Cobra Insurance: What You Need To Know

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that allows eligible employees and their dependents to retain their health insurance coverage when an employee loses their job or experiences a reduction in work hours. COBRA is not an insurance company or a specific plan; rather, it is a law that enables individuals to maintain their existing coverage during a transition period. This coverage is typically more expensive than standard insurance as the individual must pay the entire premium, including the portion previously covered by their employer, plus administrative fees. To enrol in COBRA, individuals must meet certain eligibility criteria and notify their health plan administrator within 60 days of the qualifying event, such as job loss, divorce, or death of a spouse.

Premium costs

The premium costs of COBRA insurance are a crucial consideration when purchasing this coverage option. Here are some detailed paragraphs explaining the premium costs and related factors:

COBRA insurance is known for its high premium costs, which can come as a shock to individuals who were previously accustomed to their employer paying a large portion of their health insurance premiums. Under COBRA, the individual is required to pay the entire premium plus an additional administrative fee of up to 2%. This can result in a significant increase in costs compared to their previous insurance arrangement.

Factors Affecting Premium Costs:

The premium costs of COBRA insurance depend on the specific health insurance plan chosen. According to the Kaiser Family Foundation, the average cost of an employer-sponsored family plan in 2021 was $22,221 per year. With COBRA, individuals will be responsible for paying the entire premium amount themselves, which can be a substantial sum.

Comparison to Other Plans:

While COBRA premiums are high, they may still be more affordable than individual insurance plans available on the open market. This is because individuals may still be able to benefit from their former company's group discount, which can make COBRA a competitive option. Additionally, COBRA may be less expensive than other standard plans, and it offers better protection against high medical bills compared to being uninsured.

Payment Methods and Assistance:

Individuals can use their Health Savings Account (HSA) funds to pay for their COBRA premiums, which can provide some financial relief. Additionally, the U.S. Department of Labor offers a Health Coverage Tax Credit (HCTC) that pays 72.5% of premiums for individuals who lose their jobs due to the "negative effects of global trade." This credit can significantly reduce the financial burden of COBRA premiums.

Retroactive Premiums:

It's important to note that individuals have 60 days to sign up for COBRA after a qualifying event, but the premiums are retroactive. This means that if they wait to enroll, they will still need to pay the premiums for the period between the qualifying event and their enrollment date.

Payment Deadlines:

The initial premium payment for COBRA is due within 45 days of the date of the individual's COBRA election. Subsequent premium payments are typically due within 30 days of the due date set by the group health plan. Maintaining timely payments is essential to avoid losing COBRA coverage.

Qualifying events

To be eligible for COBRA insurance, a qualifying event must occur. Qualifying events are certain events that would cause an individual to lose health coverage under a group health plan. The type of qualifying event will determine who the qualified beneficiaries are and how long they will be entitled to COBRA coverage.

• Termination or a reduction of a covered employee's hours
• Divorce or legal separation from a covered employee
• Death of a covered employee
• Medicare eligibility for a covered employee
• Loss of a child's or dependent's health insurance coverage under the plan

Employees qualify for COBRA coverage in the event of:

• Voluntary or involuntary job loss (except in cases of gross misconduct)
• A decrease in the number of hours of employment resulting in loss of employer insurance coverage

In addition, spouses can qualify for COBRA coverage if:

• The covered employee becomes entitled to Medicare
• They divorce or separate from the covered employee
• The covered employee dies
• Loss of dependent child status, as per the plan rules

Coverage length

The length of coverage under COBRA depends on whether the coverage is for the employee or the qualifying beneficiaries (covered dependents) and the type of qualifying event. While COBRA regulations set the minimum duration periods, an employer's plan may provide longer periods of coverage beyond the minimum required period.

Under COBRA, employees themselves are only eligible for either 18 months of coverage, due to termination of employment or a reduction in hours, or 29 months of coverage if a qualified beneficiary on the plan is eligible for a disability extension. The 11-month extension begins at the conclusion of the original 18 months of coverage.

Dependent/qualified beneficiaries are eligible for the same coverage durations as employees but their coverage may extend further in certain situations:

• 36 months of coverage due to losing dependent-child status under the plan.
• Up to 36 months of coverage when the qualifying event is termination of employment or a reduction in hours and the employee became entitled to Medicare less than 18 months before the qualifying event.
• Up to 36 months of coverage when there is a second qualifying event during continuation coverage (the death of the covered employee, the divorce or separation of the employee and spouse, the covered employee becoming entitled to Medicare or loss of dependent-child status under the plan), where the 36 months is measured from the original COBRA continuation start date.

Federal COBRA coverage typically lasts for 18 months but may extend up to 36 months if there is a second qualifying event. This temporary coverage gives individuals time to find another health plan or covers them until their next employer plan kicks in, such as when they start a new job.

Eligibility criteria

To be eligible for COBRA insurance, you must meet three basic requirements:

• Your group health plan must be covered by COBRA.
• A qualifying event must occur.
• You must be a qualified beneficiary for that event.

COBRA applies to most private sector businesses with 20 or more employees. It requires an employer's group health insurance plan to continue after qualifying life events. These include:

• Termination or a reduction of a covered employee's hours
• Divorce or legal separation from a covered employee
• Death of a covered employee
• Medicare eligibility for a covered employee
• Loss of a child's or dependent's health insurance coverage under the plan

Employees qualify for COBRA coverage in the event of:

• Voluntary or involuntary job loss (except in cases of gross misconduct)
• A decrease in the number of hours of employment resulting in loss of employer insurance coverage

In addition, spouses can qualify for COBRA coverage if:

• The covered employee becomes entitled to Medicare
• They divorce or separate from the covered employee
• The covered employee dies

Qualifying events for dependent children are the same as for spouses, with the addition of:

Loss of dependent child status, as per the plan rules

Payment deadlines

Initial Payment

The first premium payment for COBRA coverage is due within 45 days of electing COBRA. This election typically occurs after receiving a notice of eligibility and deciding to enrol. It is important to note that this initial payment is retroactive, covering the period from the date of loss of coverage or the qualifying event.

Subsequent Payments

Once the initial payment is made, subsequent premium payments for COBRA coverage are typically due within 30 days of the due date set by the group health plan. It is essential to adhere to these deadlines, as missing payments can result in the cancellation of your COBRA coverage.

Grace Periods

While timely payments are crucial, some grace periods may be available. If you miss a payment deadline but make the payment within the grace period for that coverage period, your coverage may be temporarily cancelled until the payment is received. Once the payment is received, your coverage will be reinstated.

Payment Methods

The COBRA election notice should provide you with the address to send your premium payments and the amount due, including any retroactive amounts. You can use various methods, such as a health savings account (HSA) or other funds, to pay for your COBRA premiums and associated administrative costs.

Coverage End

It is important to remember that COBRA coverage can end prematurely if you fail to pay premiums on time. Other reasons for early termination of COBRA coverage include the employer ceasing to maintain any group health plan or the qualified beneficiary gaining coverage under another group health plan. Therefore, staying current with your payments is essential to maintaining your COBRA benefits.

Frequently asked questions