Watch CBSN Live

Health Insurance Alert: Beware of COBRA Cancellations

I just had a near-death financial experience.

It started at the pharmacy counter, a major venue for consumer meltdowns in these underinsured days. As I stood in line watching other customers stew or rage over missing refills and insurance snafus, I was feeling grateful to Congress (really!) for COBRA, the law that keeps me insured under the health plan of the company that laid me off. Soon I'd be on my way home with my family's prescriptions and my wallet would be only $125 lighter.

Then the clerk approached with that "Don't shoot the messenger" look and delivered the message: Oxford says your insurance is terminated. Retroactive, to January 1.

Listen up, fellow COBRA users. This post could save you big-time. Spoiler alert: Here's the bottom line. If you make a wrong move, COBRA may zap you with a venom that can kill you (or at least your budget, mortgage, and retirement savings).

First, a quick intro: COBRA is a 1986 federal law (the R stands for "reconciliation,'' that Congressional maneuver known to opponents of the current health-care bill as the "nuclear option." It requires companies of a certain size to offer laid-off employees continuous coverage in the company health insurance plan for up to 18 months. (There are other rules. Some people are covered longer; COBRA can also help divorced spouses.)

The idea behind COBRA is that the employee will find a job, with health insurance, before the 18 months are up. This was more plausible in the halcyon days of earlier recessions. In the meantime, ex-employees pay the full premiums (assuming they survive the sticker shock). That can be better than trying to buy insurance on your own, especially if a family member has a pre-existing condition.

More recently, prompted by the White House, Congress has mandated COBRA subsidies that slice a good chunk off the premium price for some COBRA users, making the insurance more affordable. (The subsidy rules have also generated a lot of confusion. If you're not sure you're eligible, check with U.S. Department of Labor for the latest changes.)

But with many breadwinners working without benefits, or facing more than 18 months without work, even families that can afford COBRA are racing the clock.

I won't go into the gory details of my misadventure. It involved a payment deadline, a dispute over a check and a "they said, I said" run-in with ADP, a company that administers COBRA accounts. Suffice it to say that the day I heard the word "terminated,'' I was up until 3 a.m., feverishly comparing generics prices at and, checking out Pfizer's Rx assistance program and the New Jersey state insurance plan for children. There followed days of panic, hours on phone trees, numerous teeth-clenched (mine) requests to speak to "a supervisor." Worst moment: Seeing the $1,000+ price tag on one month's worth of one of our medications.

But what stunned me was how my friends reacted. To a man and woman, they said (and believed) things like "Oh, that can't be right." "There has to be a way to get it reinstated." "But if you have the registered-mail receipt" - I did - "they don't have a leg to stand on!"

None of these kind and normally savvy friends, even one who was on COBRA -- and a former HR exec (a specialist in leadership development, not benefits) -- knew about the sudden-death features of COBRA. On the mailings I've received from ADP, the rules are stated -- in plain English. But many people don't take them seriously enough. Neither did I. So here is some elaboration: if you fail to register for COBRA or make payments in a timely fashion, your coverage will be terminated. If you can't show evidence that you paid, the appeal process will go nowhere. Or, as the ADP phone-tree person calmly opined, it could be a waste of my time. (She appeared admirably unmoved by my reaction. Your average call-center employees are pros at keeping their emotional boundaries intact when callers rant, curse or sob; health insurance folks are medalists.)

If you're lucky enough to qualify for COBRA and can pay for it, here's how to avoid such drama.

1. When the first (and any subsequent) documents arrive in the mail, read them immediately. Highlight. Underline. If any jargon confuses you, get it translated. ADP: 800-829-5352. DOL: 866-444-3272. There are new COBRA deadlines for the latest subsidies.

2. Sign up immediately. (You can always cancel if your circumstances change.)

3. Copy your signed and dated document. Include a check for at least the first month's payment, even if the payment deadline is weeks off.

3. Carefully check the address, send the letter certified, and don't forget (I did) the USPS return card requested option. ($6.60 could save you thousands.) Put those copies and receipts in a safe place.

4. Do not pay with your online checking account without confirming that the address is correct and that you can include all the identifying information on the check. If you put your payments on "automatic" (a good idea otherwise), be sure to keep an eye on them.

5. Don't count on receiving payment coupons to prompt your payments; that's no defense for a late payment. Don't rely on the bank's "deliver by" date or Express Mail dates; even if the check arrives on time, it could take time wending its way to the right desk.

6. Assume nothing. Make sure your check has been deposited. (This is one of several places I went wrong.) And if it doesn't clear, get on that phone tree.

7. Assume nothing else. Your doctors and pharmacy may keep accepting your insurance; the insurance company may continue paying them and sending you the EOBs (Explanations of Benefits). This means nothing. Termination of benefits can be retroactive by weeks or months; you will be liable for every penny.

8. Do your homework. You can lose COBRA if you move, for example, or if your former employer goes bankrupt. Read the fine and foreboding print.

As I said, my nightmare had a happy ending. Ultimately, my former employer provided an antidote for the COBRA bite; it reversed the order by ADP and Oxford. After much bureaucratic wrangling, I finally heard the magic words: "Your coverage has been reinstated."

My next step would have been an appeal to Department of Labor. The sequence: appeal to your plan administrator; appeal to your former employer; appeal to the feds. If you're on this path, good luck. Send us some bulletins from the front.

As for me, I'm back to playing the more basic version of ADP-Oxford Chutes and Ladders. One rule of the game: if you log an unspecified number of hours on the phone tree, Oxford will eventually reveal the relevant information. (Such as: Please mail us your appeal and we will respond within 15 business days. Well, yes, you could fax it. Well, yes, we do have an expedited process in some cases.) This week's issue: a difference of opinion about the correct dosage of that particularly expensive medication I was worried about. I've logged three hours of phone time and only cried twice. Resolution expected ... soon.

More on MoneyWatch: