In this article, you will learn
- COBRA Continuation Coverage: What Is It?
- What is COBRA Health Insurance Eligibility?
- What are COBRA Benefits and Coverage Options?
- What are COBRA Health Insurance Costs?
- COBRA Advantages and Disadvantages
- Taking Care of a High COBRA Premium
- COBRA Jurisdiction of the Government
- How to Apply for COBRA Insurance?
The Consolidated Omnibus Budget Reconciliation Act (also called COBRA) is a health insurance policy that allows qualifying employees and their families to keep their health care coverage even if they leave their jobs or work hours are reduced. We’ll go through the basics of COBRA, including how it works, qualifying criteria, benefits, drawbacks, and other aspects.
COBRA Continuation Coverage: What Is It?
Companies/employers with 50+ full-time employees in the United States must provide health insurance to their qualifying employees by paying a portion of the premiums.
Suppose an employee loses eligibility for an employer’s health insurance coverage for various reasons (such as being laid off or working fewer than a certain number of hours per week). In that case, the employer’s contribution of the employee’s insurance payments may be stopped. In this scenario, COBRA permits an employee and their dependents to keep their current insurance coverage for a limited time if they are willing to pay for it themselves.
Former employees, spouses, and dependent children must be offered to continue their health insurance coverage at group rates under COBRA, which would otherwise be canceled. While these individuals would almost certainly pay a higher COBRA premium than they did as employees (since the company will no longer fund a portion of the premium costs), COBRA coverage may be less costly than an individual insurance plan.
It’s crucial to remember that COBRA is a health-insurance program, and plans may include coverage for prescription medicines, dental work, and vision care. It excludes life and disability insurance from the equation.
What is COBRA Health Insurance Eligibility?
Employees and others who may be eligible for COBRA coverage must meet a variety of requirements. In addition to completing these requirements, eligible employees are usually only eligible for COBRA coverage after certain qualifying events, which are outlined below.
COBRA coverage is usually required for employers with 20 or more full-time equivalent employees. Part-time employees’ working hours might be combined to generate a full-time-equivalent employee, determining the employer’s overall COBRA eligibility. COBRA covers private-sector insurance and those sponsored by the majority of local and state governments. A law comparable to COBRA protects federal employees.
Moreover, many states have local statutes that are comparable to COBRA. These are mini-COBRA plans and usually apply to health insurers for firms with less than 20 employees.
On the day before the qualifying event, a COBRA-eligible employee must be registered in a company-sponsored group health care plan. In the preceding calendar year, the insurance plan has to be effective on more than half of the employer’s regular business days.
For the departing employee to be eligible for COBRA, the firm must continue to offer a health plan to its current employees. If the employer ceases operations or discontinues insurance coverage for present employees, the departing employee may lose eligibility for COBRA coverage (for example, if the number of employees falls below 20).
The qualifying incident must result in the employee’s health insurance being terminated. The list of qualified beneficiaries is determined by the type of qualifying event, and the requirements for each beneficiary category are varied.
Employees are eligible for COBRA coverage provided they meet the following criteria:
- Job loss, whether voluntary or involuntary, such as the 2020 economic crisis (except in cases of gross misconduct)
- A reduction in the working hours, resulting in the loss of employer-provided insurance.
In addition to the two qualifying events listed above for employees, their spouses may be eligible for COBRA coverage provided the following criteria are met:
- The covered employee qualifies for Medicare.
- Legal separation or divorce from the covered employee
- The covered employee’s death
Dependent children have the same qualifying events as their spouse, with one exception:
- According to the plan’s provisions, the status of a dependent child is lost.
The qualifying incident that affects the employee must be reported to the plan within 30 days. If the qualifying event is legal separation, divorce, or the loss of dependent status of a child, the employee or beneficiaries must notify the plan.
What are COBRA Benefits and Coverage Options?
COBRA laws allow qualifying candidates to receive coverage identical to that provided to the employer’s present employees. Any changes to the plan’s benefits that affect active employees would also affect qualified beneficiaries. All COBRA beneficiaries must make the same decisions as non-COBRA beneficiaries. Under COBRA, the insurance coverage for current employees/beneficiaries is essentially the same for ex-employees/beneficiaries. You must be allowed at least 60 days to decide whether or not you want to keep your coverage. You can change your mind about coverage even if you waive it within the 60-day election period.
COBRA coverage extends for a restricted period of 18 or 36 months from the date of the qualifying occurrence, depending on the applicable scenarios.
The maximum period of continuation coverage is 18 months and can be extended if any qualified beneficiary in the family becomes disabled and meets certain criteria, or if a second qualifying event occurs—which could include the death of a covered employee, the legal separation of a covered employee and spouse, a covered employee, becoming eligible for Medicare, or a covered employee losing dependent child status under the plan.
What are COBRA Health Insurance Costs?
The word “group rate” is sometimes misinterpreted as a discount; however, it can be pretty costly. Employers usually pay a considerable amount of the actual health insurance premiums (for example, 80 percent of premium prices), with the employee footing the remaining costs. Following employment, the individual pays the entire premium, which may be supplemented with an additional 2% for administrative expenses. For employees who haven’t had a qualifying occurrence, costs cannot exceed 102 percent of the plan’s cost.
As a result, even though group rates for the COBRA continuation plan are available during the post-employment term, the ex-employees cost may climb dramatically compared to past insurance expenditures. The cost is essentially the same, but it must be carried entirely by the person, with no contribution from the company.
COBRA may still be cheaper than other private health insurance options. It’s crucial to compare it to the Affordable Care Act coverage that the former employee might be eligible for, especially if they qualify for a subsidy. The cost can be determined with precision by the firm’s human resources department.
If you lost your health insurance due to a job loss during the 2020 economic crisis, you are eligible for a 60-day “special enrollment” period on the federal exchanges. This could be a method to get the insurance that is less expensive than COBRA.
COBRA Coverage Cancelled Too Soon
In the following situations, COBRA coverage may be terminated prematurely:
- Non-payment of premiums on time
- The termination of any group health plan by the employer
- A qualified beneficiary enrolling in a different group health plan (for example, with a new workplace), becoming eligible for Medicare benefits or participating in misbehavior (such as fraud)
COBRA Advantages and Disadvantages
Individuals who choose COBRA coverage can keep their current doctor, health plan, and medical network providers. COBRA recipients keep their current coverage for pre-existing illnesses and prescription medicines. The plan’s cost may be less than that of other typical plans. Still, it is preferable to being uninsured because it protects against significant medical expenditures that must be paid in the event of a disease.
Nonetheless, it’s crucial to remember COBRA’s drawbacks. The high cost of insurance when paid entirely by the person, the restricted time of coverage under COBRA, and the continuous reliance on the employer are just a few of them. An ex-employee or connected beneficiary will lose access to COBRA if the employer decides to stop providing coverage.
If a COBRA beneficiary’s employer changes his or her health insurance plan, he or she must accept the changes, even if the new plan isn’t the best fit for the individual’s needs. A new plan may alter the length of coverage and amount of services covered and raise or cut deductibles and co-payments.
Individuals eligible for COBRA coverage should assess the benefits and drawbacks of COBRA against other available individual plans to find the best fit.
A potential COBRA beneficiary can also see if they qualify for other types of government assistance, such as Medicaid or other state or municipal programs. However, such plans may be confined to low-income individuals and may not provide the greatest care and services available compared to other plans.
Healthy people may want to look into a low-cost healthcare discount plan. However, these plans do not count as insurance coverage, making it harder to obtain health insurance in the future because enrolling in one of these plans is regarded to have stopped insurance coverage.
Taking Care of a High COBRA Premium
Suppose you’re considering COBRA coverage but are concerned about the expense of insurance coverage under this program vs. insurance coverage with an employer’s backing. In that case, there are a few things to bear in mind.
When you leave your work, your flexible spending account is usually lost (FSA). If you’re about to lose your employment, you have until the end of the year to spend your whole FSA contribution before you lose your job. Suppose you planned to contribute $1,200 for the year, but it’s only January, and you’ve only had $100 deducted from your salary for your FSA. In that case, you can still spend the entire $1,200—for example, by seeing all of your doctors and filling all of your medications right away.
If you choose COBRA, you can switch to a less expensive plan like a preferred provider organization (PPO) or a health maintenance organization during the employer’s yearly open enrollment period (HMO).
Qualifying individuals can use a refundable tax credit called the Health Coverage Tax Credit (HCTC) to pay up to 72.5 percent of qualified health insurance premiums, including COBRA continuation coverage if it is available.
The HCTC program was set to expire on December 31, 2020; however, it has been extended by the Internal Revenue Service (IRS) until December 31, 2021.
Tax deductions may also mitigate increased premiums. COBRA premiums and any medical expenses over 7.5 percent of your adjusted gross income (AGI) can be deducted on your federal tax return when you file your annual tax returns (but you must itemize your deductions on Schedule A).
You can save even more money by switching to generic pharmaceuticals or purchasing more significant quantities at a reduced price, as well as visiting a low-cost community or retail clinic for basic healthcare services.
Finally, you can use cash from your health savings account (HSA) to pay COBRA payments and medical bills, perhaps alleviating the pain of losing your health insurance coverage.
It’s crucial to remember that paying your COBRA premiums on schedule is critical to keeping your coverage for the term of your eligibility. Failure to pay the initial premium within 45 days of electing COBRA may result in the loss of your COBRA benefits. Payments are often given to cover the time period between the date of coverage termination and the qualifying event that established eligibility.
Suppose you do not make your COBRA payments on time but do so during the grace period for that period of coverage. In that case, your coverage may be discontinued until payment is received, after which it will be reinstated.
COBRA Jurisdiction of the Government
The federal government is in charge of distributing COBRA coverage through several entities. Private-sector group health plans are currently under the authority of the Departments of Labor and Treasury, while public-sector group health plans are under the jurisdiction of the Department of Health and Human Services. However, these organizations aren’t often significantly involved in the COBRA application process or other components of the ongoing coverage program.
The Labor Department’s regulatory responsibilities include ensuring that COBRA requirements are disclosed and communicated per the law. The Centers for Medicare and Medicaid Services also have information about COBRA benefits for government workers.
COBRA eligibility was expanded under the American Recovery, and Reinvestment Act of 2009, and qualified individuals’ rates were cut by 65 percent for up to nine months of coverage. This coverage came to an end on December 31, 2009.
President Biden signed the American Rescue Plan Act (ARPA) of 2021 into law on March 11, 2021, which includes a provision that gives a 100 percent reimbursement of COBRA costs from April 1 2021, to September 30, 2021. The premiums are recouped by employers through Medicare tax credits.
If you lost coverage as a result of a job reduction or involuntary termination, you might be eligible for a COBRA premium subsidy. During the six-month subsidy period, your employer must treat “assistance-eligible individuals” who have COBRA coverage as paying their premiums in full. If you qualify for other group health plan coverage or Medicare, you will lose your COBRA subsidy eligibility. If you do not self-report your eligibility for additional coverage to the COBRA plan, you will be subject to a tax penalty.
How to Apply for COBRA Insurance?
To start COBRA coverage, individuals must first establish that they are qualified for assistance based on the criteria outlined above. Typically, a qualified individual will get a letter describing COBRA benefits from either an employer or a health insurer. Some people find this notification difficult to comprehend because it contains a substantial quantity of needed legal information and terminology. If you are having trouble figuring out if you’re eligible for COBRA or how to get started with the program, contact the insurer or your former employer’s HR department.
Other choices exist for those who are not eligible for COBRA or looking for alternatives. A spouse’s health insurance plan may be an option in some instances. You might also look into your possibilities on the federal health insurance exchange or a state insurance exchange. A special enrollment period will open up if you lose your employment.
As previously mentioned, Medicaid programs and other short-term health insurance policies for those with gaps in coverage may be available to you. Health insurance professionals usually discourage people from going completely uninsured, as the risk of severe consequences is high—especially in these uncertain times. Individuals who are qualified for COBRA coverage have at least 60 days to choose whether or not to participate in the program.
If you lose your employer-sponsored benefits, COBRA is a convenient and sometimes the best choice for keeping your health insurance. However, the price is frequently exorbitant, and the plan may or may not be an ideal fit for an individual’s or family’s needs.