Health insurance coverage paid in full or partially by an employer is a valuable job benefit. However, when that coverage is lost due to a job change, termination of employment or a reduction of hours worked, it can place a burden on the individuals relying on that coverage for healthcare. A federal law could assist with keeping the existing coverage for a short period, giving the individual time to obtain replacement insurance. This coverage is called COBRA.
What is COBRA?
COBRA is an shortened reference to the Consolidated Omnibus Budget Reconciliation Act. Enacted in 1985, the law was signed into law in 1986 by President Ronald Reagan and was primarily an attempt to address a budget deficit. Other amendments were included as a part of the act, including those addressing pension plans, railroads, the postal service and protections for American workers who lose access to their employer-sponsored coverage.
According to a Fact Sheet issued by the US Department of Labor, COBRA "gives workers who lose their health benefits the right to choose to continue group health benefits provided by the plan under certain circumstances." Employers who do not offer continuing coverage for employees or former employees who meet criteria are subject to certain tax consequences.
The coverage offered under COBRA must be equal to the coverage offered prior to the employment change that triggered the need for insurance continuation. At the time of COBRA enrollment, the individual can make changes to the coverage - for instance, reducing coverage options or opting for coverage only for the individual and not the family - if those options are available to all of the plan participants.
What are the qualifications for COBRA insurance coverage?
In general, companies with 20 or more full time employees must offer COBRA insurance coverage to employees (or former employees) who no longer meet the qualifications for the company's coverage. The reasons for discontinuation of the company's health insurance coverage could include termination of employment - whether voluntary or involuntary, a reduction of hours worked to a level that no longer qualifies for company benefits, and qualification for Medicare coverage, among others.
In addition to the individual, the individual's spouse and dependents also are eligible for COBRA coverage. The length of time for which the COBRA coverage can be in effect depends upon the circumstances of the cessation of employer-paid coverage. It can range from 18 months to 36 months.
If a participant becomes disabled or if there is a change in marital status or dependent status, the plan participants are required to notify the employer. These events can change the length of time for which the individual qualifies for health insurance coverage continuation.
What are the limitations of COBRA?
An individual who no longer qualifies for employer-sponsored health insurance coverage has up to 60 days to apply for insurance under COBRA. All insurance premiums, including the portion previously paid by the employer and an administrative fee, must be paid by the individual requesting continued coverage. If premium payments are late, health insurance coverage will cease.
COBRA does not cover all situations. For instance, COBRA does not apply to employees of federal agencies. In addition, if the individual was terminated for gross misconduct, the individual and his/her dependents are not eligible for COBRA continued coverage. Also, if the employer has ceased business operations or no longer offers health insurance coverage to any employee, the COBRA act does not apply.
How does an individual continue with COBRA coverage when no longer covered under an employer plan?
An individual must complete a form indicating the intention to continue with health insurance coverage through COBRA within 60 days of the employment change that led to cessation of employer-sponsored coverage.
Because premiums can be expensive once an employer is not paying a portion or all of the premium costs, individuals may wish to evaluate all options, including coverage through the Health Insurance Marketplace.
If the individual chooses to continue coverage through COBRA, the company must provide benefits equal to that provided to employees still covered under the plan. Further information on electing COBRA coverage is provided in the health plan paperwork from the employer.
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