The Consolidated Omnibus Reconciliation Act or COBRA was passed by Congress two decades ago as an initiative to protect people from losing employer-sponsored health insurance. People who suddenly lost their job-based health insurance and find difficulty in finding affordable health plans on their own need to be protected. COBRA allows employees and their dependents to retain the same health insurance coverage for 18 or 36 months, by paying for the plan completely on their own. All the former employees, spouses, former spouses, and dependent children under COBRA are given the option to continue health insurance coverage at group rates that otherwise would not be available. Though these former employees and their dependents will likely pay more for health insurance coverage through COBRA than they paid earlier as employees but still COBRA plan will turn out to be less expensive compared to an individual health insurance plan. People need to know that COBRA is a health insurance coverage program that provides coverage for prescription drugs, dental treatments, and vision care but does not provide coverage for life insurance and disability insurance.
Reasons to have COBRA Coverage
The basic idea behind COBRA was to help laid-off employees and their families avoid a gap in their health insurance coverage. It was difficult for such employees to find affordable individual insurance on their own, especially if they had pre-existing conditions like heart disease and diabetes because people with pre-existing conditions are often turned down for health insurance or they are charged exorbitant health insurance premiums. Thus, at such a significant time, COBRA allows these individuals and their dependents to continue with their former employer’s health plan, and the benefits from the same coverage by paying the entire amount themselves for the coverage.
Though there are some other options available under the Affordable Care Act that allow people to shop for an individual plan and on meeting the minimum income threshold, individuals can even qualify for subsidies that will help them pay premiums but not everyone is eligible for the premium subsidies and hence the individual plans turn out to be an expensive affair. However, COBRA is the only way to keep the employer-sponsored coverage after losing the job.
Qualifying for COBRA
Employers having 20 or more full-time employees are required to offer COBRA coverage. The employer’s COBRA applicability is decided based on the number of working hours of a full-time employee, though the working of part-time employees can also be clubbed together to create a full-time equivalent employee. COBRA coverage applies to health plans offered by both private sector employers and the plans offered by local and state governments. Some of the states have even come up with local laws that are similar to COBRA and generally apply to employers who have less than 20 employees and so are referred to as mini-COBRA plans.
Individuals can apply for COBRA under the following conditions:
- If employees quit their jobs
- If the employee was fired due to any reason other than for gross misconduct like the 2020 Coronavirus pandemic.
- If their working hours are reduced and they do not qualify for the employer-sponsored health plans.
- If individuals lose coverage because of the death of their spouse or due to divorce.
Duration of the COBRA Coverage
Individuals can keep their former employer’s coverage generally for up to 18 months under COBRA coverage. However, spouses and dependents of former employees in some cases can even stay covered for a period of up to three years. Dependents of the former employees have the option to elect COBRA if they lose coverage because of any of the given reasons:
- Death of the employee through whom they were covered
- A dependent child on turning 26, as he/she can no longer stay on a parent’s plan.
- If the dependent of the covered employee gets legally separated or divorced.
- If the covered employee becomes eligible for Medicare.
Individuals need to keep in mind that the employee should be covered under the employer-sponsored plan at the time when they lost the jobs otherwise they will not be eligible for COBRA.
As per the COBRA rules, all employees qualifying for this health insurance option are entitled to the similar coverage which the employers are offering to all its current employees. If there is any change in the plan benefits for the active employees, then these changes will also be applicable for the qualified beneficiaries. The insurance coverage for the current employees and the COBRA beneficiaries remains the same under COBRA. The ex-employees are given at least 60 days time frame to decide whether or not to opt for the continuation coverage. Even at first if the ex-employee opts out of COBRA coverage, he/she can change their mind within 60 days. The ex-employee also has the option to cancel COBRA coverage at any time, as one is not locked into an 18-month time-frame after signing up.
Cost of the COBRA Coverage
Ex-employees opting for the COBRA coverage are required to pay 100% of the health insurance cost along with the 2% administrative fee and they no longer receive financial help from their former employer. The costs of the COBRA coverage varies depending upon the costs of the plan for the employer. The annual employer-sponsored health insurance costs for family coverage on an average cost more than $22,000 and more than half of the premium costs are generally paid by the employers. However, under COBRA coverage, the former employees are required to pay all the costs, which can mean paying four times the amount that they were paying in premiums when being employed. Undoubtedly COBRA is expensive but people can make use of the HSA to pay for COBRA.
How to Apply for COBRA
Employees on losing or quitting the job, or in case of death, or becoming eligible for Medicare, need to notify the health plan within 30 days. The health insurance carrier will then provide them the information on ways to extend their coverage via COBRA. Employees have 60 days to decide to sign up for COBRA, and if they sign up late, then they will have to pay retroactive premiums right from the day they became eligible for COBRA.