Employees who lose their jobs or have reduced work hours may lose their company-sponsored group health insurance. However, COBRA can provide temporary, continued coverage while pursuing a replacement. Although COBRA is not new, those who have never used it may not have a good understanding of how it works.
COBRA Extends Health Plan Coverage
The Consolidated Omnibus Reconciliation Act of 1985 (COBRA) enables participants to remain covered temporarily on a private employer’s group health plan after a “qualifying event” (QE) changes their eligibility. Examples of QEs include involuntary job loss (quitting or being fired without gross misconduct), reduced hours, divorce, death, or Medicare eligibility. COBRA is generally available if the employer had at least 20 full-time employees for at least half of the normal business days during the previous year.
Enrollment Process
The sponsoring employer (or an administrator representing them) sends the participant a notification and COBRA election form. The participant then has a specified number of days to review the information and decide on enrollment. Considerations to keep in mind include:
- A COBRA-eligible participant can choose to continue the coverage that existed when the QE happened.
- Switching insurance plans, adding dependents, or changing coverage in any way is generally not an option, with the exception of adding a child to the coverage that is born or adopted while COBRA is in force.
- Participants can choose to continue coverage for some family members but not others, and/or drop some coverages such as dental or vision, to lessen their monthly COBRA bill.
Cost Considerations
The participant is responsible for the total cost of their health coverage, including the the share that the employer paid and the share that they paid plus an administrative fee of up to 2%. Since some employers pay a significant portion of the total monthly premium, the COBRA premium may greatly exceed the participant’s prior monthly responsibility.
COBRA is subject to cancellation if premium payments are not made on time and in full. To avoid that, participants may have to remove some dependents from the plan or drop some of the coverages altogether (such as keeping health insurance but dropping dental insurance) to afford the new, higher premium rate.
State Continuation
Some employers – including the federal government, churches and related organizations, and private businesses under 20 employees – are exempt from COBRA requirements. In some states, participants of exempt employers may have the option of a State Continuation plan, which is also known as “mini-COBRA.” State Continuation is similar to COBRA, but it is not a federal program and only certain states participate. Participants should consult their HR administrator for more information.
Health Insurance Marketplace
Another option for those who cannot afford COBRA or State Continuation (and also cannot obtain suitable, affordable coverage through a spouse’s plan) is to visit the Affordable Care Act’s Health Insurance Marketplace to view coverages and costs available in your area.
More Information
While COBRA can be very helpful, it comes with many rules and regulations. For more information on COBRA, see these frequently asked questions.
IMPORTANT: The above is for informational purposes only and should not be construed as legal advice. For more information on COBRA, including the above provisions and others, consult your qualified benefits counsel or financial advisor.
Beneliance has provided Arkansas employers with comprehensive third-party employee benefits administration and compliance services since 1996. Please enter your email (above right) to receive notifications about new blog articles as they are published.
