The most important fact to know about COBRA is that it is a law, not a Health Plan.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) was passed by Congress in 1986. The law amended Employee Retirement Income Security Act, the Internal Revenue Code, and the Public Health Service Act. The amendment was designed to ensure that certain former employees, retirees, spouses, former spouses, and dependent children have the right to temporary continuation of health coverage at group rates.
COBRA requires employers to offer health continuation to qualifying former employees and/or dependents as a result of any of the events below:
- Death of the current employee;
- Voluntary or involuntary termination or reduction in hours as a result of resignation, discharge (except for gross misconduct), layoff, strike or lockout, medical leave, or slowdown in business operations;
- Divorce or legal separation that terminates ex-spouse’s eligibility; or
- Dependent child losing eligibility due to exceeding age 26.
Duration of Coverage
Under COBRA, extended coverage should be offered for:
- 18 months in most cases;
- 11 additional months for those deemed disabled by the Social Security Administration; for a total of 29 months; or
- An additional 18 months if eligibility is lost due to divorce or death; for a total of 36 months.
Timeline to Apply for COBRA Coverage
Once a qualifying event occurs, consumers must follow the timeline below in order to enroll in COBRA coverage:
- Enroll within 60 days following a qualifying event;
- After enrollment, recipients have 45 days to make the first month’s premium payment;
- COBRA coverage can retroactively begin on the day job-based insurance ended, as long as the election was made within the 60-day election period.
Employers Required to Offer COBRA
Employers with 20 or more employees are usually required to offer COBRA coverage. Employees who’ve lost their job-based coverage should be notified by their employer of COBRA coverage. The COBA coverage applies to plans maintained by private-sector employers and sponsored by most state and local governments.
It’s important to note that under the COBRA plan, coverage must be identical to that available to similarly situated beneficiaries who are not receiving COBRA coverage (usually the same coverage that the qualified beneficiary received prior to qualifying for continuation coverage).
Group vs Active Employee Rates
While COBRA ensures the right to continuation of health coverage, it does not mandate employers to continue to pay a portion of the premium. It is important to not confuse the two. The group rate under COBRA is more expensive than the rate paid by active employees because while employed, the employer usually pays a portion or all of the group rate for the employee. However, the same coverage under the group rate is cheaper than paying for the equivalent coverage under an individual plan.
Things to Consider Before Electing for COBRA
For most, COBRA coverage may be the best option. However, each circumstance is different for qualifying beneficiaries and so consideration should be given to:
- Continuity of Coverage i.e. is it the coverage you need or not enough;
- Access to Care such as Providers Network;
- Total Cost: COBRA coverage including premiums, deductibles, and co-insurance;
- Quality of Care; and
- Savings that you may receive from the marketplace i.e. aid from Obamacare subsidies