COBRA Continuation of Benefits****

• applies to companies with 20 or more employees
• employees can keep the same coverage for 18 months, sometime 36 months
• premium can only increase by 2%

MR. WATSON: Let's talk about COBRA.

MR. WATSON: COBRA is not a conversion. It is a continuation. We have not talked about COBRA. We have talked about a conversion earlier. Please listen. COBRA is part of a federal law. It says if a business has 20 or more employees, they fall under something called COBRA. It allows you, (not if you were fired for cause or gross misconduct), to continue to be covered under the same plan for 18 months after you've left that business, but you have to pay the premiums. And they cannot raise the premium except for an insignificant 2 percent or 102% of the premium. So if your premium was $500 a month, they can only raise it by 10 bucks.

WOMAN: Except-

MR. WATSON: Hold on. Greek, tell them what you were going to say.

WOMAN: While you were working there, the employer was picking up some of the other cost. Now, you have to pay it all.

MR. WATSON: So when you were still working there, let's say the employer was paying $450 and you were paying $50 of a $500 premium. When you leave that job, if you elect COBRA, your cost went through the roof, didn't it? Because now, instead of your employer paying the $450 and you paying only $50 for the premium, you have to pay the entire $500 for the premium because you're no longer working there. Because now you are the one paying COBRA. You understand? Did the premium go up? Only by the 2%.

MR. WATSON: But did the cost go up for you?

ALL: Yes.

MR. WATSON: Enormously.

WOMAN: I still don't understand what COBRA is.

MR. WATSON: Let's say you worked for Bank of America and Prudential is their insurance company. First of all, the employer is picking up all, or some of the cost, depending on whether it is a contributory or non-contributory plan. So when you leave Bank of America, you can continue to be insured as if you were still working for the Bank of America and with the same coverage for up to 18 months. But you have to pay the premiums.

WOMAN: So it's if you quit, you can keep your coverage under COBRA ?

MR. WATSON: Right. With COBRA, you are still covered under the same plan, just as if you were still working for the bank.

MR. WATSON: With the COBRA , after the 18 months, then you can convert to an individual plan.

WOMAN: Do you have to go to COBRA first?

MR. WATSON: No, you can just leave and convert. When you leave your company, you have 31 days to convertto an individual policy. Most people elect COBRA and then convert. It's better coverage. Depending on the company you are working for, like Bank of America. I use them only as an example. Banks usually have great benefits. Includes everything-dental, vision. I mean at comparatively low costs because they are large groups.

WOMAN: So premiums remain the same as while you were employed?

MR. WATSON: Yes. The premiums can only increase it by 2 percent, or to put it another way, 102% of the original premium, and that is for administrative purposes only.

WOMAN: But then you are paying it all, not just your share.

MR. WATSON: Right. That's how your cost can go up when your premiums stayed the same. So how much was the premium?

WOMAN: $500.

MR. WATSON: How much was the bank paying? $450, while you are working for them, and you were only paying $50. It is a $500 premium. When you leave, they are not going to pay it for you. You are going to pay it all, the whole $500.

MR. WATSON: The cost went up, but the premium in this example stayed the same. And if the premium is raised then they can only raise it by 2 percent. Everybody okay? Be careful with "cost" versus "premium."

MR. WATSON: There are times when someone can keep COBRA for up to 36 months, they are called "qualifying events". Ex., If an employee of the bank died, the dependents could elect COBRA for up to 36 months. Remember this! Do not skip the chart below for qualifying events. Know when someone can keep COBRA for 36 months!!!