There are many situations in which a person may lose their health benefits if an employee loses their job, experiences reduced work hours, or is transitioning between jobs to cover the window of time before being eligible for coverage at the new job.
The Consolidated Omnibus Budget Reconciliation Act, or COBRA, continuation of coverage helps cover those gaps and keep families covered.
COBRA requires large employers with more than 20 employees that offer group health plans to extend their health care where the coverage may end temporarily. This guide will cover what COBRA is, the coverage it provides, who is eligible, and other options available.
What is COBRA Insurance?
COBRA insurance provides employees the opportunity to continue their health care plan in one of the events that their health care ends. COBRA is an option for former employees to continue their health care if they lose their job or lose hours at work.
Qualifying for COBRA requires people to pay the entire premium up to 102% to keep the coverage. Although this is more expensive than when the employee was full-time, it is more affordable than individual insurances.
COBRA continuation coverage only offers insurance coverage and does not extend to vision, dental, prescription drugs, life insurance, and disability insurance.
What does COBRA Insurance Cover?
COBRA must provide qualifying candidates health insurance coverage identical to what the former employer offers to current employees. Any changes in the plan benefits for the active employees will also apply to COBRA beneficiaries.
Meaning if the health plan had changed, those changes would apply to the COBRA insurance, so it remains the same for former employees and new employees alike. People who qualify are notified at least 60 days in which they can choose to elect for COBRA coverage. Even if they decide to waive coverage and change their mind, they are free to do so if it is within the 60-day period.
Qualifications and Requirements of COBRA Health Insurance
People can only receive COBRA benefits for qualifying events. Additionally, there are different sets of criteria for employees and individuals who are eligible for COBRA coverage. Employees eligible for COBRA must have been enrolled in a group plan sponsored by the employer at least one day before the qualifying event.
Employers are required to continue to offer their existing employees a health plan for the former employees to continue to qualify for COBRA. If the employer goes out of business or decides to no longer offer its active employee’s benefits, the former employee is no longer eligible for COBRA benefits.
For people to qualify for COBRA coverage, the qualifying events must result in the loss of health insurance. There are qualifying events for spouses and dependents in addition to the former employees.
For the employee to be eligible, the employee qualifies for COBRA in the event of voluntary or involuntary job loss, except in the case of gross misconduct, or the hours must have been decreased enough to disqualify them from health coverage.
For spouses of the former employee, the spouse can qualify in the event the covered employee is eligible for Medicaid if they are divorced or legally separated or in the event of the former employee’s death. The dependents usually qualify under the same for the spouse and if the former employee loses dependent child status per a parenting plan.
The Cost of COBRA Insurance
When they participate in group rates for health insurance during an employee’s term, employers typically take on 80% of the coverage costs while the employee will take on the remaining 20%. With COBRA health insurance, the individual is required to pay the entire premium, including a potential 2% administration fee.
The cost for a former employee who chooses to participate in COBRA will see their insurances rates increase significantly compared to their prior’s health insurance costs. COBRA is a more affordable option compared to individual health coverage plans. Under the Affordable Care Act, a person should compare coverage to see which benefit works best for their budget.
COBRA versus Individual Health Insurance
COBRA can be beneficial for many families, but it is essential to consider the downsides of paying the higher premiums. If a former employee remains on COBRA, they are still dependent on the employer in certain ways regarding health insurance.
For example, if the employer discontinues participation in COBRA, the former employee will no longer be able to access COBRA benefits. A former employee’s coverage can end prematurely due to any of these factors and if they fail to pay the premiums on time.
If the employer changes the health insurance plan, the new insurance plan would automatically apply to the former employee and may not provide the benefits needed or cause increases in deductibles.
If all remains the same with COBRA, the former employee can continue care with their same medical providers and retain coverage for preexisting conditions and medications. The costs could be less than other insurance plans, and it is more affordable than going without health insurance.
If a person decides to opt-out of COBRA, they can choose a new plan and shop through the health insurance exchange through the Affordable Care Act. When selecting a new plan, they can search through hundreds of options and find one like the one they had under the former employer and still be able to retain their health care network. This option may be more expensive in monthly premiums, deductibles, and the cost of prescriptions, but it provides stability and control that COBRA does not offer.
There are options for healthy individuals to participate in to lower their monthly premiums. There are subsidy programs people can check through their state’s health services website to see if they qualify for one that reduces the out-of-pocket costs. These are practical alternatives to COBRA health insurance to provide people with benefits in between jobs.