Overview of Cobra Insurance Coverage

Congress passed the Consolidated Omnibus Budget Reconciliation Act, commonly called COBRA, in 1986. The act amends certain other laws, in particular the Employee Retirement Income Security Act (ERISA) to make group health coverage available to certain people who would otherwise lose group health coverage. The following is an overview of COBRA insurance coverage.

First, the law does not create a right to health coverage if there is not already a health plan in place. It applies to already existing group health plans, and only applies to plans for employers who have more than 20 employees on at least 50% of its business days in the previous calendar year. For the purposes of COBRA, part time employees count as fractional employees. So a health plan is subject to COBRA if it was offered by an employer and the employer had more than 20 full time equivalent employees on most days last year. If the employer did not offer a health plan, then there is no plan to apply COBRA toward. If an employer offered a health plan but only had five employees, then the plan is not subject to COBRA.

If an employee was eligible for health insurance and had elected to take part in the insurance, and then a qualified event occurred, COBRA requires the health insurance company to allow the employee to continue buying health insurance at the cheaper group rate for up to 18 months. Qualified events include voluntary or involuntary termination of employment for any reason other than gross misconduct and a reduction in hours to a level that makes the employee no longer eligible for insurance through the employer. In either of those cases, the employee is allowed to buy the same health insurance plan directly from the insurance company. However, because many employers normally pay a portion of the health insurance premium and are not required to keep doing so under COBRA, the cost of insurance under COBRA will likely be higher than what was paid while employed.

Spouses and dependent children also have some rights under COBRA. For spouses, in addition to the qualifying events for employees, the spouse is eligible for COBRA coverage if the employee spouse become eligible for Medicare, if the spouse and the employee become divorced or separated, or if the employee dies. For dependent children, in addition to the qualifying events for a spouse, the child is eligible for COBRA coverage if he or she lost dependent child status under the terms of the health insurance plan.

Employees, spouses and dependents have at least 60 days to elect benefits under the law from the time that they are notified that they are eligible. The employer is required to notify the plan administrator when an employee is fired, resigns, or is reduced in hours below the amount necessary to keep benefits flowing. The plan administrator then notifies the employee about the eligibility for benefits.

The overall purpose of COBRA is to allow people who already had health insurance through an employer to keep that insurance if certain things make them no longer eligible for insurance. Although the insurance is likely cheaper than trying to buy an individual insurance policy, the employer is not required to continue paying for its portion of premiums, so COBRA insurance coverage can cost more than employees and beneficiaries are expecting. Nevertheless, COBRA does give some continuity of health insurance so that the normal detours that life gives many of us do not cause a health or financial disaster.