Learn About the Consolidated Omnibus Budget Reconciliation Act
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. Employers do not have to pay for former employee's health insurance premium under COBRA. The employee is responsible for that 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.
Even 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 very 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.
Contact the U.S. Department of Labor, Employee Benefits Security Administration, 866-444-3272 for further clarification. 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 form ACA mandated coverages have driven some healthy individuals out of ACA and raised premiums for the somewhat less healthy individuals who remain. In addition, President Trump’s refusal to guarantee cost sharing subsidies to states has also caused premiums to rise.
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.
The Henry J. Kaiser Family Foundation has a Subsidy Calculator that will display different insurance subdues and premiums with minimal household information.