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Embrace COBRA -- or dodge it?

An estimated 5000 jobless wait outside State Labor Bureau New York City for chance federal job 1933. Some America's greatest

An estimated 5,000 jobless wait outside the State Labor Bureau in New York City for a chance at a federal job in 1933. Some of America's greatest entrepreneurs have proved tough times bring great opportunities.

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Updated: May 3, 2013 12:14PM

Unemployment is rising, and with the economy slowing, it is likely many more will find themselves without income -- and possibly without health insurance. That's where the Consolidated Omnibus Budget Reconciliation Act comes in.

Cobra ensures health insurance protection for those who lose jobs or find themselves suddenly without health insurance because of death or divorce. Basically, it provides that the employee can continue on the company health insurance plan -- but only if they pay the full cost of coverage.

Adding a huge expense for health insurance just when you've become unemployed is not a pleasant thought. But if you, or a family member, have a pre-existing medical condition, it might be the only option for coverage. Weighed against losing your home to medical bills, an expensive COBRA plan may be the least of the bad alternatives.

What few people know is that for healthy individuals and families, there very well might be less-expensive alternatives to COBRA policies. So here's a look at how COBRA extends health insurance coverage, plus an easy way to check for less-expensive alternative plans.

How COBRA works

Employers must offer to extend your health insurance coverage, if they meet certain conditions. They must employ at least 20 people and offer an employer-sponsored plan in which you have participated. You are eligible for coverage if you're fired, resign or simply leave work to retire -- unless you are fired for gross misconduct.

COBRA coverage extends for 18 months in most cases. It's extended to 29 months for a disabled employee, or 36 months for those who are widowed and the spouse was covered, a dependent whose covered parent died, or the spouse/ family of one who opted for Medicare. You must pay the full cost -- 102 percent of the cost, to be exact, to cover the extra expense of handling your account! The coverage extends to your spouse and family if they were previously covered under the company plan.

You don't have a lot of time to think about the alternatives because you must elect COBRA within 60 days of being notified of the "qualifying event" -- receiving your termination notice, for example.

That's why it's so very important to understand how COBRA coverage works -- and your alternatives. The best place to start is www. -- a Web site developed by eHealthInsurance .com that offers information and quotes on individual health policies, no matter where you live.

COBRA vs. private insurance

A study by the Henry J. Kaiser Family Foundation says that in 2008, the average annual premium for employer-sponsored health insurance is $4,704 for single coverage and $12,680 for family coverage. That works out to an average of about $400 a month for an individual and $1,078 for family coverage, including that 2 percent administration fee.

At, you can search for individual or family policies offered in your state. You might be surprised that by increasing the deductible or co-payments, you can find affordable private policies. Yes, you might have to take responsibility for more of your costs through a higher deductible -- but you'll be covered for major illnesses and won't risk losing your home over medical debt.

That's better than being among the 30 percent of those eligible who decide to go without health insurance because they figure it's too expensive.

When you must weigh COBRA

If you have a pre-existing condition, you're restricted to using this extended coverage and hoping you'll find another job with health insurance before the time lapses. (That's the tragedy of tying health insurance to jobs in America. With our transitory job market, and recessions, people who have paid premiums for their health insurance can be left uncovered because of job loss.)

And even if you find other coverage, there may be a period when you won't be covered for that illness, or a pre-existing pregnancy. Or those with pre-existing conditions may qualify for a state HIPPA plan, which is intended to cover these situations through high-risk pools administered by the states.

But if you are at risk of losing your job, it's wise to consider the options in advance, so you'll be prepared to decide whether to extend your employer's coverage or find coverage on your own. Knowing where to get the information and how to search makes this traumatic process much easier. And that's The Savage Truth.

Terry Savage is a registered investment adviser. Distributed by Creators Syndicate. Copyright Terry Savage Productions Ltd.

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