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The Consolidated Omnibus Budget Reconciliation Act of 1985, better known as COBRA, requires that continuation health coverage be offered to workers and their families when it would otherwise be lost due to a change in employment status. COBRA generally applies to employers with at least 20 employees that offer group health plans.

What is COBRA?

The basic idea behind COBRA is to allow workers and their dependents to maintain their health coverage even after an event such as job loss, divorce, or death. COBRA applies to most employers with 20 or more employees, with a few notable exceptions such as health plans sponsored by the federal government, and church-based employers.

In order to be eligible for COBRA, three requirements must be met:

  1. The plan must be covered by COBRA.
  2. A qualifying event must take place -- this includes a job loss (other than for gross misconduct), reduction of working hours, divorce or separation, death of the worker, or a worker's child losing their dependent status under the plan.
  3. The individual must be a qualifying beneficiary, which basically means that they were covered by the employer's plan the day before the qualifying event took place.

How long can I keep COBRA?

The maximum continuation coverage period depends on the type of qualifying event and certain special circumstances.

If the qualifying event is the termination of the employee (other than for gross misconduct) or a reduction in hours, the maximum coverage period is 18 months. There are a few exceptions to this. For example, if a disability occurs to a COBRA beneficiary, all beneficiaries receiving coverage can be eligible for an extension to 29 months. Or, if the worker became eligible for Medicare before the qualifying event occurred, the COBRA period extends to 36 months from the date of Medicare eligibility.

For all other qualifying events, the maximum continuation coverage period is 36 months.

Qualifying Event

Maximum Continuation Coverage

Termination or reduction in hours

18 months (29-36 under special circumstances)

Employee enrollment in Medicare

36 months for spouse and dependents

Divorce or legal separation

36 months for spouse and dependents

Death of employee

36 months for spouse and dependents

Loss of "dependent child" status under the plan

36 months for dependent children

Data source: U.S. Department of Labor.

It's also worth mentioning that the plan administrator can choose to terminate coverage before the period is over for a few reasons, including but not limited to:

  • Failure to pay premiums due
  • The employer ceases to offer a group health plan
  • The COBRA beneficiary becomes entitled to Medicare

How much does it cost?

Here's the downside: COBRA can be expensive. Your coverage under COBRA can cost as much as the full cost of the plan to your employer plus a 2% administrative charge. Many people don't realize just how much money their employer contributes toward their health insurance and get a bit of sticker shock when their COBRA election notice comes in the mail .

The sign-up process

Within 14 days of the plan becoming aware of your qualifying event, you'll be sent an election notice, which will tell you all of the relevant information you'll need to sign up, including the name and contact information for your COBRA administrator. Since the employer must notify the plan within 30 days of most qualifying events, this means that within a month and a half of losing your job or some other qualifying event taking place, you should receive a detailed "invitation" to continue your health coverage through COBRA.

The short version of the sign-up rule is that you have an election period of 60 days from either the date when you lose coverage or the date you receive the COBRA election notice, whichever comes later. And, it's important to mention that every person covered under your group health benefits can make their own election to sign up.

Alternatives to COBRA

Continuing your health coverage through COBRA can be rather expensive, so it may be worth looking into these other options first:

  • Buying coverage through the marketplace at www.healthcare.gov
  • Checking your eligibility for Medicaid
  • Obtaining coverage through your spouse's employer (a qualifying event for COBRA also entitles you to a special enrollment period for other group health plans)

For more information

The U.S. Department of Labor publishes a comprehensive guide to COBRA for employees, which you can find here (link opens a PDF).

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