COBRA. COBRA requires certain employers to allow former employees the opportunity to continue health insurance coverage on a temporary basis. If eligible, you must pay the full cost of the insurance and an additional administrative fee each month.
Read the COBRA election notice you receive from your former employer. This notice contains information necessary to calculate and pay COBRA insurance. COBRA regulations allow employers to charge you up to 102 percent of the cost of coverage. Cost of coverage includes the amount you contribute, the cost to the employer and an additional 2 percent as an administrative fee. Look for this percentage in the election notice.
Calculate the total monthly cost of your health coverage. Locate the amount you contribute on your pay stub. Locate the amount your employer pays in the insurance enrollment paperwork or call the employer's human resources department. Add the amount you contribute each month to the amount paid by your employer.
Multiply the total monthly cost by the percentage you will pay. For example, assume the total monthly cost of your insurance is $450 and you must pay 102 percent as a monthly premium. Multiply $450 by 1.02 percent to arrive at a monthly premium of $459.
Health insurance under COBRA can continue for 18 or 36 months. If you lose health coverage as the result of termination or a reduction in work hours, you're eligible to continue coverage for 18 months. If you are a spouse or child and lose health coverage due to divorce, death, loss of dependent child status or because the employee holding the insurance becomes eligible for Medicare, you're eligible to continue coverage for 36 months.
If you choose to continue health coverage under COBRA, you must apply within 60 days from the date you receive the COBRA election notice or the date your employer-sponsored insurance plan ends, whichever is later. After this time, you become ineligible to apply for COBRA insurance.
Keep track of when premium payments are due. COBRA doesn't require former employers to send monthly premium notices. Regulations do require a 30-day grace period, however.
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