COBRA is a program that lets many employees who’ve left their job or reduced their work hours continue with the same healthcare coverage they had through their employer.
Passed in the 1980s, COBRA stands for the Consolidated Omnibus Budget Reconciliation Act. It helps protect people who have lost their health insurance after changing jobs, getting fired or losing coverage during a divorce.
An employee, as well as their spouse and dependents, can keep their current coverage for a limited time through COBRA as long as they pay the monthly premium.
What You Need to Know
COBRA usually applies to employees at a company with 20 or more workers or those who work for a state or local government.
Most people can be covered under COBRA for up to 18 months, and some people can get an 18-month extension.
The cost of coverage usually falls completely to employees to pay and premiums can be high.
COBRA can also apply to spouses and dependents.
What Coverage Would I Get Through COBRA?
COBRA covers health benefits provided by a group health plan if you work for a private company and your employer has at least 20 employees, or if your healthcare coverage is through a state or local government. In most cases, you can be covered under COBRA for up to 18 months.
Under COBRA, a group health plan is any situation in which an employer provides employees and their families with medical care. It doesn’t matter whether you got insurance through an HMO (health maintenance organization) or a PPO (preferred provider organization).
The coverage and benefits you had as an employee will be exactly the same when you’re covered through COBRA.
In most cases, you can be covered under COBRA for up to 18 months.
Medical care traditionally covered by a group health plan includes:
- Physician, dental and vision care.
- Inpatient and outpatient hospital care.
- Prescription drugs.
- Surgery and other major medical benefits.
Life insurance or disability benefits are not considered healthcare, and if you have a healthcare flexible spending account (FSA), it may be covered under certain circumstances and for a limited period of time. Keep in mind that your employer isn’t required to maintain FSA plans for your dependents.
Who Qualifies for COBRA?
As mentioned above, COBRA usually only applies if you work for a company with 20 or more workers or a state or local government. Some states, though, require insurance companies that cover employers with fewer than 20 workers to let employees keep their healthcare coverage for a short period after they leave; your state’s insurance commissioner office can tell you if this is an option where you live.
To be eligible for coverage under COBRA, an employee must have what’s called a “qualifying event.”
Retirees also might be eligible in certain circumstances—for example, if your employer goes bankrupt.
(COBRA doesn’t apply to healthcare plans sponsored by the federal government, churches or certain church-related organizations, by the way.)
To be eligible for coverage under COBRA, an employee must have what’s called a “qualifying event,” which is a situation that causes you to lose healthcare coverage under your group health plan. (This also applies to a family member or dependent covered by the employee’s plan.) Examples of qualifying events include:
- You quit your job.
- You’re fired for reasons other than gross misconduct.
- You’re retiring.
- Your work hours are reduced.
- The covered employee dies. (In this case, family members covered under the group health plan would be eligible for COBRA.)
- You get divorced or legally separated from your spouse, who is the covered employee.
- You were a dependent child on the covered employee’s plan, but no longer are a dependent.
- You become entitled to coverage through Medicare.
A qualified beneficiary is a person who’s entitled to COBRA continuation coverage because he or she was covered by a group health plan on the day before a qualifying event. Qualified beneficiaries may include:
- active or terminated employees.
- a covered employee’s spouse.
- a covered employee’s dependent children.
After an employer is notified about a qualifying event, each qualified beneficiary may choose for themselves whether or not to get COBRA coverage, regardless of whether or not the covered employee chooses to be covered by COBRA. (Covered employees or spouses elect on behalf of any dependent children.)
How Does COBRA Work?
The process of getting COBRA coverage starts with one of the qualifying events mentioned above.
From there, if your employer is subject to COBRA requirements, they must notify the group health plan administrator within 30 days from the date an employee is fired, gives notice or has their hours cut. Within 14 days of that date, the plan administrator has to let the employee know about their right to COBRA coverage.
If, though, the qualifying event is a divorce, legal separation or a dependent child who no longer meets the plan’s coverage requirements, it’s the employee’s responsibility to notify the plan administrator within 60 days of the event.
Each qualified beneficiary is then notified by the employer’s plan administrator of their COBRA rights, either in person or by first-class mail. Each person has 60 days to decide if they want coverage.
Unlike most employee health plans, where the company chips in to pay all or most of the monthly premium, with COBRA, beneficiaries typically pay the full cost of coverage. There are, however, some employers that do subsidize COBRA.
How Long Can I Keep COBRA?
As mentioned above, COBRA coverage starts on the day of whatever event causes you to lose coverage and is offered for up to 18 or 36 months, depending on your circumstances. (That said, a plan has the right to provide longer periods of coverage beyond what’s required by law if your plan administrator chooses to do so.)
Qualified beneficiaries are entitled to 18 months of COBRA coverage when the qualifying event is the covered employee’s termination or their hours have been reduced. This includes leaving their job voluntarily.
COBRA’s 18-month duration limit can be extended under two circumstances.
The 18-month limit can be extended under two circumstances: First, if a beneficiary is disabled, all qualified beneficiaries under that plan may receive an 11-month extension, for a total of 29 months of coverage. The 18-month period can also be extended to 36 months if a second qualifying event occurs, which could be any of the events mentioned above.
Keep in mind, though, that the second event is only considered such if the event would have caused the person to lose coverage under the plan even if there were no first event. For example, if you were let go from your job (first qualifying event), elected COBRA, and then decided to divorce (second qualifying event), your spouse would have the right to purchase COBRA coverage and continue it for a total of up to 36 months. That’s because the second event (divorce) would have also led to the loss of your spouse’s healthcare coverage.
When the event is the covered employee’s firing or a reduction in work hours and the employee has become eligible for Medicare less than 18 months before the qualifying event, COBRA coverage can last until 36 months after the date the person becomes entitled to Medicare for both the employee’s spouse and dependents.
Coverage for spouses and/or dependent children can also last for 36 months if the qualifying event is the death of the covered employee.
How Much Does COBRA Cost?
The exact cost varies by employer and plan. While some employers choose to subsidize part of the cost of coverage as part of a severance package, in most cases, beneficiaries have to pay the entire cost of COBRA coverage themselves.
If your employer doesn’t subsidize your costs, you should know, though, that your COBRA premium cannot exceed 100% of the cost of the group health plan for similar individuals who have not had a qualifying event.
The cost of your plan includes the amounts paid by both you and your employer for your coverage as well as an additional 2% for administrative costs. With a disability extension, you can be charged up to 150% of the plan’s total cost.
How Do I Sign Up for COBRA?
In most situations, each beneficiary receives notice from the employer’s benefits administrator or group health plan that coverage will be ending and that they have the right to COBRA coverage. To sign up, you’ll complete a COBRA election form, which includes plan options and prices.
As mentioned above, you (and your qualified dependents) have 60 days to decide whether you want COBRA coverage. The clock to choose starts from either the date you receive the election notice or the date you would lose coverage, whichever is later.
You have 60 days to decide if you want COBRA coverage.
If you waive coverage but later change your mind before the 60 days are up, it’s not too late; contact your plan administrator to let them know. Your coverage becomes retroactive and remains in place as long as you begin and continue making monthly payments.
What Communication Will I Receive About COBRA From My Employer?
Once your healthcare plan learns about your qualifying event, they’re obligated to send you a COBRA election notice within 14 days of receiving notice. The plan’s notice describes the employee’s rights to continued coverage and how you go about electing to receive COBRA coverage.
You could also receive a notice of unavailability of continuation coverage. This will be sent if the plan denies your request for COBRA or for an extension. This notice, too, must be provided within 14 days of the plan receiving the request for coverage or an extension of coverage. The notice also has to explain why the request was denied.
Finally, you might receive a notice of early termination of continuation coverage. This lets you know your coverage is being stopped earlier than the 18, 29 or 36 months you expected. It must include the date of termination and the reason. Coverage might end early if you haven’t paid your monthly premiums or if your former employer went out of business, for example.
You will receive up to three letters from your former employer on COBRA coverage.
What Do I Have to Do While on COBRA?
You must pay your monthly premium on time and you’re responsible for notifying the plan administrator if a second qualifying event occurs. If it does, you must tell them within 60 days of the event.
What Are the Pros and Cons of COBRA?
When you’re deciding whether this type of coverage is right for you, you’ll need to consider the specifics of your personal, financial and medical situation.
The pros of COBRA are significant: You get to keep the same benefits you’re familiar with, including prescription drug coverage, as well as the same providers, and the coverage for your spouse and dependents won’t change either.
The downsides of COBRA are cost (as mentioned earlier, most or all of the cost of coverage will fall to you) and that the coverage period is limited, so you will need to find health insurance after it ends.
What If I’m Also Eligible for Medicare?
If you turn 65 and become eligible for Medicare Part A or Part B on or before the day you elect to have COBRA coverage, you’re allowed to continue with COBRA in addition to Medicare.
However, if you become Medicare-eligible after you’ve already signed up for COBRA, your COBRA benefits will end and your healthcare coverage will be through Medicare.
If you find yourself in this situation and COBRA is also covering your spouse or dependents, their coverage can still be extended for up to 36 months.
What If I’m Eligible for Retiree Medical Coverage?
If you’re leaving your job because you’re retiring, you can only select retiree coverage or COBRA; you can’t enroll in both.
The main difference is that retiree medical coverage typically lasts as long as you pay the premiums, while the length of COBRA is limited.
What Are the Alternatives to COBRA?
If you prefer not to enroll in COBRA, you have three other options:
- Buy an Affordable Care Act (ACA) Health Insurance Marketplace plan. All ACA health insurance plans must meet standards for “minimum essential coverage” and other provisions required by the ACA. Enrollment happens yearly during the Open Enrollment Period (OEP), but losing a job is a qualifying life event that allows you to sign up during a Special Enrollment Period outside of the OEP.
- Obtain coverage through your spouse’s plan. If you go this route, you’ll want to carefully review the details of your spouse’s plan, including cost, what’s covered and what’s not, and whether or not you’ll be able to continue to see your current providers.
- Private insurance companies sell both short-term health insurance (depending on where you live; not all states offer temporary plans) and independent health insurance policies.
If you’ve left or lost your job, COBRA can be a simple way to retain your benefits for a period of time. However, given the likely added expense, you’ll want to carefully plan before you enroll to make sure you can keep up with the premiums to maintain coverage.
Also, remember that COBRA coverage does eventually end, so consider, too, what you’ll do for health insurance once that time comes.