The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a health insurance program that provides eligible employees and their dependents with the continued benefits of health insurance coverage when an employee loses their job or suffers a reduction in working hours. Below, we’ll explore the basic details of COBRA, how it works, eligibility criteria, pros and cons, and other features.
Key points to remember
- COBRA stands for the Consolidated Omnibus Budget Reconciliation Act, which provides eligible employees and their dependents with the option of continued health insurance coverage when an employee loses their job or experiences a reduction in hours. of work.
- Employers with at least 20 full-time equivalent employees are generally mandated to offer COBRA coverage.
- COBRA health insurance coverage extends for a limited period of 18 or 36 months, depending on the applicable scenarios.
- The cost of COBRA coverage is usually high because the newly unemployed person pays the entire cost of insurance (employers usually pay a significant portion of health care premiums for employees).
- If you lost your health insurance due to job loss during the 2020 coronavirus pandemic, you are eligible for a “special enrollment” period on the federal exchange, which gives you 60 days for you to inscribe. This can be a way to find a cheaper health insurance option than COBRA.
What is COBRA Continuing Coverage?
Large employers in the United States, those with at least 50 full-time workers, are required to provide health insurance to their eligible employees by paying a portion of insurance premiums. If an employee becomes ineligible for health insurance benefits from an employer – which can happen for a variety of reasons (such as being laid off or falling below a minimum threshold of hours worked per week) – the employer can stop paying its share of the employee’s health insurance premiums. In this case, COBRA allows an employee and their dependents to keep the same health insurance coverage for a limited time, as long as they are willing to pay for it themselves..
Eligibility for COBRA health insurance
There are different sets of criteria for different employees and other people who may qualify for COBRA coverage. In addition to meeting these criteria, eligible employees are generally only eligible for COBRA coverage after particular qualifying events, as noted below.
Employers with at least 20 full-time equivalent employees are generally mandated to offer COBRA coverage. Work hours of part-time employees can be aggregated to create a full-time equivalent employee, which decides the overall applicability of COBRA for the employer. COBRA applies to plans offered by private sector employers and those sponsored by the majority of local and state governments. Federal employees are covered by a law similar to COBRA.
Employees
Employees are eligible for COBRA coverage if:
- Voluntary or involuntary job loss (unless gross misconduct), such as the 2020 coronavirus pandemic
- A decrease in the number of hours worked resulting in the loss of employer insurance coverage
The couple
In addition to the two qualifying events for employees (above), their spouses may qualify for COBRA coverage on their own if the following conditions are met:
- A covered employee is eligible for Medicare
- Divorce or legal separation of the covered employee
- Death of covered employee
The employee or beneficiaries must notify the plan in the event of divorce, legal separation or loss of dependent status of a child.
Dependent children
The eligible events for dependent children are generally the same as for the spouse with an addition:
- Loss of dependent child status under plan rules
The employer must notify the plan within 30 days of the qualifying event that applies to the employee. The employee or beneficiaries must notify the plan if the qualifying event is divorce, legal separation, or loss of dependent status of a child.
COBRA Benefits and Available Coverage
For eligible applicants, the COBRA rules provide for the provision of coverage identical to that which the employer provides to its current employees. Any changes to plan benefits for active employees will also apply to eligible beneficiaries. All eligible COBRA recipients must be allowed to make the same choices as non-COBRA recipients. Essentially, insurance coverage for current employees/beneficiaries remains exactly the same for former employees/beneficiaries under COBRA. You must have at least 60 days to choose whether or not to choose continuous protection. Even if you waive coverage, you can change your mind if it’s within the 60-day election period.
From the date of the qualifying event, COBRA coverage extends for a limited period of 18 or 36 months, depending on the applicable scenarios. A person may be eligible to extend the maximum period of 18 months of continuous coverage if one of the eligible beneficiaries in the family is disabled and meets certain requirements, or if a second qualifying event occurs – potentially including the death of a covered employee, the legal separation of a covered employee from their spouse, a covered employee becoming eligible for Medicare, or a loss of dependent child status under the plan.
COBRA health insurance cost
The term “group rate” may be misunderstood as a discount offer, but in reality, it can be quite expensive. During the term of employment, the employer often pays a significant portion of the actual health insurance premium (for example, an employer may pay 80% of the premium cost), while the employee pays the remainder. After employment, the individual is required to pay the full premium, and sometimes it may be supplemented by an additional 2% for administrative costs. Costs cannot exceed 102% of plan cost for employees who have not experienced a qualifying event.
Early termination of COBRA coverage
COBRA coverage may end prematurely if:
- Failure to pay premiums on time
- The employer ceases to maintain any group health plan
- An eligible beneficiary obtaining coverage under another group health plan (for example, with a new employer), becoming eligible for health insurance benefits or engaging in misconduct (such as fraud)
Advantages and disadvantages of COBRA coverage
A person who opts for COBRA coverage can continue with the same doctor, health plan, and medical network providers. COBRA beneficiaries also retain existing coverage for pre-existing conditions and all regular prescription drugs. The cost of the plan can be lower than other standard plans, and it’s better than staying uninsured because it provides protection against high medical bills to pay in the event of illness.
Nevertheless, it is important to keep in mind the disadvantages of COBRA. Some of the most important of these include the high cost of insurance when borne entirely by the individual, the limited period of coverage under COBRA, and the continued reliance on the employer. If the employer chooses to terminate coverage, a former employee or related beneficiary will no longer have access to COBRA.
Managing a high COBRA bounty
If you are considering COBRA coverage but are concerned about the differences between the cost of insurance coverage through this program and the cost of insurance with employer support, there are a number of important considerations to keep in mind.
When you lose your job, you usually lose your Flexible Spending Account (FSA). If job loss is threatened, you are allowed to spend your entire year of FSA contribution before becoming unemployed. If you were to contribute $1,200 for the year, but it’s only January, for example, and you’ve only withheld $100 from your paycheck for your FSA, you can still spend the full $1,200 you planned to pay, such as seeing all your doctors and filling all your prescriptions right away.
The bottom line
COBRA is a convenient option for maintaining health insurance if you lose your employer-sponsored health benefits, and sometimes it’s also the best option. However, the cost is often high and the plan is not always the best one to meet the needs of an individual or a family.
