The COBRA program (short for Consolidated Omnibus Budget Reconciliation Act) is a temporary bridge for the loss of work-related health insurance. It applies to private sector employers with at least twenty employees, as well as local and state governments. Federal government plans, churches, and some religious organizations are exempt.
COBRA allows you to maintain employer-based coverage during the employment transition period. However, in most plans, you will be responsible for paying the entire premium during this time, plus up to 2% for administrative costs. The coverage does not change during the transition – any benefit you had as an employee remains until you leave the plan.
To qualify for continuation insurance coverage under your employer-based group health plan covered by COBRA, two conditions must be met:
- Qualifying Event – A qualifying event must occur that makes you eligible for COBRA continuation. Loss of your job qualifies unless the reason was for “gross misconduct”. Reduction of hours also applies if you lose your benefits as part of the change (going from full-time to part-time work).
Qualifying events for your spouse and dependent children include the above reasons plus your death, legal separation or divorce, or your entitlement to Medicare coverage. Loss of dependent status is a qualifying event for children.
- Qualified Beneficiary – You are a qualified beneficiary if you had coverage on the day before a qualifying event happens, assuming the type of event is a qualifying event for your status.
For example, if you are getting divorced but are still employed, your spouse would lose benefits and qualify for COBRA, but obviously, you would not since you still have benefits. Similarly, COBRA benefits will not help you after your death – a completely different type of qualifying event for you, depending on your beliefs.
The maximum continuation coverage available under COBRA is 18 months for a job loss or reduction of hours, and 36 months for other qualifying events. In some cases, an extension is available for 18-month continuation coverage, such as a second qualifying event – but any plan can choose to extend benefits beyond the maximum coverage time required by law.
You have at least a 60-day window to decide whether to choose COBRA continuation or choose an alternative, such as enrolling in a spouse’s insurance program, buying individual insurance (whether through a state or federal exchange or on your own), or signing up for Medicaid if you qualify. The clock starts when your coverage ends or you receive the election notice from the health plan.
If you want to accept COBRA continuation, you will need to fill out the election notice and return it, and then pay your first premium to the plan. Until that first premium is paid, you have no health insurance coverage. However, coverage is retroactive, so you can file for re-imbursement after the plan is reinstated; but until the premium is paid, you will have to pay upfront at the time of medical service.
In general, if you want to switch to a marketplace plan through the healthcare exchanges, you will want to select your plan during open enrollment and terminate your COBRA benefits the day that your plan benefits start. If open enrollment has not started yet when your qualifying event occurs, you qualify for a special enrollment period to purchase a plan.
If you planned to switch to the marketplace but do not like the marketplace options once you investigate them in detail, you can change your mind and go back to COBRA coverage as long as it is within the 60-day window. However, if you choose COBRA continuation coverage outside of an open enrollment period, you have to wait until the next open enrollment period to switch to a marketplace plan.
More details are available under the COBRA FAQ section on the Department of Labor website at http://www.dol.gov/ebsa/faqs/faq-consumer-cobra.html and the employee COBRA handbook located at http://www.dol.gov/ebsa/publications/cobraemployee.html.
There may be a day when ObamaCare and other programs make all insurance 100% portable and render employer-based health insurance a thing of the past – then COBRA will cease to exist. (There may also be a time when the tooth fairy hands out million-dollar checks.) Until that time, it is important that you understand COBRA and the insurance options available in case you need them.