Benefits and Compensation

COBRA 101

Most HR professionals (and a lot of laymen, too) are at least familiar with Consolidated Omnibus Budget Reconciliation Act (COBRA) in general terms. We know that it gives employees the chance to continue their former employer’s insurance coverage for a while after leaving a job. But what law is this part of? And how long does the coverage last? Let’s take a look at some of the basic facts about COBRA and what it means for employers and employees alike.

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What Is COBRA and Where Did It Come from?

COBRA actually stands for Consolidated Omnibus Budget Reconciliation Act. This Act was passed by Congress in 1986. It allows individuals who are facing employer-sponsored insurance termination to continue that insurance temporarily—usually for up to 18 months, but sometimes longer, depending on what “qualifying event” precipitated the loss of coverage.

Who Qualifies for Continued Coverage Under COBRA?

COBRA was meant to allow individuals to keep health insurance coverage while they searched for another job (presumably one with a health insurance benefit) or while they made arrangements for some other health insurance coverage separately. COBRA applies to:

  • An individual who either voluntarily or involuntary left a job, resulting in loss of employer-sponsored coverage (one exception: if the individual was fired for gross misconduct). Coverage is usually available for up to 18 months in this case.
  • An individual who still works for the organization but is suddenly no longer eligible for a health insurance benefit they were previously covered by. This might be someone who switches from full time to part time and loses some of the full-time benefits, for example. Coverage is usually available for up to 18 months in this case.
  • Spouses or dependents who were previously covered but have faced some other qualifying event that means they would lose their health insurance. This might include things like death of the covered spouse, divorce or legal separation, or a transition to Medicare for the covered spouse. In these types of cases where the other spouse (and any dependents) are left without insurance, then they are eligible for coverage via COBRA separate from the covered spouse. These cases would qualify for COBRA coverage up to 36 months.
  • An individual who was previously a dependent and no longer qualifies as a dependent. This case also qualifies for up to 36 months of coverage continuation.

How Much Does Continued Coverage Cost with COBRA?

When an individual opts to utilize COBRA to continue his or her health insurance benefit, the individual becomes responsible for the entire premium cost—both the portion that the employee previously paid and the portion that the employer previously paid—as well as up to 2% of the total premium to cover administrative costs. In some cases, despite now being responsible for up to 102% of the total premium, this coverage option may be cheaper than getting coverage from an individual insurance plan.

(Note: getting insurance through the exchange at healthcare.gov as part of the Affordable Care Act may also be an option for an individual who cannot afford the COBRA coverage premiums. Depending on circumstances, the individual may now qualify for a subsidy on the exchange.)

Which Employer Health Insurance Plans Are Subject to COBRA Regulations?

COBRA is applicable to any employer-sponsored health insurance plan at an organization with 20 or more employees. (Note, however, that some states have stricter requirements. Always check state laws.) Any former employee looking to continue benefits on such a plan should have the option to do so, regardless of whether they utilized the individual or family coverage option offered. The individual must have the same coverage options as they did as an employee.

For employers who qualify by having 20+ employees and offering a health insurance benefit, there are additional obligations involved. The primary obligation for employers is to provide notice to anyone in the coverage scenarios above about their rights of continued coverage under COBRA and to provide the necessary paperwork to initiate that coverage when applicable.