When business professionals are let go, laid off, or terminated due to downsizing or restructuring they are often offered a severance package. While many can see the obvious benefits of receiving stock options or getting their salary for a longer period of time, few people tend to see the very real financial benefit of an extended coverage of their health insurance.
What is COBRA?
If you are terminated and work for an employer with more than 20 employees, you may qualify for the Consolidated Omnibus Budget Reconciliation Act (COBRA). Passed in 1985-86 and revised in 1989 this act allows you to continue to have health insurance for you and your family after a job termination.
Qualifying events may include:
- Turning 26 and no longer being eligible for your parents’ health insurance
- Working seasonally
- A change in relationship status such as marriage or divorce
- Facing a serious illness
- A natural disaster that affected your enrollment
- Becoming eligible for Medicare
You may also qualify for COBRA benefits if you are an hourly employee and your hours are reduced. Typically, the only reason you could potentially be denied COBRA coverage is if you were fired or terminated for gross misconduct. Under normal circumstances you and your family may receive COBRA benefits for up to 18 months, in some cases 29 or up to 36 months.
A note about severance packages: If you are over 40 and your company offers you a severance package the company must give you at least 21 days to decide and 7 days to revoke or change your mind after you sign.
How much does COBRA cost?
Because the employee shoulders the entire cost of the premium, COBRA payments can be high or even exorbitant. Therefore, negotiating who will pay the COBRA payments is important. In some cases, it is possible to receive a taxable lump sum payment from the employer that is equal to the cost of the COBRA payments. There are many other aspects of the severance package to review and assess and potentially negotiate. Having professional legal guidance is one way to ensure you fully understand your rights and options.