As the price of health care costs continues to rise, many Americans aren't able to buy individual insurance policies and must rely on the group coverage they receive from work. But what happens to that coverage should you leave your job or your company goes out of business? Does that policy just evaporate? The Consolidated Omnibus Reconciliation Act (COBRA) is a law passed by Congress in 1985 that gives former employees the option to continue their policy should they cease to be a member of their previous group insurance plan. COBRA was made as an amendment to the Employee Retirement Security Act, a Public Health Service Act designed by the Internal Revenue Code for many of the same purposes as COBRA, to offer a continuation of health care coverage that might have ended.
In this article, we'll take a closer look at COBRA to find out who qualifies and under what circumstances COBRA is available. First, let's find out just how much COBRA can cost you.
What's the Cost?
COBRA was set up to offer temporary coverage to workers, but it comes at a cost. If you choose to enroll in COBRA, you're responsible for your own monthly premiums and out-of-pocket expenses. This can come as a shock since most employers pay for a big portion of health care expenses. It might be costly, but health care is often a necessary expense, and coverage under COBRA is often much cheaper than an individual policy. As anyone with a pre-existing medical condition can testify, any lapse in health insurance can result in long waiting periods or exclusion from coverage entirely. COBRA exists to make sure that lapse doesn't happen.
Nothing about the details of your policy changes, unless you make the changes yourself. You're entitled to the same medical benefits you had while working full-time, like prescription coverage, hospitalization or even dental and vision care. The price of a plan under COBRA varies greatly, because it depends upon the price negotiated between your employer and the insurance provider. It's worth noting that COBRA tacks on a 2 percent administrative fee to the monthly premium. Coverage under COBRA is retroactive (to the date of the qualifying event), and the first payment is due 45 days after you elect to participate in COBRA.
COBRA has three sets of criteria which describe who is and isn't eligible for this continuation of coverage. The first is called Plan Coverage, which means that the initial group plan has to be held by a business with 20 or more employees working at least half of the year. This includes both full and part time workers. Fortunately, it isn't just private businesses that fall under COBRA's umbrella; you can also work for a federal or state government agency, non-profit organization or even a religious institution.
The second is known as Qualified Beneficiaries; basically, the individual(s) covered by the employer's health plan the day before the qualifying event. And the third set of criteria describes the Qualifying Event, or the set of circumstances that cause an employee to lose their group health care coverage. This can include: loss of job entirely (voluntary or otherwise), reduction of hours from full to part-time, or eligibility for Medicare. For the employee's dependents, qualifying events include divorce or separation and the death of the covered employee. While it's true that COBRA would be available should you either leave a job on your own, or if you're fired, it's stipulated that termination for "gross misconduct" automatically disqualifies you from COBRA eligibility. Interestingly though, neither COBRA legislation nor the court systems have clearly defined just what "gross misconduct" is exactly.
Should you lose your job because your company goes bankrupt, however, it usually means that the group health insurance plan is lost as well. If there's no plan to continue, COBRA can offer no assistance. In other words, a continuation of benefits through COBRA only applies when you lose your ability to participate in an existing group health plan. If your company chooses to end its group plan on its own, COBRA benefits can no longer apply.
Obtaining COBRA Insurance
Coverage through COBRA isn't automatic, and there are some instances when you have to take the initiative. But there are some guidelines that both employers and their group health plan providers must follow in order to notify employees about their rights regarding COBRA.
Employers are required by law to notify their workers about their obligation to offer COBRA through a general notice upon entering a group health care plan. In addition, they must furnish pertinent COBRA information in the summary plan description of their health insurance policy. Employers are also required to notify their insurance carrier within 30 days of certain COBRA qualifying events. It's then the responsibility of the insurance provider to notify you of your rights to choose COBRA. The insurance company has 14 days from the time they received notice from the employer to deliver this information either in person or by first class mail. It's the employer's responsibility to do this though, when employee status is voluntarily reduced to part time, or they voluntarily leave their job altogether. Workers then have 60 days to decide whether or not they want to enlist. Coverage usually lasts for 18 months from the day of eligibility, but there are a few exceptions. For instance, if you become disabled in the course of those 18 months, the time period can extend to up to 36 months.
As we know, health insurance might be expensive, but it's often precious as well. In a time when companies attract employees not just by the wages they offer, but also by the company's benefits, health care coverage is an extremely influential aspect when deciding which job to choose. Knowing that we have the option to continue these benefits (albeit at our own cost) is a great relief to many in the workforce.
Related HowStuffWorks Articles
More Great Links
- California State University: Health Care Reimbursement Account. http://www.calstate.edu/benefits/flexible/hcra.cobra.shtml
- CobraInsurance.Com: What is COBRA Insurance?http://www.cobrainsurance.com/COBRA_Law.htm
- Freelance Job News: Cobra Insurance; Get the Facts. http://r144.com/InsArticle006.htm
- Consolidated Omnibus Reconciliation Act: The Law. http://www.cobrahealth.com/thelaw.htm
- InsureLane.Com: COBRA FAQs. http://www.insurelane.com/insurance-faq/faq37.html
- National Coalition on Health Care: Health Insurance Coverage. http://www.nchc.org/facts/coverage.shtml
- Understand COBRA: Full Text of Consolidated Omnibus Reconciliation Act. http://www.understandcobra.com/full-text-of-consolidated-omnibusbudget-reconciliation-act.html
- U.S. Department of Labor: COBRA Fact Sheet. http://www.dol.gov/ebsa/newsroom/fscobra.html
- U.S. Department of Labor: Continuing Health Coverage. http://www.dol.gov/dol/topic/health-plans/cobra.htm