Consolidated Omnibus Budget Reconciliation Act (COBRA)

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COBRA (Consolidated Omnibus Budget Reconciliation Act) gives certain employees, spouses, former spouses, children, and retirees who lose their health benefits the option to continue health benefits provided by their group health plan for limited periods of time at group rates. Eligibility is subject to certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Typically, COBRA coverage lasts for 18 months, although in some instances, it can extend even longer.

How COBRA Works

Group health plans which cover 20 or more employees are required to provide COBRA benefits. In at least 40 states, there are mini-COBRA-like laws that apply to smaller companies, usually those with 2-19 workers.

The American Rescue Act provides for COBRA premium assistance to help Assistance Eligible Individuals continue their health benefits. Eligible Individuals do not have to pay any of the COBRA premium for the period of coverage from April 1, 2021 through September 30, 2021. The premium is reimbursed directly to the employer, plan administrator, or insurance company through a COBRA premium assistance credit.

With the exception of workers covered by the American Rescue Plan, the employee is responsible for the monthly premium payment, at up to 102% of the cost to the plan. 

At many companies, health insurance is subsidized by the employer. That means that employees do not pay the full amount of the plan's cost, but only a portion, or in some cases, employees do not pay for the insurance premiums at all. So COBRA payments can be quite costly as compared to the coverage workers received through their employer while still employed.

The benefit is being able to maintain you’re an identical level of insurance while searching for new employment or determining next steps - you will not need to switch doctors and the costs of your prescriptions will also remain the same.

If you are eligible for COBRA benefits, your employer is required to notify the health insurance company of the event, since it qualifies you for coverage. You will have 60 days to decide if you would like to opt into COBRA coverage. You will not automatically be enrolled.

Signing Up After the Election Period

Even if you waive COBRA coverage during the election period, you must be permitted later to revoke your waiver of coverage and to elect continuation coverage as long as you do so during the election period. Then, the plan need only provide continuation coverage beginning on the date you revoke the waiver.

When Payment is Due

After you opt into the coverage, your first payment is not due immediately but must be made within 45 days of the Cobra election. All subsequently monthly payments have a grace period and are not due until 30 days of the due date.

This is advantageous - if you think you will potentially get a new job with insurance coverage before a bill is due, you can delay paying it until the last minute, with the knowledge that your coverage is retroactive. 

Get Information on COBRA Coverage

If you need further information on your rights under a private-sector plan, visit Employee Benefits Security Administration (EBSA) or call toll free 1-866-444-3272. 

The Centers for Medicare and Medicaid Services offer information about COBRA provisions for public-sector employees.

Contact your State Department of Labor if you work for an employer with less than 20 workers and have questions about mini-Cobra regulations.

COBRA and the Affordable Care Act 

The passage of the Affordable Care Act (ACA) has in some ways diminished the importance of COBRA. That is because the ACA provides a relatively easy way for individuals to purchase health insurance. It's possible that buying insurance through your state's health care marketplace will be less expensive than sticking with your employer-based health insurance.

Prior to the ACA, COBRA was also an important benefit because it guaranteed continuous care - this factor was important for people with pre-existing conditions, who struggled to find insurance coverage. Under the ACA, no one can be rejected or charged more for health insurance because of their health. In addition, premiums for seniors can be no more than three times as much as they are for young adults.

Here are some of the factors to keep in mind when determining if you want to opt into COBRA or purchase a plan under the ACA:

Cost: As mentioned above, it's possible that coverage in your area may be cheaper under the ACA. However, recent actions by the federal government have led to increased costs for ACA insurance options offered through the exchanges. The removal of the mandate for individuals to have insurance coverage and the expansion of opportunities for states to provide short term plans exempt from ACA mandated coverages have driven some healthy individuals out of ACA and raised premiums for the somewhat less healthy individuals who remain.

Income-Based Subsidies: Under the ACA, there are also income-based subsidies available. If a person purchases coverage through an exchange instead of COBRA, the subsidy is based on your income during the year that the policy is in effect. In other words, subsidies are based on your income in the year that you apply, including the dip in income after your employment ends. However, in some cases, employers may cover the monthly COBRA premiums as part of a severance package; if that's the case, COBRA becomes the more cost-effective option.

Convenience: If you are in the middle of medical treatment, keeping the same doctors and levels of coverage may be quite important. Some people may choose to keep COBRA regardless of cost because of familiarity and peace of mind. Also, finding a plan that suits your needs on your state's marketplace takes time; it may seem easier to just stick with the health insurance you already are familiar with, particularly.

Other Health Insurance Coverage Options  

Individuals from two income families might find that it is more cost effective to be added on to their spouse’s health insurance policy.

If you are 65 or older and stop working, you will be required to initiate Medicare coverage even if you elect cobra coverage. Then it may be cheaper to select a Medicare advantage program other than your employer’s former company to wrap around your Medicare coverage.

The Henry J. Kaiser Family Foundation has a Subsidy Calculator that will display different insurance subsidies and premiums with minimal household information. 

The information contained in this article is not legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law.