FAQ: COBRA Continuation Health Coverage

Q: What is COBRA continuation health coverage?

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

Q: What does COBRA do?

COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available when coverage is lost due to certain specific events. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer pays a part of the premium for active employees while COBRA participants generally pay the entire premium themselves. It is ordinarily less expensive, though, than individual health coverage.

Q: Who is entitled to benefits under COBRA?

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

1. Plan Coverage - Group health plans for employers with 20 or more employees on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA. Both full and part-time employees are counted to determine whether a plan is subject to COBRA.
2. Qualified Beneficiaries - Qualified beneficiaries are covered by a group health plan on the day before a qualifying event who are either an employee, the covered employee's spouse, or their dependent child. In certain cases, a retired employee, their spouse, and their dependent children may be qualified beneficiaries. Any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary.
3. Qualifying Events - Qualifying events are certain events that would cause an individual to lose health coverage such as the reduction of hours or loss of employment by the employee for reasons other than gross misconduct.

Q: How does a person become eligible for COBRA continuation coverage?

To be eligible for COBRA coverage, you must have been enrolled in your employer's health plan when you worked and the health plan must continue to be in effect for active employees. COBRA continuation coverage is available upon the occurrence of a qualifying event that would, except for the COBRA continuation coverage, cause an individual to lose his or her health care coverage.

Q: What process must individuals follow to elect COBRA continuation coverage?

Employers must notify plan administrators of a qualifying event within 30 days after an employee's death, termination, reduced hours of employment or entitlement to Medicare.

Plan participants and beneficiaries generally must be sent an election notice not later than 14 days after the plan administrator receives notice that a qualifying event has occurred. The individual then has 60 days to decide whether to elect COBRA continuation coverage. The person has 45 days after electing coverage to pay the initial premium.

Q: How long does COBRA coverage last?

COBRA beneficiaries generally are eligible for group coverage up to a maximum of 18 months for qualifying events due to employment termination or reduction of hours of work. Certain qualifying events, or a second qualifying event during the initial period of coverage, may permit a beneficiary to receive a maximum of 36 months of coverage.

Coverage begins on the date that coverage would otherwise have been lost by reason of a qualifying event and will end at the end of the maximum period. It may end earlier if premiums are not paid on a timely basis or the employer ceases to maintain any group health plan.

In many cases a beneficiary may also lose coverage if they receive insurance from a new employer, or becomes entitled to Medicare benefits.

Q: Who pays for COBRA coverage?

Beneficiaries may be required to pay for COBRA coverage. The premium cannot exceed 102 percent of the cost to the plan for similarly situated individuals who have not incurred a qualifying event, including both the portion paid by employees and any portion paid by the employer before the qualifying event, plus 2 percent for administrative costs.

For qualified beneficiaries receiving the 11 month disability extension of coverage, the premium for those additional months may be increased to 150 percent of the plan's total cost of coverage.

COBRA beneficiaries remain subject to the rules of the plan and therefore are subject to rate increases and must satisfy all costs related to co-payments and deductibles, and are subject to catastrophic and other benefit limits.

Q: Am I eligible for COBRA if my company closed or went bankrupt and there is no health plan?

If there is no longer a health plan, there is no COBRA coverage available. If, however, there is another plan offered by the company, you may be covered under that plan. Union members who are covered by a collective bargaining agreement that provides for a medical plan also may be entitled to continued coverage.

Ask a Lawyer about Your COBRA Coverage

If you were fired or laid off you'll want to know all the details about your ongoing eligibility for health insurance and other benefits. You may also have other concerns and questions relating to your right post-employment. A local employment law attorney can provide answers and other valuable insights that can make a difficult time easier to manage.