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How Does COBRA Insurance Work?

Whether you're young or old, married or single, sick or healthy, rich or poor, health insurance affects all of us in some way or another. Some pay for their own health insurance coverage, while others are fortunate to have health care insurance through their employers. But what happens if you leave your job – will you lose your insurance, too? Because of a federal government law passed in 1986, you may be able to continue your coverage through COBRA insurance.

Read on to learn how COBRA insurance works.

The Consolidated Omnibus Budget Reconciliation Act (COBRA)

Passed in 1985, COBRA is a federal law that allows employees of qualifying companies (typically for employers with 20 or more employees) to continue their health insurance with the same benefits even after they stop working for their former employer. COBRA is administered by the U.S. Department of Labor. But how does COBRA insurance work?

To qualify for coverage, there are three conditions that must be met for eligibility:

  1. Plan Coverage: Your employer's group health plan must be covered by COBRA.
  2. Qualifying Event: You lost coverage due to a “qualifying event."
  3. Qualified Beneficiary: You are a “qualified beneficiary."

Each of these conditions is described in more detail below.

Plan Coverage

Not all employer-sponsored health plans are required to provide COBRA continuation coverage. COBRA only covers health insurance plans sponsored by employers who had at least 20 employees on more than 50 percent of their typical business days in the previous calendar year. Both full- and part-time employees are counted, though each part-time employee is counted as a fraction of a full-time employee. There are also some state laws that apply coverage to companies with fewer than 20 employees.

Qualifying Event

Under COBRA, a qualifying event is one that causes you to lose your health coverage, such as a reduction in work hours or the loss of your job for reasons other than gross misconduct.

In addition, the following are qualifying life events for spouses and dependent children:

  • The covered employee became entitled to Medicare.
  • Death of the covered employee.
  • The covered employee is divorced or legally separated from the spouse.

Another qualifying event for dependent children occurs when they lose coverage because they've reached the maximum age required by law (currently age 26).

Qualified Beneficiary

Employees and their family members, such as their spouses, former spouses, and dependent children, are considered qualified beneficiaries for COBRA health insurance if they were covered by the employer's group health plan the day before a qualifying event occurred, and the plan is still in effect for active employees. Additionally, retired employees, spouses, and dependent children may be considered qualified beneficiaries if the employer went bankrupt. Lastly, if a child is born or adopted during a period of COBRA coverage, they are automatically eligible for COBRA coverage.

How COBRA Insurance Works: The Timeline

Qualified beneficiaries are not enrolled in COBRA health insurance automatically. The COBRA process follows a timeline that requires each of the parties to take action within a certain timeframe.

The timeline generally includes the following deadlines for COBRA benefits:

  • 30 days: The employer has 30 days to notify the plan administrator of a qualifying event. However, you must notify the administrator if the qualifying event is a divorce, legal separation, or child's loss of dependent status (deadlines vary by plan).
  • 14 days: The plan administrator must send an election notice to you no more than 14 days after they receive notice of the event.
  • 60 days: Each qualified beneficiary has 60 days to decide whether to sign up for COBRA.
  • 18 or 36 months: Qualified beneficiaries are entitled to at least 18 months of COBRA coverage when the qualifying event is the employee's loss of employment or reduction in hours. For other qualifying events, the minimum amount of coverage is 36 months, and in some cases, you may receive an extension.

How Does COBRA Insurance Work? Who Pays the Bill?

In most cases, you will be paying your insurance premium payments under COBRA. Unfortunately, the cost of COBRA is usually more expensive because your employer probably covered part of the premium while you were employed. The exact amount of COBRA premiums will vary, but it's often cheaper than purchasing individual health insurance premiums. You should compare the costs with other marketplace plans, such as your spouse's insurance, Medicaid services, the Health Insurance Marketplace, the military, or a health coverage tax credit.

Get Help with the COBRA Process

Job loss and loss of health insurance can be extremely stressful, and there are many options and variables to consider when deciding how to move forward. You will need to consider different health insurance options at different insurance companies. For more information on COBRA insurance, read the U.S. Department of Labor's FAQs on COBRA Continuation Health Coverage of Employers and Advisors.

An experienced, local health insurance attorney can guide you through these difficult decisions and provide more detailed answers to your questions regarding how COBRA insurance works. They will also provide helpful legal advice about your COBRA rights.

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