COBRA stand for the Consolidated Omnibus Budget Reconciliation Act of 1985. It is a federal law that provides temporary extension of health insurance coverage to employees and their dependents who lose their employers sponsored health plan due to certain qualifying events. In other words, COBRA is a federal law that allowed employees temporarily continue their employers sponsored group health insurance coverage after losing coverage due to certain events occurs like job loss. However, COBRA continuation of coverage is usually at the individuals expense. Also note, COBRA is a temporary coverage mean there is time limit on coverage.
Think of it like a bridge plan between losing job based insurance and getting a new coverage elsewhere by allowing you to continue your employer sponsored insurance coverage for limited time but you have to pay for it yourself.
In short, COBRA aims to provide a safety net for individuals and their families, allowing them to maintain health insurance coverage during a period of transition, such as Job loss or other life changes.
Qualifying Events
These events include:
- Job loss (voluntary or involuntary)
- Reduction in work hours
- Death of the covered employee
- Divorce or legal separation or the covered employee become entitled to Medicare.
Who it applies to:
Cobra generally applies to:
Private-sector employers with 20 or more employees in the prior calendar year.
COBRA does not apply on state and local government health plans and certain church related plans (HSCM). Although they may have their own continuation rules.
COBRA Cost:
Employee who elect Cobra continuation coverage are generally responsible for paying the entire premium for the coverage plus 2% administrative fees, which can be up to 102%
Example:
Suppose your employer's plan costs $600 per monthly premium total then: At work, may you pay $150 through your paycheck while remaining $450 paid by employer But when you switch to COBRA then cost will be calculated as: $600 (regular premiums) + $12 (2% administrative fee) = $612 monthly premium till 18 months.
Disabled employee or dependent can be required to pay 150% of the cobra premiums for the 11 months extension it can be simplified as:
If an employee or dependent is disabled and qualified by SSA disability criteria, COBRA coverage can be extended for an additional 11 months bringing total coverage to 29 months, for this 11-month extension, the plan can charge up to 150% at the cost of coverage premiums rather than 102% charge during the initial arrangements coverage length 18 months.
COBRA Coverage Length
- 18 months - For employee job loss or reduced hours.
- 29 months - 11 months extension, if the employee or covered dependent is disabled (as per SSA disability rules) at the time of the qualifying event or within the 60 days after coverage starts.
- 36 months - For spouses/dependents, if the event is divorced, death, Medicaid entitlement or loss of dependent status.
Who's covered?
Employee itself, spouse, dependent children
In some cases, former spouse, and newborn / adopted children after COBRA starts.
Do employees have to pay COBRA premiums before coverage?
No, the employee doesn't pay premiums for COBRA before electing. COBRA is not a plan it's a federal law that provides a coverage through your former employers group health insurance for limited time. However, individual should have a coverage from employer before qualified even occurs.
COBRA Enrollment
Individual (dependent/employee) have to notify a plan administrator for COBRA election within 30 days (normally, employers are plan administrators, if not they already sends a notification) of qualified event occurs and plan administrator has responsibility to send election notice within the 14 days of notification then individual have 60 days from the later of:
The date the coverage could be ended, or the date individual receives the notice to decide whether to elect COBRA.
If individuals elect for Cobra, coverage is retroactive to the date individual lost group health coverage.
Premium Payments
If COBRA is elected, the coverage is retroactive back to the date group coverage ended. The employee must pay premiums going back to that date but here is the relief:
- Individuals don't have to pay immediately.
- Must pay the first payment within 45 days after a Cobra elected (coverage starts).
- That first payment must cover all the premiums owned retroactively back to the loss of coverage date.
Example
Employee lost job on June 30, coverage ends on July 1. COBRA election notice sent July 10. Employee decides on August 20 (with 60 days) to elect COBRA. But coverage applies starting July 1st (no gap, mean all the visits are covered). Employee has until October 4 (45 days after August 20) to pay July + August + September premiums.
COBRA Grace Period
After the first payment, the participant has a 30-day grace period each month to pay the next premium. For example, October’s premium may be paid any time up to 30 days after its due date, i.e., until November. If the employee fails to pay within the grace period, COBRA coverage will be terminated.
COBRA Advantage
- Avoids a gap in coverage (important for pre-existing conditions before ACA protections).
- Lets you keep the same doctors, network, and benefits you’re used to.
- Buys time to arrange a new health plan (e.g., through a new job or the Marketplace).
COBRA Disadvantage
- Cost: Without employer contributions, it’s often much more expensive than other options.
- If you qualify for Marketplace coverage with subsidies, that can be far cheaper.
COBRA Coordination with Other Coverage
- If you get another job and new insurance, you can drop COBRA early (terminate).
- COBRA can be secondary to Medicare if you enroll in Medicare after electing COBRA.
- If you’re eligible for Medicare before COBRA starts, COBRA coverage for dependents will be shorter, how? Let's explain:
Normally, spouses and dependents can get up to 36 months of COBRA coverage if the employee becomes entitled to Medicare while actively employed and covered by the group plan.
Here’s how it works:- COBRA continuation coverage for dependents is measured from the date the employee became entitled to Medicare, not from the later job-loss date.
- So if the employee enrolled in Medicare, say, 10 months before the job loss, then the dependents’ COBRA maximum period is 36 months from that Medicare date, not from the job-loss date.
That means they’d only get 26 more months of COBRA (36 – 10 = 26), not the full 36.
Note, while employee itself cannot be eligible for COBRA due to early Medicare enrollment.
Key Point to remember:
You don’t (and can’t) pay COBRA before the qualifying event.
You only pay after you elect it, and the first payment is retroactive to the day your group coverage ended.
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