COBRA

What is COBRA?

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1985. The COBRA provision in federal law allows employees to keep their employer-based group health care coverage for up to 18 months when they would otherwise lose it after leaving their job. Your employer is not legally required to provide continuing healthcare coverage, but under the law, an employer with 20 or more employees is subject to an excise tax for failing to provide this coverage. If the individual is deemed disabled by the Social Security Administration, COBRA coverage may be extended up to 29 months. The coverage can also continue for up to 36 months to a spouse or dependents in the event of divorce or death of a covered employee.

Who is covered by COBRA?

COBRA generally covers employees who resign or are terminated for any reason other than “gross misconduct.” It may also apply if you lose your health benefits after a reduction in the number of hours of employment. Although the insurance policy remains the same, the former employer is no longer required to subsidize the premiums. Without the employer subsidy, COBRA insurance can be very expensive. The employee on average pays 15% to 25% of the actual cost of insurance, while the employer pays the rest. Under COBRA, the former employee pays the entire cost.

How do I obtain COBRA coverage?

If COBRA coverage is available to you, your former employer is responsible for notifying you. Normally, you’ll receive a notice no later than 14 days following a COBRA qualifying event. You’ll have 60 days to decide whether to sign up.

If you have a life-changing event, you must notify your human resources department within 30 to 60 days. The HR department then offers COBRA coverage to you and your other qualified beneficiaries. Each qualified beneficiary can individually elect or decline coverage. Payments are arranged individually with the employer or health insurance company.

COBRA coverage extends to the employee for up to 18 months, unless:

  • The employer goes out of business or no longer offers a group health care plan
  • The beneficiary obtains health insurance coverage elsewhere
  • The beneficiary stops paying the premiums
  • The beneficiary becomes eligible to receive Medicare benefits

The coverage options under COBRA are the same as those offered to current employees. It includes medical, dental, and vision coverage if your employer-sponsored health insurance included that coverage. You can also opt for lesser coverage, for example to cover just yourself but not your family, or to provide only medical but not dental care, if those choices are available to current employees.

Is COBRA right for me?

COBRA does provide an option for many people who otherwise might not have necessary healthcare coverage. Healthcare is crucial for most people. If you are leaving your employer and losing your coverage as a result, you should consider looking into COBRA coverage and compare it with the costs of private health insurance. In many cases private health insurance is much less costly. In 2011 the average cost of an employer-sponsored health plan was $5,429 for singles and $15,073 for families, according to a study by the Kaiser Family Foundation. The average cost of private health insurance, according to eHealth, was $2,196 for singles and $4,968 for families.

But depending on your and your family’s health, the premiums for private health insurance could be higher or lower than COBRA. In that case, you can combine COBRA with private insurance. For example, if private health insurance is higher than COBRA for some members of your family, you could use COBRA for them and private health insurance for the others. Also, since COBRA allows you to choose any health plan offered by your former employer, so you could select one that is less expensive. If you get another job, you might be able to get your new employer to subsidize your COBRA payments until you’re eligible for its health insurance.

The health insurance marketplace gives you an additional option. When you lose your employment you may be eligible for health insurance through the marketplace, with premiums set based on your income and household size. When you apply, you also find out whether you also qualify for free or low-cost coverage through Medicaid or the Children’s Health Insurance Program (CHIP).

For additional information

Learn more about COBRA at cobrainsurance.com

Learn about COBRA and the health insurance marketplace at healthcare.gov