What Is COBRA Health Insurance?

Losing a job is awful. But the worst is losing workplace medical coverage sponsored by your ex-employer. COBRA allows you to retain your healthcare insurance during uncertain times. Learn about the essence of COBRA, what coverage it offers, its eligibility criteria, advantages, and downsides.

Medical insurance allows working Americans and their families to cover their primary healthcare needs. Health insurance is one of the biggest perks a boss can offer when hiring a new employee.

But when you lose your job, your group health insurance is supposed to stop, putting you and your covered relatives at the risk of paying all medical bills with your own dollars. It is a huge financial burden, potentially devastating.

But with the Consolidated Omnibus Budget Reconciliation Act (COBRA), dismissed employees can continue their group health coverage for themselves and their dependents during a certain period, though, usually, shelling out on the entire amount of premiums.

What is COBRA insurance?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) mandates most group health plans to provide temporal continuation of group medical coverage that might otherwise be lost.

COBRA requires most health plans to offer prolonged health coverage to employees, ex-employees, and their dependents (spouses, former spouses, and children) when workplace coverage will otherwise cease due to certain situations (qualifying events). These situations involve:

• The death of an insured employee;
• If an insured employee loses or quits a job for any reason but gross misconduct (an offense that a staff member commits at work, including unprofessional or unethical behavior, incompliance with workplace standards, crimes, etc);
• An insured employee is currently experiencing reduced working hours and cannot be considered a full-time worker to qualify for workplace insurance;
• An insured employee enrolls in Medicare;
• An insured employee gets divorced or legally separated from their spouse;
• A child of an insured employee loses its dependent status and therefore cannot be longer protected by the parent’s underlying workplace insurance plan.

If you don’t know whether you qualify for COBRA continuation insurance, you need to contact your employer’s HR department. You can also consult the provider of your health insurance plan.

If a worker chooses to continue group medical coverage through COBRA, an employer may require that person to pay the entire cost of coverage, plus a 2% administration fee. The premium for continued insurance is often higher than the amount that employed workers generally pay, since the employer generally pays a portion of the cost of insurance for employed workers. COBRA stopgap coverage remains effective only for a limited time (up to 36 months).

What group plans are COBRA-compliant?

The US Law requires COBRA to apply to all group health plans within the private sector employers with more than 20 full-time workers. COBRA is also applicable to health insurance plans within the state and local governments. However, COBRA will lapse if the plan was funded by the federal government or religious organizations.

Like with any other law, COBRA requirements will drastically vary by region. In some states, employees with less than 20 employers can also offer COBRA insurance to their former workers (sometimes named mini-COBRA).

Companies that do not offer group medical coverage to their staff members are exempt from COBRA coverage. Likewise, companies that go out of business are usually not required to comply with COBRA requirements, with a few exceptions for retirees who are covered by the company's plan at the time of bankruptcy. COBRA may also be denied under certain circumstances, such as when an employee has been dismissed for misconduct related to their professional activity.

How can you know about your COBRA insurance?

When you get group health coverage for yourself and your family, expect the plan to provide a detailed explanation of your COBRA rights and procedures for how to inform the plan about a qualifying event. You can find more about your COBRA rights on the plan's Summary Description (SPD), which you will receive within 3 months after your enrollment in the plan.

Eligibility for COBRA coverage usually commences the day after an employee’s termination or after another qualifying event (mentioned above). Former employees have at least 60 days to decide whether to enroll in or reject COBRA coverage. If an ex-employee elects COBRA insurance, the employer can sometimes make the first premium contribution. After that, the enrollee becomes entirely responsible for paying COBRA premiums in full to maintain the insurance’s effectiveness.

How does COBRA work?

Let’s pretend you are voluntarily or involuntarily dismissed from your work (the reason is not misconduct, though) and your workplace health coverage is terminated. This is what will happen next.

• Your ex-boss, a plan’s provider, or both will notify you of possible COBRA options. Your insurance underwriter must include extensive COBRA information in your plan papers when you sign up for workplace healthcare insurance.
• Now you have maximally 60 days to decide whether you will continue your workplace coverage through COBRA. If you opt-out of COBRA, your group healthcare insurance will stop on the day specified on your employer’s plan coverage.
• If you choose to go with COBRA, its coverage will begin the next day when your workplace plan coverage lapses. COBRA will offer you the same healthcare protections provided by your ex-employer group plan. It means you will be able to visit the same doctors and resort to the same healthcare providers as you did when you were employed.
• COBRA coverage is given for 18 months and can be extended to36 months. The character of the qualifying event will be the factor determining your eligibility for COBRA and the coverage’s length.
• You can lose your COBRA medical coverage if you fail to pay premiums or other charges required. COBRA will also stop before the expiration date if you obtain employment that provides workplace health insurance.

What does COBRA cover?

COBRA is designed to provide employees or their dependents with medical care that was earlier provided by workplace health insurance. COBRA coverage spans:

• Inpatient and outpatient treatment in hospitals
• Doctor’s office visits
• Surgery and other major medical situations
• Prescription medicines
• Dental care and vision care

Life or disability insurance is not considered “medical care”, which is why COBRA does not apply to supplemental volunteer plans that only provide life insurance or disability benefits.

How much is COBRA?

COBRA tends to be pricier compared to what you normally pay under your workplace insurance. This is so because COBRA requires enrollees to pay 100% of the premiums for healthcare insurance, including all the costs and fees previously paid by your boss to cover you. Since premium contributions lay entirely on you, COBRA coverage may be more expensive for you, even though it offers identical protections.

What about part-time employees?

Employers with at least 20-people personnel working full time are required to provide COBRA-complied medical insurance for their workers. But what about part-timers? The working hours of part-time workers can be summarized to make an equivalent full-timer to determine whether the employer meets the criteria for COBRA applicability. For example, if an employer has two part-time workers each working 20 hours per week, these two workers make one full-time equivalent employee.

What are COBRA Pros and Cons?

COBRA can be a true life-saver in the event of discontinued workplace health coverage. COBRA allows you to maintain the same level of medical insurance for yourself and your loved ones when bad news strikes, such as the death of a breadwinner, loss of employment, or a divorce.

A great thing behind COBRA is that it lets you and your families get the continued medical care that is pretty identical to the medical care you are used to when you were employed. Of course, the Affordable Care Act permits workers and their dependents to opt-out of COBRA in favor of another medical plan. But in this case, you will have to struggle through the filing process again, experiencing extra stress in uncertainty whether you will qualify or not. With COBRA, you receive the same medical plan, without struggling through the application procedures.

An outstanding feature of COBRA is that it extends to both you and your eligible family members. It gives you peace of mind that your family will still receive medical care, even if you suddenly die. Also, COBRA protects both spouses if they get divorced.

Though the purpose of COBRA’s creation is vital, it does have a few downsides. They include:

• Limited length of coverage. COBRA’s coverage doesn't last forever, but only 18 months. It is also possible to prolong COBRA’s benefits up to 36 months in certain cases (for example, if a person cannot find a job within an 18-month timeframe due to a national economic crisis caused by COVID-19).
• Expensiveness is another drawback inherent in COBRA. Despite you can continue your workplace medical coverage through COBRA, the former employer will not help to pay your premium bills. You are likely to pay 102% towards your COBRA insurance (100% of the plan’s premiums plus a 2% administrative fee).
• COBRA does not apply to small-business staff members. You can apply for COBRA only if you have worked for a company with 20+ employees. Individuals who have worked for tiny businesses may not qualify for COBRA continued medical insurance.
• COBRA is mandated for all private-sector companies as well as state and local governments if their staff exceed 20 members. To qualify for COBRA, a particular event must occur in a beneficiary’s life, including volunteer or forced dismissal from work for any reason except gross misconduct, death of a covered worker, divorce or legal separation, losing the status of a dependent child, reduction of working hours, switching to Medicare.

COBRA is given for a limited period and will be terminated if premiums are not paid as needed. With COBRA, all the insurance premiums plus administrative fees are paid exclusively by the worker since the charges are no longer shared with a former employer. This does not make COBRA the cheapest medical insurance, causing a person to search for more affordable options. These options may include a spouse’s health insurance plan or getting insurance through the federal/state health insurance marketplace.