COBRA (and its relative, State Continuation) can be difficult to fully understand and comply with. Here’s a handy introduction for those who may not work with these programs every day.
What is COBRA insurance?
COBRA insurance is a federal law that addresses healthcare coverage that ends due to a “qualifying event.” Its official name is the Consolidated Omnibus Budget Reconciliation Act of 1985.
What is the purpose of COBRA insurance?
COBRA enables those who have lost their healthcare coverage to avoid gaps in coverage by temporarily retaining enrollment in their employer’s group plan. The employee usually pays for the full cost of continuing coverage.
What is State Continuation?
Similar to COBRA, State Continuation applies to businesses that employ fewer than 20 people. (COBRA applies to businesses employing more than 20 people.) Each state separately administers State Continuation laws, and there are some differences in rules. For that reason, State Continuation is not part of the federal COBRA program, which applies equally to all states.
How does COBRA work?
When an employee experiences a “qualifying event” that causes the loss of healthcare insurance eligibility, they have a minimum of 60 days to elect to continue the coverage by paying the full premium while they look for a replacement. COBRA coverage can continue for up to 18 months, and in some cases, up to 36 months.
Who is eligible for COBRA?
The following people are eligible for COBRA:
- Workers whose employer is required to offer COBRA and who experience a “qualifying event” that causes the loss of their healthcare coverage
- Spouses or dependent children of an individual who qualifies for COBRA
- Workers who participate in a local or state government-sponsored group health plan that is eligible for COBRA
What events are considered qualifying?
A “qualifying event” is a work or life event that results in a loss of coverage. Examples include:
- Involuntary job loss (for reasons other than gross misconduct)
- Reduction in work hours
- Divorce or legal separation from the covered employee
- Covered employee becomes eligible for Medicare
- Death of the covered employee
How much does COBRA insurance cost?
COBRA insurance includes both the employer share and the employee share of premiums for the continued coverage. This cannot exceed 102 percent of the total cost for employees with the same coverage.
Do all employers offer COBRA insurance?
Most private-sector employers must offer COBRA if they offer a group health plan and employed at least 20 people for more than half of its typical business days in the previous calendar year.
COBRA also applies to most state and local government-sponsored health plans. However, the federal government, churches, and some church-related organizations are not required to offer COBRA.
What benefits can qualified beneficiaries continue under COBRA?
Your employer must offer qualified beneficiaries (QBs – the terminated employee and qualified dependents) the same coverage they had before the qualifying event, at least as long as that coverage is still available to active employees.
How does someone apply for COBRA?
After receiving notification and COBRA election form, the qualifying beneficiary has 60 days to review and decide whether they want to elect COBRA coverage.
Can the QB add additional coverage?
No. QBs can only continue the coverage(s) you already had.
When must the QB decide to elect COBRA coverage?
Employers must provide an election period of at least 60 days to decide on COBRA coverage.
When does COBRA coverage start?
Coverage is retroactive to the qualifying event date.
If the QB waives COBRA coverage, can they elect coverage at a later date?
At any time during the election period, QBs who initially waived (declined) coverage can revoke their waiver and elect coverage.
How long does COBRA coverage last?
For individual employees, coverage can last up to 18 months. Beneficiaries who meet certain requirements may qualify for an 18-month extension.
What happens when COBRA coverage ends?
When COBRA coverage expires, the covered person must find insurance coverage elsewhere. Options include:
- Enrolling in their spouse’s plan
- Shopping on the federal and state exchanges at Healthcare.gov
- Checking eligibility for Medicaid
Can COBRA coverage be canceled before the maximum time period ends?
Yes. A group health plan may cancel COBRA coverage for the following reasons:
- Premiums aren’t paid on time
- The employer stops offering the plan
- The QB or elibible dependent starts receiving coverage under another group health plan
- The QB or eligible dependent becomes entitled to Medicare benefits
- The QB or eligible dependent commits an act (such as fraud) that would cause loss of coverage for a participant not receiving continuing coverage
If a QB has a child or adopts while on COBRA, are those children considered qualified dependents for COBRA purposes?
Yes, as long as they enroll the child within 30 days of the birth or adoption. Either of these events can occur before, on, or after the qualifying event date.
The employer company closed, and there is no health plan. Are employees still eligible for COBRA insurance?
No. QBs must be part of an active health plan to be eligible for COBRA. However, union members may be entitled to continue coverage depending on their collective bargaining agreement.
Are there alternatives to COBRA?
Yes, through private coverage, government-sponsored exchanges, and Medicaid.
For more information on COBRA, visit the Department of Labor website or consult your qualified benefits counsel.
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