What is COBRA (Consolidated Omnibus Budget Reconciliation Act)?
– COBRA is a 1985 federal law that lets qualified employees and their families temporarily continue their employer-sponsored group health coverage after certain life events that would otherwise end that coverage. Continuation of coverage under COBRA keeps you on the same group plan (same benefits, network, and rules) but usually at a higher cost.
Key definitions
– Continuation coverage: temporary extension of group health plan benefits after a qualifying event.
– Qualifying event: a specific circumstance that triggers COBRA eligibility, such as job loss, reduction in hours, the employee’s death, divorce or legal separation, or a dependent aging off the plan.
– Mini-COBRA: state laws that extend COBRA-like protections to smaller employers that the federal law does not cover.
Who and what is covered
– Applies to group health plans sponsored by private employers with 20 or more employees and to most state and local government plans.
– Does not apply to federal government plans, most church plans, or to employers that never offered group health insurance.
– Eligible persons include the employee, spouse/former spouse, and dependent children covered by the plan at the time of the qualifying event.
Duration of coverage
– Standard maximum: 18 months after most qualifying events (for example, termination or reduced hours).
– Extensions: in some circumstances (disability determinations, second qualifying events, etc.) coverage can be extended to as long as 36 months.
– Employers may offer longer periods voluntarily.
Cost and payment rules
– COBRA participants normally pay the entire premium (the employee share plus the employer share), plus up to 2% administrative fee — a total maximum of 102% of the plan’s cost.
– Employers often paid the majority of premiums while the person was employed; switching to COBRA can therefore greatly increase a former employee’s monthly outlay.
– Election/notice rules: after a qualifying event you typically have 60 days to elect COBRA continuation. Coverage is effective the day after the qualifying event if elected.
Practical advantages and disadvantages
– Advantages: same coverage and providers as when employed; can be simpler than finding an individual plan; useful if you expect short unemployment or if you don’t qualify for subsidies under the Affordable Care Act (ACA).
– Disadvantages: much higher premiums; limited time window; employer may not be required to offer COBRA if going out of business; some firings for cause can disqualify you.
Short enrollment and action checklist (step-by-step)
1. Confirm whether your employer’s plan is subject to federal COBRA (20+ employees or a government plan). If not, check your state’s mini‑COBRA rules.
2. After the qualifying event, watch for the COBRA election notice from the plan administrator; it should arrive within a few weeks.
3. Read the notice carefully: it lists who is eligible, the monthly premium, coverage start and end dates, and payment instructions.
4. Decide within the election window (generally 60 days) whether to enroll.
5. If you elect COBRA, arrange payment promptly. Ask whether the employer will pay the first premium (sometimes they do).
6. Compare COBRA costs to alternatives (spouse’s plan, ACA marketplace with possible subsidies, short-term plans) before finalizing.
7. Keep documentation of all notices, elections, and payments.
Worked numeric example
– Example assumptions:
– Group plan total monthly premium: $600
– Employer previously paid 80% ($480); employee previously paid
$120). Under COBRA the ex-employee typically must pay the entire group-plan premium (the employer’s prior contribution no longer applies) plus an allowed administrative charge. Most plans may charge up to 102% of the full premium to cover administrative costs. Using the numbers above:
Worked numeric example (continued)
– Group plan total monthly premium (employer + employee): $600
– Employer previously paid 80%: $480
– Employee previously paid 20%: $120
If you elect COBRA and the plan charges the usual 102%:
– COBRA monthly cost = $600 × 1.02 = $612
– Annual COBRA cost = $612 × 12 = $7,344
If a qualified beneficiary is deemed disabled by the Social Security Administration and the plan extends coverage to months 19–29, the plan may charge up to 150% for those months:
– COBRA monthly cost during months 19–29 (150%) = $600 × 1.50 = $900
Key points to verify in your notice (checklist)
– Eligibility window: exact 60-day election period start/end dates.
– Premium amount: full plan cost and any permitted surcharge (e.g., 102% or 150%).
– Due dates: initial payment deadline and grace period for future payments.
– Coverage effective date and maximum coverage period (18, 29 or 36 months, depending on event).
– Who else is covered (spouse, dependents) and whether a second qualifying event or disability extension might apply.
– How to pay and where to send proof of payment.
– Contact info for appeals or questions.
Practical timeline and action steps
1. When you lose coverage or receive the COBRA notice, calendar the election deadline (60 days). The clock usually starts from the later of the date coverage ended or the date the notice was provided.
2. Compare costs immediately: COBRA price vs. spouse’s plan vs. ACA marketplace (you qualify for a Special Enrollment Period after losing job-based coverage).
3. Ask the employer whether they will pay the first COBRA premium (occasionally they do).
4. If you elect COBRA, make the initial premium payment promptly—COBRA premiums are retroactive to the date coverage ended—so delayed payment can create gaps.
5. Keep copies of the notice, election form, and every payment receipt.
6. Re-evaluate every year (or earlier if your household changes): marketplace subsidies, a new employer plan, or Medicare eligibility may change the best option.
Common pitfalls and exceptions
– Small employers: Federal COBRA generally applies to employers with 20 or more employees; some states offer “mini-COBRA” for smaller employers — check your state rules.