What Is the Consolidated Omnibus Budget Reconciliation Act (COBRA)?
Let me explain what the Consolidated Omnibus Budget Reconciliation Act, or COBRA, really is. It's a key federal law from 1985 that lets you and your family keep your group health insurance for a limited time after you lose your job or face another qualifying event.
Key Takeaways
- COBRA lets many employees remain on their employers' group health plans temporarily after job loss.
- Private-sector employers with more than 20 employees must generally offer COBRA coverage.
- You have to pay the full insurance cost, plus a small administrative premium.
- COBRA benefits usually last up to 18 months, though employers can extend that period.
Understanding the Consolidated Omnibus Budget Reconciliation Act (COBRA)
You should know that COBRA, short for the Consolidated Omnibus Budget Reconciliation Act, gives you the option to continue your medical coverage if you'd otherwise lose it due to job loss. Essentially, it allows you to stay on your employer's group health plan, but you'll pay more for it. This coverage extends to you as the employee, plus your spouse, former spouse, and dependent children.
Remember, under the American Rescue Plan Act of 2021, the federal government covered COBRA premiums for those who lost jobs due to the coronavirus pandemic from April 1 through September 30, 2021, including for covered relatives.
COBRA applies only to health plans from private-sector businesses with more than 20 employees, as well as state and local governments. It doesn't cover federal government plans, churches, or some church-related organizations.
Qualifying events that can make you or your family eligible include voluntary or involuntary job loss, reduced work hours, the employee's death, or divorce or legal separation from the spouse.
Coverage under COBRA generally runs for a maximum of 18 months, but it can extend to 36 months in certain situations. Employers might choose to offer even longer coverage if they want.
Advantages and Disadvantages of COBRA
COBRA isn't free, and that's something you need to consider. You'll often have to pay the entire premium yourself, including what your employer used to cover, plus an administrative fee that can bring the total to 102% of the plan's cost.
Based on the Kaiser Family Foundation's 2020 Employer Health Benefits Survey, employers typically cover 67% to 84% of premiums, so switching to COBRA means your out-of-pocket costs will likely jump significantly.
That said, even though you'll pay more than active employees, COBRA could still be cheaper than buying an individual health plan with similar benefits, especially if you don't qualify for Affordable Care Act subsidies.
The coverage itself stays the same. As the U.S. Employee Benefits Security Administration points out, if you choose continuation coverage, it must be identical to what's available to similarly situated active employees and their families—basically the same as what you had right before the qualifying event.
Special Considerations
Group health plans must notify you of your COBRA eligibility after a layoff or other qualifying event. This coverage is usually available to full-time and some part-time employees if the company's group health plan was active the previous year.
Your eligibility starts the day after termination or the qualifying event. You get at least 60 days to decide whether to accept or decline it. If you opt in, the employer might handle the first payment, but after that, it's on you to pay the premiums to keep it going.
Companies without group health benefits don't have to offer COBRA. Those going out of business usually aren't required to follow COBRA rules, except in cases involving retirees covered under the plan during bankruptcy. Coverage can also be denied if you were fired for job-related misconduct.
Beyond federal rules, many states have their own laws on continuing health coverage after qualifying events. For instance, while federal COBRA covers firms with more than 20 employees, some states require it for companies with as few as two workers.
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