What is COBRA Insurance?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires most private sector and state or local government employers with 20 or more employees to provide a temporary continuation of group health coverage for employees who experience a job loss or other qualifying event. And many states have laws like COBRA that cover companies with less than 20 employees (sometimes referred to as “Mini Cobras”).
Hence, COBRA helps Americans avoid a gap in health insurance coverage during a transition from one healthcare plan to another: acting as a safety net for families.
Who is Eligible for COBRA?
There are three basic requirements to be eligible for COBRA continuation coverage:
- Your group health plan must be covered by COBRA
- A qualifying event must occur; and
- You must be a qualified beneficiary for that event
If you were covered by your employer’s plan the day before a qualifying event (1-day rule), you are eligible for COBRA , including anyone else who was on your plan, such as your spouse, ex-spouse, and your children. Additionally, each qualified beneficiary has an independent right to elect Cobra coverage, meaning that you and any other beneficiary can make a different choice when deciding whether to choose COBRA coverage.
- You will have up to 60 days to decide whether you want to continue your health coverage under COBRA. If you don’t elect it, your health coverage will end on the day that your employer’s plan coverage ended.
- If you elect to continue coverage under COBRA, it will start the day after your employer’s plan coverage ends.
- Your COBRA coverage will be identical to your employer-sponsored coverage.
- COBRA coverage may last for 18, 29, or 36 months, depending on the qualifying event.
- COBRA may be terminated early if you do not pay your premiums or you receive healthcare coverage from another plan.
What is a Qualifying Event?
Qualifying events include the following:
- You are no longer employed for any reason other than gross misconduct
- Your hours are reduced
Qualifying events for your spouse or dependents:
- Covered employee becomes entitled to Medicare
- No longer a dependent of the employee
- Divorce or legal separation of the spouse from the covered employee
- Your child turns 26 and is no longer covered by your plan
- Dependents of an employee who dies
What is the Length of COBRA Coverage?
The type of qualifying event will determine the length of COBRA coverage, but an insurer can choose to provide a longer coverage period. However, it is worth noting that COBRA is designed to be a temporary extension of coverage, not a permanent plan.
COBRA continuation coverage must generally be available for a maximum of 18, 29, or 36 months.
- If eligibility is due to termination (for reasons other than gross misconduct) or reduction in hours, the employee, spouse, and dependents will have coverage for 18 months.
- If the employee enrolls in Medicare, the spouse and dependents will have coverage for 36 months.
- If eligibility is due to divorce or legal separation, the spouse and dependents will have coverage for 36 months.
- If eligibility is due to the death of the employee, the spouse and dependents will have coverage for 36 months.
- If eligibility is due to the loss of “dependent child” status, the child will have coverage for 36 months.
- In certain circumstances, coverage may be extended 11 months due to a disability or an additional 18 months due to the occurrence of a second qualifying event.
The COBRA coverage ends when the eligibility period is over, you acquire other healthcare coverage, or you stop paying premiums. It also ends if the employer goes out of business or stops offering health insurance benefits to workers.
How Long Do You Have to Elect COBRA Coverage?
- Within 30 days of your termination date, your employer will notify your plan of the change of employment status.
- Within 14 days after your employer’s notice is received by your plan, you’ll get a letter from your COBRA administrator about the COBRA continuation coverage that’s available to you.
- Within 60 days, you will need to decide whether to elect COBRA continuation coverage.
If you do not elect COBRA coverage, you can change your mind if you are still within the 60-day election period. The coverage is retroactive to the qualifying event if you pay the premiums retroactively.
Note: COBRA timelines are extended due to COVID-19.
COBRA Insurance Cost
When you elect COBRA continuation coverage, you will likely be responsible for both the employer’s and the employee’s portions of the monthly premium.
Is COBRA Insurance Right for You?
Here are a few considerations when deciding whether to elect COBRA continuation coverage:
1. Know your medical needs.
Take stock of your medical needs and those of your family. For example, know what prescriptions or care will be needed during your transition period.
2. Understand the differences between plans.
Healthcare plan options resemble an alphabet soup, with PPOs, HMOs, and HDHPs, making the search for healthcare no easy task. However, to compare COBRA with other options, you need to understand the difference between plans.
For example, your doctor could be in your preferred provider organization (PPO) plan under your group coverage but may not be in the marketplace health maintenance organization (HMO) plan network you are considering. In which case, you would likely pay more to see your doctor; or have no coverage at all.
3. Weigh the costs.
COBRA insurance is often more expensive than marketplace insurance because your employer isn’t paying any of the monthly premiums. Conversely, when purchasing a marketplace plan, you may qualify for a premium tax credit, which can significantly lower your monthly premiums.
4. Consider Alternative Options
Electing COBRA continuation coverage is not your only option. Here are a few alternatives to COBRA:
- Your Spouse’s Plan: Join your spouse’s health insurance plan.
- Marketplace Plan: Losing your employer-sponsored coverage qualifies you for a special enrollment period, which means you have 60 days to enroll in a health plan, whether it is the open enrollment period or not. Also, you may qualify for a subsidy, which may significantly reduce your cost.
- Non-Marketplace Plan: Although you will not be eligible for a subsidy or tax credit, you may find an affordable plan option outside the marketplace.
- Children’s Health Insurance Program (CHIP): Check whether your children are eligible for coverage through CHIP, a program for low to moderate-income families.
- Short-Term Health Plan: These low-cost plans are designed to fill gaps in coverage that may occur when you are transitioning from one coverage to another. However, the plans provide limited benefits. For instance, many do not offer pregnancy care, infant care, prescription drugs, or mental health care. Also, the out-of-pocket costs may be significant. These plans are available for a year but may be renewed twice.
- Medicaid: Medicaid usually costs much less than any other healthcare option; however, it is needs-based.
COBRA continuation coverage is a great safety net for those who lose their access to group health insurance. However, COBRA coverage is not right for everyone, so it is essential to weigh your options and keep the deadlines in mind to avoid long periods without health insurance coverage.
For detailed information about COBRA review your health insurance plan booklet, speak to your human resource department, visit www.dol.gov/ebsa, and review the “An Employee’s Guide to Health Benefits Under COBRA” brochure.