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FAQ: COBRA Continuation Health Coverage

What is COBRA continuation health coverage?

Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) in 1986. The purpose of COBRA is to provide continuation of health insurance coverage where it would otherwise be terminated due to loss of employment. The law amends the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code, and the Public Health Service Act.

Under federal law, former employers with 20 or more employees in the prior year must offer continued group health coverage to former employees and their family members upon experiencing a qualifying life event. These events include an employee's death, termination, reduced hours of employment, or entitlement to Medicare.

The article below answers frequently asked questions (FAQ) about healthcare coverage under COBRA.

What does COBRA do?

COBRA provides certain ex-employees, retirees, and their dependents the right to temporarily continue health coverage at group rates. Group health coverage for COBRA participants is often more expensive than health coverage for active employees. This is because some employers cover a part of the premium. COBRA participants pay the entire premium themselves.

Who can receive benefits under COBRA?

There are three elements to qualify for COBRA benefits. COBRA establishes specific criteria for covered plans, qualified beneficiaries, and qualifying events.

Plan Coverage

According to the U. S. Department of Labor Employee Benefits Security Administration (EBSA), Group health plans for employers with 20 or more employees are subject to COBRA. This is on the condition that the plan was active for more than 50% of their typical business days in the previous calendar. This applies to both state and local governments and private employers. Both full and part-time employees count towards determining whether a health plan is subject to COBRA.

Who is a qualified beneficiary?

Qualified beneficiaries are those covered by a group health plan the day before a qualifying event. This includes the following individuals:

  • An employee
  • The covered employee's spouse
  • The covered employee's dependent child
  • Any child placed for adoption with a covered employee
  • retired employee  including their spouse and dependent children

What is a qualifying event?

Qualifying events are certain circumstances that would cause an individual to lose health coverage and qualify for special enrollment, such as:

  • A reduction of hours
  • Divorce or legal separation
  • Voluntary loss of employment
  • Termination of employment for reasons other than gross misconduct

How does a person elect to use COBRA continuation coverage?

To be eligible for COBRA continuation coverage, you must have been enrolled in your employer's health plan at the time your employment ends. Employers must notify plan administrators of a qualifying event within 30 days.

Plan participants and beneficiaries will receive an election notice within 14 days after the plan administrator receives notice of a qualifying event. You have 45 days after electing coverage to pay the initial premium.

The COBRA election notice includes the following:

  • COBRA premium payment rates
  • COBRA election period (e.g., 60 days)
  • Coverage options and the due date

How long does COBRA coverage last?

COBRA coverage begins on the day an employee loses coverage because of a qualifying event. COBRA beneficiaries are eligible for coverage up to a maximum period of 18 months.

It may end earlier if premiums are not paid on time or the employer ceases to maintain any group health plan. A second qualifying event during the initial period of coverage may allow a beneficiary to receive up to 36 months of coverage.

States also offer COBRA coverage. However, it is important to check the requirements for your jurisdiction. For example, COBRA applies to fully insured employers with two or more employees in Minnesota, but it doesn't apply to self-insured non-governmental employers. 

In addition, the period you are on COBRA in Minnesota can extend past the 36 months allowed under federal law. Following the death of the covered employee, a spouse can remain on COBRA until they receive a new insurance plan or enroll in Medicare benefits.

Who pays for COBRA coverage?

Beneficiaries must pay for their own COBRA coverage. The premium cannot exceed 102% of the plan's cost for similarly situated individuals without a qualifying event. This includes the portion paid by employees and any paid by the employer before the qualifying event, plus 2% for administrative costs.

Premiums for qualified beneficiaries receiving the 11-month disability extension may increase under certain conditions to 150% of the plan's total cost of coverage.

COBRA beneficiaries remain subject to the plan's rules, including rate increases. Beneficiaries must satisfy all costs related to co-payments and deductibles and are subject to other benefit limits.

Am I eligible for COBRA if my company closed or went bankrupt and there's no health plan?

No, there is no COBRA coverage if your company closes and no longer offers a health plan. Union members covered by a collective bargaining agreement providing a medical plan are eligible for continued coverage.

Ask a Lawyer About Your COBRA Rights

If you lose your job, you'll want to know about your ongoing eligibility for health insurance and other benefits. You may also have other concerns and questions relating to your rights post-employment. A local employment law attorney can provide answers and additional valuable insights that can make a difficult time easier to manage.

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