COBRA Insurance

COBRA (named for the Consolidated Omnibus Budget Reconciliation Act of 1985) temporarily continues job-based health insurance offered by an employer. Before COBRA, employees and their families were at risk of losing health insurance coverage if the employee was fired, changed jobs or got divorced. After the law was passed, the majority of employer-provided health insurance plans were required to offer their coverage to former employees for 18 months or longer. Employees do not have to elect to receive COBRA insurance. They might choose to enroll in a plan offered on a federal or state health insurance exchange or an off-exchange plan. 

Who Qualifies for COBRA Insurance?

To qualify for COBRA health insurance, an employee must be enrolled in their employer’s health insurance plan at the time their employment discontinues. The plan also must still be available through the employer in order for the employee to continue the coverage. If an employer happens to change their health insurance plan, former employees will not be be able to participate because they can only continue the exact plan they were enrolled in while they were employed by the company. COBRA generally applies to all group health plans offered by private-sector employers and state and local governments with 20 or more employees. In addition to entities with fewer than 20 employees, COBRA does not apply to plans sponsored by the federal government and some religious organizations. 

The circumstance, or qualifying event, that causes someone to lose their coverage is irrelevant. Whether an employee is fired or quits their job, they are eligible for COBRA (so long as the above applies). Spouses, former spouses and dependent children also are eligible to continue their insurance through COBRA. For example, if Spouse A is covered by Spouse B’s employer-based health insurance and they divorce each other, Spouse A can continue their health insurance coverage through COBRA, even though it was not Spouse A's employer who provided their health insurance coverage. The same would hold true if Spouse B’s hours were reduced and they were no longer eligible for the full-time benefits, or if Spouse B were to die. 

Children covered by an employer-based family health insurance plan also can remain covered under COBRA insurance. Like job-based health insurance plans for single individuals, family health insurance plans can be temporarily continued with COBRA. Under the Affordable Care Act, family health insurance plans are required to offer coverage for children until the age of 26 - some states allow them to be covered even longer.

How to Get COBRA Insurance

Once a qualifying event occurs, either the employee or their former employer must notify the insurance company of the qualifying event. The nature of the qualifying event determines who is responsible for the notification. If an employee is terminated, their hours of employment are reduced, they die, are entitled to Medicare, or an employer declares bankruptcy, then the employer is responsible for notifying the carrier that someone is eligible for COBRA. Covered beneficiaries are responsible for notifying the insurance company if the qualifying event is divorce, legal separation, or a child's loss of dependent status under the plan.

If an employee is interested in continuing their insurance through COBRA and responsible for notifying the carrier, they need to reference their COBRA rights detailed in their health plan’s Summary Plan Description (SPD). The SPD is given to the participants of all plans when they enroll and explains the process to initiate COBRA insurance.

Plans can set a time limit for notices of qualifying events so it’s important to refer to the SPD as soon as an event occurs. The time limit cannot be shorter than 60 days, starting from the latest of one of the following circumstances: (1) the date on which the qualifying event occurs; (2) the date on which you lose (or would lose) coverage under the plan due to the qualifying event; or (3) the date on which you are informed, through the furnishing of either the SPD or the COBRA general notice, of the responsibility to notify the plan and procedures for doing so.

Once the beneficiary notifies their insurance company of a qualifying event, the insurance company must provide them instructions called an election notice. The election notice describes the employee’s right to continue their plan through COBRA, how to make an election (continue the coverage) and the name and contact information of the carriers COBRA administrator. The insurance company must send this acknowledgement and information to the employee within 14 days after receiving notice of the qualifying event. 

How Long Can I Keep COBRA Insurance?

The law requires that employer-based health insurance continued with COBRA last a period of 18 or 36 months beginning the date of the qualifying event. End of employment or reduction in working hours (less than 30 hours per week) are qualifying events that constitute 18 months of continuation coverage. Other qualifying events entitle beneficiaries to 36 months of continuation coverage.

COBRA Qualifying EventCOBRA BeneficiaryMonths
Laid off, quit or retiring from a job where the employee participated in the qualifying group health insurance plan Employee, spouse and dependent children 18
Reduction in work hours that made the employee no long eligible for a health plan benefit Employee, spouse and dependent children 18
Divorce or Legal Separation Spouse and dependent children 36
Death of the employee Spouse and dependent children 36
Employee become eligible for Medicare Spouse and dependent children 36
Loss of dependent status (for example, a child is no longer eligible to remain on a plan) Dependent children 36

There are two circumstances when beneficiaries entitled to 18 months of coverage can extend it to 36 months: if a beneficiary (employee or immediate family member) is disabled, or if another qualifying event occurs. For example, if Spouse A is currently enrolled in COBRA through Spouse B employer’s health insurance and they decide to divorce, Spouse A is eligible to continue Spouse B’s plan another additional 18 months. The rules and process for extending COBRA insurance an additional 18 months should be detailed in the plan’s Summary Plan Description (SPD).

In the case where an employee becomes entitled to Medicare within 18 months of their employment ending or their hours being reduced, than their spouse and dependents are eligible for continued coverage up to 36 months after the date the employee becomes entitled to Medicare. For example, if an employee becomes eligible for Medicare 10 months before their qualifying event for COBRA, than the continued coverage for their spouse and children would last 26 months (36 months minus 10 months).  

What Does COBRA Cost?

The employee or beneficiary pays the premiums for insurance continued through COBRA and is responsible for 102% of the cost of the plan. The additional 2% is an administration fee charged to all participants. Many employer-based health insurance plans are favorable and beneficiaries sometimes find them difficult to afford the health insurance costs if they have to pay for them out pocket (especially if an employer was paying for their premiums beforehand). For this reason, anyone eligible for COBRA should consider all health insurance options, including shopping on the health insurance exchanges, before making a decision.

Beneficiaries of COBRA must pay the employer 102% of the monthly premium prior when the employer must make its payment for the group health insurance plan that it offers. If the beneficiary fails to make a timely payment for their continued coverage, the policy will be discontinued. 

Anyone struggling to make COBRA payments should try not to cancel the continued coverage because they could potentially leave themselves without health insurance for an extended period. Voluntarily cancelling COBRA is not a qualifying event that allows someone to enroll in health insurance plans available on the federal or state marketplaces outside of the annual enrollment period. 

COBRA, State Mini-COBRAs and the Affordable Care Act (Obamacare)

The passage of the Affordable Care Act in 2010 dramatically changed health insurance in the U.S., including how people enroll in healthcare plans. Since the creation of the federal and state health insurance marketplaces, commonly called exchanges, anyone considering COBRA now has an additional health insurance option. Losing employer-based health insurance for any reason is a qualifying event for COBRA and a Special Enrollment Period, during which you can sign up for a health insurance plan offered on the federal or state healthcare exchanges. 

Most employers contribute to or even cover the cost of the premiums for the group healthcare insurance they offer. For this reason, choosing to continue job-based health insurance through COBRA might result in a monthly expense someone hasn’t budgeted for, or cannot afford. If this is the case, an individual should consider shopping around for the best-priced health insurance plan for themselves. Depending on their income level, some individuals might have to pay little or no money for a plan through cost-sharing or subsidies. Others might be able to find a comparable plan to their previous employer’s but for less.

The majority of states in the U.S. have have passed laws essentially expanding the federal Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) insurance to include companies and local governments with fewer than 20 employees. The employees of entities with fewer than 20 employees are ineligible to continue their health insurance coverage under the federal law. Entities should check with the office of their respective state’s insurance commissioner to see if they qualify for expanded COBRA (sometimes called mini-COBRA). While COBRA has fundamentally been extended in these states, some have limited coverage of the continued benefits and the duration of the coverages vary. For example, the New York State Continuation Coverage is very similar to the coverage required by the federal law, while in Ohio, coverage can last a maximum of 12 months.

General Information About COBRA

The Consolidated Omnibus Budget Reconciliation Act of 1985, commonly referred to as “COBRA,” was signed into law by President Ronald Reagan in 1986. It enabled workers and their families to keep the group health insurance coverage offered by their employer. Beneficiaries must pay for the plan out-of-pocket but can choose whether or not they would like to continue their plan via COBRA. Though not recommended, beneficiaries of job-based group health insurance plans can remain uninsured. However, that potential financial risk is almost always ill advised, and consumers may be face a penalty for not fulfilling the individual mandate.

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