Jane Dotson
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that allows employees and their families to continue their health insurance coverage after leaving their job. COBRA is a safety net for families facing unemployment, divorce, or the death of a spouse. It is administered by the U.S. Department of Labor. To qualify for COBRA, there are three conditions that must be met: plan coverage, a qualifying event, and a qualified beneficiary. The cost of COBRA coverage is usually higher than regular employment coverage as the individual pays the entire cost of the insurance, plus an administrative fee of up to 2%.
| Characteristics | Values |
|---|---|
| What is COBRA? | The Consolidated Omnibus Budget Reconciliation Act (COBRA) |
| Who does COBRA apply to? | Employees and their family members, such as their spouses, former spouses, and dependent children. |
| What does COBRA do? | Allows eligible employees and their dependents to continue health insurance coverage when an employee loses their job or experiences a reduction in work hours. |
| Who is eligible for COBRA? | Employees and their family members who were covered by the employer's group health plan the day before a qualifying event occurred, and the plan is still in effect for active employees. |
| What is a qualifying event? | Events that cause a loss of health coverage, such as voluntary/involuntary termination of employment (except in cases of gross misconduct), reduction in work hours, divorce or legal separation, death, or a child losing dependent status. |
| How long does COBRA coverage last? | 18 or 36 months, depending on the qualifying event and the number of eligible beneficiaries. |
| How much does COBRA cost? | Up to 102% of the total cost of the premium, including an extra 2% administrative fee. |
| How does one sign up for COBRA? | After a qualifying event, the employer has 30 days to notify the plan administrator, who then has 14 days to send an election notice. Beneficiaries then have 60 days to decide whether to sign up for COBRA. |
What You'll Learn
How to qualify for COBRA insurance
To qualify for COBRA insurance, you must meet the following requirements:
Previous Enrollment
You must have enrolled in your employer's group health plan while you were employed. COBRA only applies to specific employers with 20 or more employees, but some states have their own laws for smaller employers.
Qualifying Event
A qualifying event (other than gross misconduct) that results in losing your employer-based health coverage must occur. Qualifying events include when someone loses their job, works less, gets divorced or legally separated, or the covered employee dies.
Active Health Plan
The employer's health plan must remain active and provide coverage to current employees. If the plan is discontinued or the employer goes out of business, you may not have access to COBRA coverage.
Employee Status
You must have been an employee of a qualified employer that offers a group health plan. COBRA only applies to certain employers, including those with 20 or more employees in the prior year. It does not apply to group health plans established or maintained by the federal government or to church plans that are tax-exempt under section 501 of the Internal Revenue Code.
Once a qualifying life event happens, you or your employer will notify the health plan. The plan will send an election notice that you will typically have 60 days to respond to. If you elect to take COBRA coverage, your employer may pay a portion of or the full amount of your insurance premium.
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How to sign up for COBRA insurance
COBRA, or the Consolidated Omnibus Budget Reconciliation Act, is a federal law that allows employees to keep their private insurance after a sudden loss of coverage. It is important to note that COBRA is not a federal insurance program like Medicare or Medicaid. Instead, it provides a way to maintain health insurance after a job loss or other qualifying event. Here is a step-by-step guide on how to sign up for COBRA insurance:
Step 1: Establish Eligibility
First, verify that you had the correct type of plan. COBRA applies to group health plans offered by employers with 20 or more full-time employees. Check with your insurance company or review the Summary Plan Description to confirm your eligibility. Additionally, ensure that you are a qualifying beneficiary. A qualifying beneficiary is any family member who was on the employer-provided healthcare plan before the qualifying event.
Step 2: Verify a Qualifying Event
Next, confirm that you have experienced a qualifying event that caused you to lose your insurance coverage. Qualifying events include the death of the employee, their termination (except in cases of gross incompetence), reduction in their hours, divorce, or loss of "dependent child" status.
Step 3: Notify Your Employer
Inform your employer about the qualifying event. They have 30 days from this event to notify the COBRA administrator and 45 days to send you a COBRA election form. If you don't receive these forms, contact your employer promptly.
Step 4: Review the COBRA Election Notice
Within 14 days of notifying your insurance company about the qualifying event, they must provide you with a COBRA election notice. This notice will outline your COBRA insurance options, including the associated costs. Review the coverage options and prices carefully.
Step 5: Sign Up for COBRA
If you are satisfied with the terms outlined in the COBRA election notice, return the completed form to your insurance company within 60 days. You won't be asked to pay immediately when submitting the form, but you will be charged for your first premium as early as 45 days after the start of your coverage.
Remember that COBRA insurance is typically a temporary solution, with a maximum coverage period of 18 to 36 months, depending on the type of qualifying event. It is a good idea to start exploring alternative insurance options to ensure uninterrupted coverage.
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Reasons not to pay for COBRA insurance
While COBRA insurance can be a great option for those who have recently lost their job and want to retain their health insurance coverage, there are some reasons why you may not want to opt for it. Here are some reasons why you might choose not to pay for COBRA insurance:
Cost: COBRA insurance can be expensive because you are required to pay the entire premium plus up to a 2% administrative fee. This is in contrast to employer-sponsored health insurance, where the employer typically pays a significant portion of the premium. The high cost of COBRA insurance may be a burden, especially if you are no longer employed and have a limited income.
Limited Coverage Period: COBRA insurance is only available for a limited period, typically 18 months, or 36 months in some cases. If you are unable to find another job or insurance plan within this time frame, you will lose your COBRA coverage. This limited coverage period may not provide sufficient time to find alternative insurance options.
Dependency on Employer: With COBRA insurance, you remain dependent on your former employer. If your former employer decides to discontinue the health insurance plan or goes out of business, your COBRA coverage will end. This lack of control over your insurance coverage can be risky, especially if you have ongoing medical needs.
Changes to the Health Insurance Plan: If your former employer changes the health insurance plan, you will have to accept those changes even if the new plan does not meet your needs. The new plan may have different coverage periods, deductibles, co-payments, and available services, which may not align with your healthcare requirements.
Alternative Options: There are alternative insurance options available that may be more affordable and better suited to your needs. These include Marketplace plans, a spouse's health insurance plan, Medicaid, short-term health insurance, or an ACA-compliant health plan. Exploring these alternatives may provide you with more flexibility and cost-effectiveness.
By considering these reasons, you can make an informed decision about whether or not to pay for COBRA insurance. It is important to weigh the pros and cons to determine if COBRA insurance is the right choice for your specific circumstances.
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How to pay for COBRA insurance
COBRA insurance is an expensive way of retaining health insurance after losing your job or experiencing a reduction in work hours. It is only available for a limited period, usually 18 or 36 months.
COBRA insurance is a continuation of your previous employer plan, but you will now pay the premium out-of-pocket. Your former employer will usually process monthly premium payments by mail in the form of a check or money order, made payable to them. Alternatively, your former employer may use a third-party administrator (TPA) to manage premium payments. Most TPAs will have an online account that allows you to pay by credit or debit card.
There are three ways to pay your COBRA premiums: through ACH (linked to your bank account), credit/debit card, or check. ACH is recommended because it doesn't involve any additional fees, and it can be used for one-time or recurring payments. However, if you need to make a same-day payment, a credit card is your best option, although there is usually a flat fee of $20. You can alternate between payment methods, and you can make several partial payments as long as you pay the full amount by the deadline.
The initial premium payment is due within 45 days of the date of your COBRA election, and failure to make this payment could lead to the loss of your COBRA rights. There is a 30-day grace period for payments, and if you pay within this period, your coverage will be reinstated retroactively.
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How long can you stay on COBRA insurance
The length of time that you can have COBRA coverage depends on the type of qualifying event and can span from 18 to 36 months, depending on the cause and whether you become eligible for other types of coverage options.
Employees are eligible for 18 months of continued coverage under COBRA if the qualifying event stems from reduction of hours or termination of employment for reasons other than gross misconduct. Note that termination can be voluntary or involuntary, including retirement.
For other qualifying events, such as the death of the covered employee, divorce or legal separation from the covered employee, or a child's loss of dependent status, dependents may receive up to 36 months of coverage.
Employees who develop a disability, as determined by the Social Security Administration, within the first 60 days of receiving COBRA coverage are eligible for an additional 11 months of coverage, which equals a maximum coverage period of 29 months.
Additionally, under the Uniformed Services Employment and Reemployment Rights Act (USERRA), covered employees who enlist in the military or are called to active duty have COBRA-like coverage rights for themselves and their dependents that last for up to 24 months.
It's important to note that COBRA coverage can end prematurely if certain conditions are met, such as failure to pay premiums on time or gaining coverage under another group health plan.
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Frequently asked questions
COBRA coverage typically lasts for 18 or 36 months, depending on the qualifying event. For instance, in the case of an employee's loss of employment or reduction in hours, the minimum coverage is 18 months. On the other hand, if the covered employee dies, gets divorced, or becomes eligible for Medicare, their spouse and dependent children are entitled to 36 months of continued coverage.
Qualifying events for COBRA coverage include voluntary or involuntary job loss (except in cases of gross misconduct), reduction in work hours, divorce or legal separation, a covered employee becoming entitled to Medicare, loss of dependent child status, and the death of the covered employee.
The cost of COBRA insurance can be high because the individual pays the entire premium, which can be up to 102% of the total cost, including an extra 2% administrative fee.
You can pay your COBRA premium directly to the employer's insurance company or to a COBRA administration company. You will receive clear instructions on where to send the payment when you sign up.
Yes, you can sign up for Medicare Part B while on COBRA. However, your COBRA coverage will likely end once you sign up for Medicare Part B.
