COBRA, short for Consolidated Omnibus Budget Reconciliation Act, is a health insurance initiative. It lets eligible employed members receive health insurance coverage for themselves and their dependents. This insurance cover becomes applicable if the COBRA member loses their job or has reduced work hours.
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
According to U.S. labor law, any business with over 50 full-time employees must provide health insurance coverage to eligible individuals. This requires the businesses to contribute a portion of the health insurance premiums.
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 employee. You can also be eligible for COBRA insurance benefits if you quit your job.
The employer does not contribute to the employee’s insurance premiums in such situations. In such instances, COBRA lets these individuals retain partial health insurance coverage. 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. However, COBRA insurance covers the cost of eye care, dental treatments, and prescription drugs.
COBRA Health Insurance – Eligibility
The eligibility criteria for COBRA health insurance coverage vary for employees and individuals. Besides this, eligible individuals can usually get COBRA health coverage after experiencing certain events.
COBRA coverage is usually extended by default to workers at businesses with more than 20 full-time employees. 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. This insurance initiative is normally added to any private or government-sponsored health insurance coverage for which the individual may qualify.
Mini-COBRA plans are designed for employers with less than 20 full-time employees and are usually mandated by local and state laws. Federal employees have health insurance options, which is like 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 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, to qualify for COBRA coverage, the applicant must have experienced employee health insurance loss. This usually decides the list of eligible beneficiaries, as each type of beneficiary has varying criteria.
COBRA Health Insurance – Cost
As mentioned, COBRA coverage requires the employer to pay a significant portion of the total insurance premium while the employee pays the remainder. 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 will then have to 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%. On becoming qualified for COBRA, the ex-employee will have to bear the complete cost of COBRA insurance premium.
Though the overall cost of COBRA premiums remains the same throughout, it will increase subjectively for the qualifying ex-employee. Despite this, COBRA health insurance premiums are comparatively less expensive than other individual health insurance plans so COBRA insurance is worth most other private individual health insurance policies in the marketplace.
COBRA Health Insurance – Coverage & Benefits
Labor laws mandate that employers are entitled to 18 months of employer-sponsored insurance benefits after the loss of a job. COBRA health insurance benefits are typically offered to eligible individuals until 18 months from the qualifying event date. Some individuals may also qualify to receive COBRA coverage for up to 36 months, depending on the situation.
Overall, COBRA health benefits are the same as those outlined in the 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 if they want to continue their current coverage or not.
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 lower than most standard health insurance plans
- A better alternative to being uninsured
- Protection against high medical bills in case of sickness
Cons of COBRA Health Insurance
- Premium cost for insurance rises after 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
- Risk of fluctuating co-payments and deductibles
COBRA health insurance is an excellent way to keep health insurance coverage after being laid off, quitting your job, or closing the business. 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 it remains the best option for those who find themselves without employment and between jobs.