What Is COBRA Health Insurance?

COBRA (Consolidated Omnibus Budget Reconciliation Act) health insurance, established under federal law in 1985, is an alternative health plan option for individuals facing job loss, reduced work hours or other significant life events like divorce or the death of a spouse that may impact access to health insurance. This program allows you to continue your employer-sponsored health coverage for up to 36 months under certain circumstances.

COBRA serves as a transitional health insurance solution, offering continuity in health care during times of change. However, weighing its higher costs against your needs and the alternatives available is important.

COBRA insurance is a health coverage option that enables those who lose their employer-sponsored health coverage due to specific events to temporarily continue receiving the same coverage. Importantly, COBRA extends this option to employees and their spouses, former spouses and dependent children. The temporary coverage period typically ranges between 18 and 36 months.

To be eligible, you must be an employee of a company with at least 20 employees and have experienced a qualifying event, such as termination for reasons other than gross misconduct. After a qualifying event, a 60-day enrollment period is usually available to opt for COBRA coverage.

It extends health coverage to a wide range of medical services, such as hospital care (both inpatient and outpatient), physician services and medication. However, it is important to note that COBRA does not extend to life insurance or disability benefits.

COBRA insurance costs can amount to 102% of the plan's total price, including the entire premium that the employer previously covered and a 2% administrative fee. In cases of disability, premiums may increase to 150% of the plan’s cost for an extended coverage period beyond the standard 18 months.

You must meet three conditions to be eligible for COBRA coverage: the group health plan must fall under COBRA’s scope, a qualifying event must occur and the individual must be a qualified beneficiary.

Additionally, COBRA Coverage can last between 18 months and 36 months, depending on the nature of the qualifying event. Note that COBRA coverage can prematurely end if you find other health insurance or do not pay the necessary premiums.

COBRA applies to group health plans provided by employers (either in the private sector or state or local government) with at least 20 employees for more than half of its typical business days in the previous year. The count of employees includes full-time and part-time staff, with part-time employees contributing as a fraction of a full-time employee based on their work hours.

Different qualifying events dictate who the qualified beneficiaries are and the duration for which employers must offer COBRA coverage. These events vary based on the relationship to the covered employee:

Qualifying Events for Covered Employees:

• Employment termination for causes unrelated to gross misconduct
• Reduction in work hours impacting health coverage eligibility

Qualifying Events for Spouses and Dependent Children of Covered Employees:

• Job termination of the insured employee for reasons excluding gross misconduct
• Decrease in work hours for the insured employee
• Insured employee's qualification for Medicare
• Divorce or legal separation of the insured employee's spouse
• Passing away of the insured employee

Additional Qualifying Events Specifically for Dependent Children:

• Loss of status as a dependent child under the plan’s rules, such as reaching the age limit for health coverage (typically 26 years, per the Affordable Care Act).

If you need clarification on whether a life event qualifies you for COBRA coverage, contact your employer's human resources department or the manager of your employer's group health plan.

A qualified beneficiary was part of the group health plan the day before the qualifying event and lost coverage due to that event. This includes the covered employee, their spouse or former spouse and any dependent children. In specific cases like employer bankruptcy, this can extend to retired employees, spouses and dependent children. Newborns requiring health coverage or adopted children who join the family during the period of COBRA coverage are also considered qualified beneficiaries.

Employers are required to notify the health plan within 30 days of events related to employment status. Meanwhile, employees or beneficiaries must inform the plan in cases of divorce, legal separation or a child's loss of dependent status.

COBRA stipulates that after a qualifying event, the continuation of health coverage is available for a specific, limited duration. This time frame, known as the "maximum coverage period," varies based on the circumstances triggering COBRA eligibility.

COBRA coverage normally lasts 18 months, but certain events can extend it to 36 months. These include the passing of the employee covered by the plan, divorce or legal separation from the employee, the employee becoming eligible for Medicare or a dependent child no longer meeting the criteria for dependent status within the health plan. These events can lead to an extension of coverage. Remember to immediately notify the plan of these life events to amend your coverage duration.

If the Social Security Administration determines a qualified beneficiary to be disabled, the plan can extend COBRA coverage for an additional 11 months, totaling 29 months. This extension is available if the disability is determined within the first 60 days of COBRA coverage and extends not just to the disabled beneficiary but to all family members covered under the same COBRA plan.

It is important to note that the cost of COBRA coverage during the disability extension may increase. The premium for these additional 11 months can be up to 150% of the plan's total cost.

A second qualifying event impacting the employee can extend your COBRA coverage. Such events include the covered employee's death, divorce or legal separation, enrollment in Medicare or a dependent child losing eligibility status. This extension is contingent on the second event occurring within the initial 18-month coverage period.

Under COBRA, the health coverage provided during continuation is equivalent to the current plan offered to active employees and their families.

• Coverage Parity: If you elect into a COBRA plan, the health insurance you receive is the same as the one you had immediately before the qualifying event. This includes all medical, dental and vision coverage options. This also includes the ability to make choices during open enrollment periods, just like active employees.

• Same Plan Benefits: Beneficiaries continue to receive the same health plan benefits they had before the qualifying event. This includes access to the same network of health care providers, hospitals and specialists, ensuring consistency in medical care.

• Rules and Limits Compliance: COBRA coverage subjects beneficiaries to the same copayment requirements, deductibles and coverage limits as active employees. This uniformity extends to the plan’s procedures for filing claims and appealing claim denials, providing a consistent approach to health care benefits management.

• Plan Changes Applicability: If the employer makes any changes to the health plan’s terms for active employees, these changes also apply to COBRA beneficiaries.

• Inclusion of New Dependents: If a covered employee has a new child by birth or adoption during their period of COBRA coverage, this child is automatically eligible as a qualified beneficiary.

This uniformity in coverage ensures that COBRA beneficiaries receive the same health benefits as their actively employed counterparts.

Choosing COBRA health insurance hinges on personal health care needs and financial readiness. Consider the following factors:

• Continuity of Coverage: COBRA lets you maintain your current health plan, including your preferred health care providers and ongoing treatments.

• Cost Consideration: COBRA is typically more expensive, as you pay the full premium, including the part previously covered by your employer, plus a possible 2% administrative fee.

• Duration of Need: Assess how long you need the coverage. COBRA is temporary and can last up to 18 or 36 months, depending on your situation.

• Alternative Insurance Options: Compare COBRA with other insurance options, such as plans available through the Health Insurance Marketplace, which might lead to more affordable health insurance options, especially with subsidies.

• Subsidy Eligibility: Determine if you are eligible for government subsidies, which can significantly reduce the cost of plans obtained through the Marketplace instead of COBRA.

• Immediate Coverage Requirement: COBRA provides a seamless transition if you need immediate coverage without a coverage gap.

Weighing the benefits of plan continuity with a COBRA plan against the higher costs will help you make a more informed decision.

MoneyGeek answers your key questions about COBRA insurance, providing clarity on how it works, eligibility and cost comparisons.