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Summary: COBRA coverage lets people stay on group health plans when suddenly faced with an event that would otherwise make them lose their coverage.
COBRA Health Insurance
COBRA, or the Consolidated Omnibus Budget Reconciliation Act, is a law enacted in 1985 that requires health insurance to be temporarily extended for families who may otherwise lose their coverage. The purpose of COBRA was to prevent families from becoming suddenly uninsured due to acts outside their control. This act requires employers to provide employees with health insurance plans that allow for temporary extensions or face an excise tax.
COBRA health coverage allows for extensions of family health insurance coverage for 18 months. However, in case an employee becomes disabled and can no longer work, this coverage can last up to 29 months. If a person becomes uninsured because of divorce or the death of their spouse, the insured COBRA coverage can be extended for up to 36 months.
However, it’s crucial to note that COBRA does not require the employer to pay for medical insurance during the extension period. Instead, it only allows for the potentially uninsured employee and/or their dependents to pay for coverage. This means that the employee must pay 100% of the insurance premium as well as an extra 2% administrative fee. In exchange, they receive the exact same coverage with the same benefits and services that they currently have.
Who qualifies for COBRA coverage?
All employees who have health insurance through qualified employers. Qualified employers are those who employed 20 or more full-time workers or full-time equivalent employees on more than 50% of their business days in the previous year. However, most states have enacted their own legislation requiring health insurance extensions for smaller employers as well.
To be eligible for COBRA coverage, an insured employee or dependent must be at risk of losing their current insurance coverage due to a qualifying event. These events include:
- Voluntary or involuntary termination of employment (except for reasons of gross misconduct).
- Reduced working hours, which causes a loss of coverage.
- Reaching the age of 65 and becoming eligible for Medicare.
- Disability which causes loss of employment.
- One’s spouse or parent losing their employment, which provides health insurance coverage.
- Divorce or separation from a spouse.
- Death of a spouse or parent.
The insured employee must be a part of a group health plan on the day before a qualifying event causes their insurance coverage to end. This can also include company directors as well as independent contractors if they are also part of the group health plan.
The insured person, as well as their spouse and dependent children, can become beneficiaries of COBRA coverage. If a person divorces their spouse and therefore loses their insurance benefits, they can still opt to continue to pay premiums to continue their coverage. An employee’s children who reach the age of 26 are no longer considered dependent. However, they may opt to continue their coverage through COBRA for up to 36 months.
COBRA coverage does not apply if the employer files for bankruptcy, goes out of business, or cancels a group health plan altogether.
Pros and Cons of COBRA coverage
The purpose of COBRA benefits is to allow families to stay insured as consistently as possible. There are a lot of advantages to the COBRA system for health insurance coverage extensions. However, there are also downsides to consider before choosing whether or not to elect COBRA coverage.
- Pros
Consistency of care
Electing COBRA coverage allows beneficiaries to continue with the same insurance benefits and receive continuing care from the same physician and health providers. This is especially important in the treatment of serious illnesses and diseases.
Continued coverage
If an employee suddenly loses coverage, they can’t normally get onto a new insurance plan until the next open enrolment period, which is normally November-January. This means they could spend months without coverage and would have to pay out of pocket for medical expenses. COBRA helps to fill the gap between these insurance periods.
Group plan benefits
Because the employer negotiated a group plan for a large number of employees, they probably managed to get much better benefits and rates than an individual plan could provide. Continuing this plan could be cheaper than buying private health insurance.
- Cons
Cost
While the employer previously paid all or most of the premium for the employee’s group health insurance plan, COBRA transfers these costs onto the employee. They must pay 100% of the premium plus a 2% admin fee. These premium costs can prove to be very high, and that can limit most people’s ability to elect COBRA.
Lack of control
COBRA allows the beneficiaries to continue on their previous health care plan. However, this plan depends a lot on the employer. If the employer decides to change the entire group plan, the COBRA beneficiary has to accept these changes. If the employer cancels the plan at any time, the COBRA beneficiary will lose their insurance coverage.
COBRA keeps families insured
COBRA coverage is an important way to keep families insured. If their health plan is threatened by a qualifying event, it allows them to keep their coverage at least long enough to tide them over to the next open enrolment period. While premiums can represent a high cost, this is still often a better option than going uninsured.
FAQ
When a qualifying event happens, the previously insured employee must be given an election period of at least 60 days to extend insurance coverage or not. Even if they decide to waive coverage, they are entitled to change their mind and elect coverage if this happens within the 60-day period.
No, each beneficiary may independently elect or waive coverage, so the spouse or adult child of an employee may choose differently. Parents or guardians must choose to elect coverage on behalf of their children if they’re minors.
