Having health insurance coverage through your employer is a valuable benefit for employees. But what happens if your employment comes to an end and you no longer qualify for the coverage?  Finding a replacement coverage with similar benefits can be difficult and expensive.

Fortunately, employees may have an option to continue their company sponsored health insurance after they have terminated employment by exercising their COBRA continuation rights.  It’s important to know if you qualify for COBRA insurance benefits and how to obtain them.

What is COBRA Insurance?

The Consolidated Omnibus Budget Reconciliation Act, better known as COBRA, was a law enacted in 1986 to help employees and their families keep their group health coverage during times of job loss.  The law provides for a coverage extension of current employer benefits due to voluntary or involuntary job loss, reduction in hours worked, transitioning between jobs and in certain other cases such as disability situations.

Generally COBRA benefits apply to employer sponsored plans with 20 or more employees on the payroll for the previous calendar year.  Both private sector and public sector entities are eligible to provide the COBRA extension to their employees.  Companies that employ less than 20 employees may have specific state continuation benefits that they can offer to their terminated employees instead.  Websites such as www.healthcare.gov can give assistance in determining continuation benefits offered in individual states for smaller companies.

Who is eligible for COBRA?

To qualify for continuation of coverage, certain events must occur.  These are called qualifying events and they determine whether a terminated employee or their dependents are eligible to continue coverage.  Qualifying events include:

  • Voluntary or involuntary termination of employment other than gross misconduct.
  • Reduced hours of work for the employee
  • The covered employee becomes entitled for Medicare.
  • Divorce or legal separation of a covered employee.
  • Death of a covered employee
  • Dependent child losing their dependent status under the policy rules.

How long can I continue on COBRA?

The short answer to this question would be, it depends.   The amount of time allowed to continue coverage depends on the qualifying event that created the eligibility.  In most cases, the length of time allowed will be either 18 or 36 months.  Employees and dependents have the right to continue coverage separately.  Job loss provides 18 months of coverage for both employees and their dependents while dependents alone are eligible to receive 36 months when the employee is entitled for Medicare, dies or there is a divorce or legal separation.   Dependent children can also receive continuation coverage for 36 months when they cease to be dependent under the policy guidelines.  An example of this would be a child meeting the maximum age of eligibility at 26.

How do I Enroll  for COBRA?

Enrolling for COBRA insurance requires the employee to complete an enrollment form electing the continuation coverage for themselves and their dependents.   The employee is usually responsible for the entire monthly premium plus 2% administration fee paid to the employer or administrator of the plan.   The employee may experience sticker shock when faced with paying the entire premium since they will no longer receive the benefit of the premium contribution from the employer.

What is the Employer’s Responsibility?

The employer has the responsibility of notifying a terminated employee of their right to continue their health coverage.  The notification contains the reason for the termination as well as the length of time they are eligible to remain on the plan and the monthly premium necessary to continue coverage.  The employer also needs to allow the employee 60 days in which to make the decision to enroll in COBRA coverage.  After election the employee has 45 days to make the first premium payment.

Many employers use a third party administrator to administer their COBRA benefits to terminated employees so it’s important that the employee know exactly where they should send their payments each month.

What If I am disabled?

If a disability causes a job joss or reduction in hours, the employee may be able to enroll for COBRA benefits and receive an extension over the normal 18 months.  They will need to be deemed disabled by the Social Security Department and alert the employer to qualify for an additional 24 month extension.  Answer to many questions regarding disability extensions and other COBRA eligibility questions can be answered at www.cms.gov.

Do I Have Other Options?

Although COBRA provides a good option for employees that want to remain on their previous employer’s health plan while they search for new employment, it can be a very expensive option.  Employers are responsible for paying a portion of their employee’s premium while actively employed.  The employer is not required to pay any of the premium when on COBRA insurance.  The difference in premium can be significant.

A better solution to COBRA insurance may be to explore other available options such as a spouse’s plan or an individual plan on the open market.  The ultimate goal is to get the best coverage for the best price.

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