COBRA Continuation Coverage « Health Insurance Advisory

Know Your COBRA Continuation Coverage Rights

Passed by Congress in 1985, this federal law requires continuation of medical insurance coverage be offered to employees, their spouses, their former spouses and their dependent children when group health coverage would otherwise be lost due to specific events. Continuation coverage must be made available for 18, 29, or 36 months.

Employers may require individuals who elect continuation coverage to pay the full cost of the medical insurance premium, plus a 2% administrative charge.

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act and generally applies to all employer sponsored group health insurance plans maintained by private sector employers or state and local governments with at least 20 employees. It does not apply to health insurance plans sponsored by the federal government or by churches and certain church-related organizations.

In 2009, recent changes were made to COBRA through The American Recovery and Reinvestment Act of 2009. Eligible individuals pay only 35 percent of their COBRA medical insurance premium and the remaining 65 percent is reimbursed to the employer by the federal government through a tax credit. The premium subsidy began February 17, 2009 and applies to those individuals that experience an involuntary termination of employment from September 1, 2008 through December 31, 2009. Once the individual elects COBRA, the premium subsidy lasts up to nine months.

COBRA Eligibility

There are three basic requirements that must be satisfied to be eligible to elect COBRA continuation coverage:

  1. The employer sponsored group health insurance plan must be covered by COBRA. These include private-sector or state/ local government that employed at least 20 employees (full-time and part-time) on more that 50% of its typical business days during the preceding calendar year. If the employer ceases to offer group health coverage or goes out of business, then COBRA is not applicable.
  2. The individual must be a qualified beneficiary for that event. Only individuals (employee and his/ her family members) that are covered under the employer’s group health insurance plan the day before the qualifying event are eligible to continue coverage under COBRA.
  3. A qualifying event must occur. A “qualifying event” is an event that causes an individual to lose his/ her employer sponsored group health insurance. The type of qualifying event determines who is the qualified beneficiaries are for that event and the period of time that a plan must offer continuation coverage.

The following are considered qualifying events:

Employee:

  • Reduction in the employee’s employment
  • Termination of the employee’s employment (voluntary resignation or involuntary) for any reason other than gross misconduct

Employee’s Spouse and Dependent Child:

  • Reduction in the hours worked by the employee
  • Termination of the employee’s employment for any reason other than gross misconduct
  • Employee becomes entitled to Medicare
  • Divorce or legal separation of the spouse from the employee
  • Employee’s death

Dependent Child:

  • Same circumstances as above
  • Loss of “dependent child” status under the group health plan’s rules (child exceeds maximum age limit, no longer a full-time student, etc.)

Notification Requirements and Timeframe

Employer sponsored group health insurance plans must give each employee and each spouse who becomes covered under the health plan a general notice describing COBRA rights within the first 90 days of coverage.

Before continuation coverage must be offered, the employer sponsored group health insurance plan must be notified of the qualifying event. Who must give notice depends on the qualified event.

The employer must notify the health plan (medical insurance company or plan administrator) within 30 days following the occurrence of a qualifying event listed below:

  • Termination or reduction in hours of employment of the employee
  • Death of the employee
  • Employee’s becoming entitled to Medicare
  • Bankruptcy of the employer

The employee or qualified beneficiary must notify the health plan (medical insurance company or health plan administrator) within 60 days following the occurrence of a qualifying event listed below:

  • Divorce
  • Legal separation
  • A child’s loss of dependent status under the plan

Once the employer, employee or qualified beneficiary notify the health plan, as required above, the plan must give the qualified beneficiaries an election notice with 14 days. This notice describes their rights to continuation coverage and how to make an election.

Qualified beneficiaries have 60 days to elect continuation coverage. This timeframe starts on the date you are furnished the election notice or the date you would lose coverage, whichever is later.

Note: If the qualified beneficiary waived continuation coverage during the election period, then he/ she must be permitted to revoke the waiver and elect continuation coverage during the election period.

Once continuation coverage is elected, the qualified beneficiary is required to make the initial premium payment within 45 days after the date the election form is mailed. The health plan sets the premium due dates for subsequent payments. It must give the option to make monthly payments and a 30 day grace period for the payment of any premium.

Note:

  • Under COBRA, each covered person can make a separate election. This means that each covered family member can independently elect to continue some or all the employer’s health insurance coverage (medical, dental, vision, etc) or choose to purchase coverage elsewhere.
  • Employers may require individuals who elect continuation coverage to pay the full cost of the medical insurance premium, plus a 2% administrative charge.

Benefit Duration

The length of time that coverage can be continued is based on the qualifying event:

Who? Qualifying Event COBRA Term / Duration
Employee, Spouse and Child Termination of employment for any reason other than gross misconduct

Reduction in hours of employment

18 months
Spouse and Child Employee becomes entitled to Medicare

Divorce or legal separation

Death of employee

36 months
Spouse and Child Loss of dependent child status 36 months

Note:

  • In certain circumstances, qualified beneficiaries entitled to 18 months of continuation coverage may become entitled to a disability extension of an additional 11 months (for a total maximum of 29 months) or an extension of an additional 18 months due to the occurrence of a second qualifying event (for a total maximum of 36 months). For qualified beneficiaries receiving the 11 month disability extension, the COBRA premium for these additional months may be increased to 150% of the total medical insurance premium.

Termination

COBRA coverage terminates when:

  • The individual does not make the required medical insurance premium payment
  • The employer ceases to offer group health insurance
  • Medical insurance is obtained through another employer
  • The individual becomes eligible for Medicare

Advantages

COBRA offers the following benefits:

  • Allows individuals to temporarily keep their employer sponsored group health insurance
  • Fills short-term medical insurance need
  • Excellent alternative for individuals with health conditions who otherwise may be unable to qualify for an individual medical insurance plan
  • Provides coverage for pre existing conditions
  • There are no medical questions to answer or underwriting requirements to satisfy, coverage continues uninterrupted
  • Each covered person with the family (spouse and child) have independent COBRA election rights

Disadvantages

COBRA does have it shortcomings. They include:

  • Premiums can be very expensive
  • Coverage is paid exclusively by the covered person, with the exception of the subsidy which expires on December 31, 2009
  • It is not permanent protection because a specific timeframe exists. Once this period ends, the individual must typically find other health insurance coverage, except in limited circumstances

Learn more at the U.S. Department of Labor’s http://www.dol.gov/dol/topic/health-plans/cobra.htm

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