COBRA, short for the Consolidated Omnibus Budget Reconciliation Act, is a federal law that allows individuals to continue their employer-sponsored health insurance after losing coverage due to certain qualifying events. It allows eligible individuals, not just employed members, to extend their existing group health insurance coverage for a limited period after experiencing specific qualifying events such as job loss, reduced work hours, or other life events.
In this article, we have provided everything you need to know about COBRA, what it is, its benefits, and other important aspects.
COBRA Health Insurance – Explained
The ACA requires large employers (50+ full-time employees) to offer coverage, but COBRA applies to employers with 20 or more employees, regardless of ACA size rules. However, COBRA applies to businesses with at least 20 employees on more than 50% of their typical business days in the previous calendar year.
Employers are not required to subsidize premiums under COBRA; the full cost, plus a 2% administrative fee, is typically paid by the former employee.
There are several reasons why someone may not be eligible for employer-sponsored health insurance. The reasons could be that the employee fails to work for the minimum number of hours or is laid off by the employer. You can also be eligible for COBRA insurance benefits if you quit your job.
In such situations, the employer does not contribute to the employee’s insurance premiums. In such instances, COBRA allows eligible individuals to continue the full group health plan coverage they had prior to the qualifying event. This coverage is offered for a fixed duration, but only if the individual pays the premiums out of their pockets.
COBRA allows you to continue receiving health insurance coverage at group rates for plans that would otherwise become invalid. This coverage extends to former employees, their spouses (current and former), and their dependent children.
You will have to pay more for insurance premiums than when employed, as the employer will stop contributing partial payment. Still, COBRA health insurance coverage will likely be less expensive than private insurance policies.
Remember, COBRA health insurance mostly offers basic benefits. It may not provide disability insurance and life insurance. COBRA may include dental, vision, and prescription coverage if these were part of the original employer plan, but it does not cover life or disability insurance.
COBRA Health Insurance – Eligibility
The eligibility criteria for COBRA health insurance coverage vary for employees and individuals. Eligible individuals can usually get COBRA health coverage after experiencing certain events.
COBRA requires that group health plans of employers with 20 or more employees in the previous year offer employees and their families the option for a temporary extension of health coverage in certain instances. Part-time workers can also become eligible for COBRA coverage by adding their working hours to create full-time schedules.
This is essential to ensure that an employer is mandated to provide COBRA health coverage. COBRA is not combined with other insurance plans; it continues the employer-sponsored coverage exactly as it was prior to the qualifying event.
Mini-COBRA laws apply in many states to employers with fewer than 20 employees, offering short-term continuation rights under state law. Federal employees are covered by a similar program called Temporary Continuation of Coverage (TCC), not COBRA.
To be eligible for COBRA coverage, an employee should be enrolled in a group health insurance plan sponsored by their employer before the qualifying event. In addition, the selected group health insurance should be applicable for more than half of the typical business day for the employer in the previous year.
Besides this, the employer must also provide health insurance coverage to current employees so they may qualify for COBRA on departure. However, if the employer no longer offers insurance to current employees or is going out of business, the departing employee will not qualify for COBRA benefits.
Finally, the applicant must have experienced employee health insurance loss to qualify for COBRA coverage. This usually decides the list of eligible beneficiaries, as each type of beneficiary has varying criteria.
COBRA Health Insurance – Cost
Under COBRA, individuals must pay the entire premium for coverage up to 102% of the cost to the plan. This includes the portion previously paid by the employer and potentially an additional 2% administrative fee. In the long run, this sounds like a discounted rate. However, in case of a qualifying event, the employer will stop paying the portion of the premium. This means that the COBRA-qualifying individual must pay the total premium amount.
For instance, if the employer pays 70% of the total COBRA premium cost, the employee will continue to pay the remaining 30%. When a person becomes qualified for COBRA, the ex-employee will have to bear the cost of COBRA insurance premiums.
COBRA premiums are based on the full cost of the employer plan plus a 2% fee, which can be significantly more than what the employee previously paid while employed. Despite this, COBRA premiums are often higher than subsidized ACA marketplace plans but may offer better network continuity and coverage for ongoing treatments.
COBRA Health Insurance – Coverage & Benefits
COBRA generally provides 18 months of continuation coverage for job loss or reduced hours, and up to 36 months for certain dependents due to divorce, death, or Medicare eligibility. In some cases, such as for qualifying dependents or in the event of divorce or death, the coverage period can extend up to 36 months. An extension up to 36 months may apply to dependents experiencing secondary qualifying events or aging out of dependent status.
Overall, COBRA health benefits are the same as those outlined in business-sponsored health insurance. Changes in the current employee group insurance plan benefits are immediately reflected in the COBRA health coverage. In addition, ex-employees eligible for COBRA should be given at least 60 days to decide whether to continue their current coverage.
COBRA Health Insurance – Pros & Cons
Let’s take a quick look at the pros and cons of COBRA health insurance coverage –
Pros of COBRA Health Insurance
- Allows to continue with the same physician, network providers, and benefit range
- Let’s retain current coverage for pre-existing conditions and prescription medication.
- Costs are often higher than ACA marketplace plans unless employer subsidies are extended or unavailable alternatives exist
- Provides continuous coverage and helps avoid lapses during unemployment or life changes
- Protection against high medical bills in case of sickness
Cons of COBRA Health Insurance
- The premium cost for insurance rises after a qualifying event
- Limited time coverage for individuals and beneficiaries
- Mostly dependent on the employer’s choice of business-sponsored insurance
- Inability to choose changes in insurance benefits and coverage
- Premiums and cost-sharing amounts may increase annually with changes to the employer’s group plan
Conclusion
COBRA provides a crucial bridge in health insurance coverage for individuals experiencing significant life transitions, such as job loss, reduction in hours, or other qualifying events, allowing them to maintain their existing health insurance for a limited period. It offers health coverage for 18 to 36 months and is significantly less expensive than standard individual insurance plans. COBRA health insurance has its advantages and drawbacks but remains the best option for those without employment and between jobs.
See Also
Can an Employer Ask What Your Medical Condition Is
Signs That You Will Be Approved for Disability