Consolidated Omnibus Budget Reconciliation Act (COBRA)

Congress passed the Consolidated Omnibus Budget Reconciliation Act, better know by its acronym COBRA,  in 1985. It is an amendment to the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code, and the Public Health Act.

The overarching purpose of COBRA is to give workers who lose the health benefits they had through their employers the right to choose to continue the group health plan coverage for limited periods of time in the event of job loss.  Under the Act, qualified individuals may be required to pay the entire health insurance premium up to 102% of the cost of the plan, though this can vary by employer.  The extra 2% would be the result of an additional administrative charge.

Qualifying for COBRA Coverage

COBRA requires an employer to offer continuation of coverage to covered employees, their spouses, their former spouses, and their dependent children when group health coverage would otherwise be lost if certain criteria are met.  Those criteria are:

  1. Your group health plan is covered by COBRA
  2. A “qualifying event” has occurred
  3. You are a qualified beneficiary for that “qualifying event”

For the 1st criteria, COBRA generally applies to group health plans maintained by private-sector employers with at least 20 employees, or by state and local governments.  Plans maintained by the federal government, churches, or religious organizations are not covered.

For the 2nd criteria, a qualifying event for a covered employee could be:

  • The termination of the covered employee’s employment for reason(s) other than gross misconduct
  • The reduction of the covered employee’s hours

For the 3rd criteria, a qualifying event for a spouse or dependent child of a covered employment could be:

  • The termination of the covered employee’s employment for reason(s) other than gross misconduct
  • The reduction of the covered employee’s hours
  • The death of the covered employee
  • A Divorce or legal separation from the covered employee
  • The covered employee becomes entitled to Medicare
  • A child’s loss of dependent status, and therefore coverage

A “qualified beneficiary” is any individual who was covered by the group health plan on the day preceding the qualifying event that caused the discontinuation of coverage.  Spouses, former spouses, and dependent children can be qualified beneficiaries.

COBRA Timeline – Electing Coverage & Premium Payment

Plan participants and beneficiaries generally must be sent a COBRA election notice within 14 days of the plan administrator receiving notice that a qualifying event has occurred.  The participants and beneficiaries then have 60 days to decide whether to elect COBRA coverage.  If COBRA coverage is elected, the person has 45 days to pay the initial premium.

The Cost of COBRA Coverage

The price of COBRA coverage may be surprisingly more than what you were used to paying, but remember that your employer paid for part of your coverage, so you did not foot the entire bill.  Under COBRA, and unless the employer has a policy stating otherwise, you are responsible for the full cost of your coverage.  For this reason, you should carefully review all options before electing COBRA coverage.

Alternatives to COBRA Coverage

There are 2 alternatives to COBRA coverage, purchasing an individual health insurance policy or “special enrollment” into another group health coverage (enrolling in a different group health coverage plan without waiting for the next open enrollment period).  An example of “special enrollment” would be enrolling in a spouse’s group plan if you are losing eligibility for your employer’s group health coverage.

For further information on the Consolidated Omnibus Budget Reconciliation Act (COBRA), check out the COBRA resources provided by the Department of Labor.