COBRA may conjure up images of a dangerous snake, but it’s actually a law to help people who have lost their jobs or had their hours reduced to keep their health insurance. It is called COBRA because it is named after the Consolidated Omnibus Budget Reconciliation Act of 1985.
As of 2018, 49% of Americans received their insurance under a group health plan through their employer. This is where COBRA comes in. It allows people to stay on the group plan temporarily while they find another means of health insurance coverage.
Although it sounds like a good option, COBRA insurance is usually more expensive than the plan for active employees and is not always the most affordable option. However, it is there to protect employees who have no other option in the short term.
What is COBRA Insurance?
COBRA is a law regulated by the federal government and the US Department of Labor, but many states have their own similar laws. Essentially, having COBRA insurance — also called COBRA continuation coverage — means you and your family are allowed to stay on your employer’s group health plan for a limited time after your job ends or changes.
But not everyone who loses their job is eligible for COBRA coverage. The federal law only applies to businesses with 20 or more employees. Some states’ COBRA-like laws cover small businesses. These laws are often called mini-COBRA.
To be eligible for COBRA, you must also have experienced a qualifying event, which includes termination as an employee for something other than gross misconduct or reduced hours. According to the Department of Labor, the spouse or dependent children of covered employees are eligible for COBRA in the following qualifying events:
- divorce or legal separation of the covered employee
- death of a covered employee
- the dependent child turns 26 and is no longer eligible for the employee’s group health insurance plan covered under the Affordable Care Act (ACA)
To be eligible, the covered employee (or his or her spouse and dependent children) must have been enrolled in the company’s group health insurance plan on the day before the eligible event, and the plan must continue to be in force for active employees after the qualification test.
How do I apply for COBRA?
After a qualifying event, the employer must notify qualified beneficiaries of their eligibility for COBRA, and the covered employer or employee must notify the insurance company administering the group plan of the event.
It is the employer’s responsibility to notify the plan within 30 days of the following qualifying events :
- dismissal of the covered employee
- reduction of the covered employee’s working hours
- death of a covered employee
- the covered employee becomes eligible for Medicare
- a private sector company goes bankrupt
The covered employee or other eligible beneficiary is required to notify the plan if the qualifying event is a divorce or legal separation, or if a child loses dependent status under the group plan.
Once the plan has been notified, the insurance company is required to give qualified beneficiaries a notice explaining their rights under COBRA and how to go about purchasing continuation coverage. This election notice must be provided to eligible beneficiaries within 14 days. After receiving the election notice, you will have 60 days to decide whether or not to choose COBRA coverage.
Each eligible beneficiary covered by the group plan can make their own decision regarding COBRA insurance, and if a beneficiary waives COBRA coverage, they are permitted to revoke that waiver and opt into COBRA coverage later, provided they do so. do in the same 60-day election period.
How long does COBRA last?
The duration of COBRA coverage depends on the qualifying event and the company’s group plan. The Consolidated Omnibus Budget Reconciliation Act requires continued coverage to be available for 18 or 36 months, but some group health plans may provide coverage longer than that.
If you lose your job or see a reduction in hours of employment, you are eligible for COBRA coverage for 18 months. Other qualifying events (other than Medicare eligibility) entitle you to coverage for 36 months.
However, if your coverage is capped at 18 months, you may be eligible for an extension of coverage in two cases: First, if you are disabled and meet certain conditions, in which case coverage for all eligible beneficiaries may be extended by 11 months. . Second, if your qualifying event makes you ineligible for coverage again. Such events include the covered employee’s death, the covered employee’s divorce, the covered employee becoming eligible for Medicare, or a child losing dependent status under the group plan. In these cases, COBRA coverage can be extended for an additional 18 months for a total of 36 months.
Medicare and COBRA
When a covered employee becomes eligible for Medicare less than 18 months before the eligible event, continued coverage for the covered employee’s spouse and dependent children may last up to 36 months, less the number of months during which the covered employee had been eligible for Medicare. For example, if the covered employee was eligible for Medicare for 10 months prior to the eligible event, other qualified group health plan beneficiaries would be eligible for COBRA coverage for 26 months.
How much does COBRA cost?
In almost all cases, COBRA coverage is more expensive than the same coverage would be for active employees.
Under the Affordable Care Act, employment-based health plans must provide a minimum or greater coverage. Minimum coverage is defined as a plan that pays at least 60% of the total cost of medical services for a standard population and includes substantial coverage of medical and hospital services. This leaves covered employees to pay the remaining 40%.
Typically, under COBRA, your employer will no longer pay their 60% share, which means you could bear the full cost of the insurance policy. In fact, under COBRA law, the insurance company is allowed to charge up to 102% of the cost of a similar plan for an active employee (the additional 2% goes to administrative costs). And if you take the 11-month disability coverage extension, the insurance company is allowed to charge up to 150% of the regular cost of the plan for those 11 months.
All told, this means that health insurance premiums— the amount paid to the insurance company on a regular basis—can be very expensive under COBRA. And even with COBRA, beneficiaries still have to pay the plan’s regular co-payments for doctor visits and the annual deductible (the amount the insured must pay before the insurance takes effect). The fees you pay could even increase if the cost of the group plan increases.
The COBRA law states that the insurance company must allow you to make premium payments on a monthly basis if you wish. Some plans may also allow you to make weekly or quarterly payments. Qualified beneficiaries must generally make their first premium payment within 45 days of the start of COBRA insurance. If you miss a payment, the insurance company must give you a 30-day grace period to make the overdue payments, but after that, if the payment is still not made, you could lose all of your COBRA benefits.