COBRA: Health insurance that works when you’re not

Job loss means more than just a loss of income. It can also mean a loss of health coverage for you and your family. That’s where COBRA health insurance can help.

What is COBRA?

COBRA, an acronym for Consolidated Omnibus Budget Reconciliation Act, is a program that allows an employee to retain their company health insurance for a period of time after a job loss or other qualifying event such as a reduction in hours. COBRA beneficiaries are typically required to pay the full amount of the monthly group premium.

This type of coverage, referred to as “continuation” or “continued” coverage, provides a temporary bridge until the beneficiary is able to obtain health insurance again through another means. COBRA can be helpful because this is a time frame in which the employee and their dependents would otherwise lose their health insurance benefits.

Through September 30, 2021, COBRA health insurance premiums are temporarily eliminated due to a provision in the American Rescue Plan Act. This could mean free health insurance for you, if you meet the eligibility requirements for this subsidy.

To qualify, you must have experienced an involuntary end to your employment or a reduction in work hours, elected COBRA continuation coverage in the last 18 months, and are not eligible for Medicare or any other group health plan.

Who is eligible for COBRA health insurance?

COBRA health insurance continuation can vary from state to state. Most often, you are eligible for COBRA health insurance if you have experienced a “qualifying event.” Examples of qualifying events include:

• Termination of employment for any reason other than gross misconduct.
• A reduction in an employee’s scheduled hours that eliminates their full-time status.

The above reasons also apply to COBRA coverage for the employee’s dependents. Additional reasons include:

• The employee becoming eligible for Medicare
• A divorce or legal separation from the employee
• Death of the employee

For the above scenarios, the employee must have been enrolled in the company health insurance plan at the time of the qualifying event, and the plan must still be in effect for other active employees.

What does COBRA cover?

COBRA coverage must be identical to the health benefits you were receiving at the time of the qualifying event. This can also include dental and vision coverage, if the employee was enrolled in these policies before experiencing a COBRA qualifying event. In addition, any choices or options made available to active employees under the company plan, such as the right to choose different plan options during Open Enrollment, must also be made available to you.

How long does COBRA last?

COBRA health insurance can last up to 36 months, depending on the type of qualifying event. For employees who are terminated or whose hours are reduced below full-time status, COBRA coverage is good for up to 18 months.

Extension

If granted 18 months of COBRA coverage, you may extend the coverage under one of two circumstances:

1. When a beneficiary is disabled: If a beneficiary is eligible for Social Security disability benefits, he or she may receive an 11-month extension for 29 total months of COBRA coverage.
2. When a second qualifying event occurs: If a second event occurs that would have caused a beneficiary to lose coverage in the absence of the first event, an 18-month extension may be granted.

Early termination

Continued coverage may be terminated prior to the end date for any of the following reasons:

1. The employer terminates the company health plan.
2. Premiums are not paid in full on a timely basis.
3. A beneficiary begins coverage under a different plan or becomes eligible for Medicare.
4. A beneficiary engages in “gross misconduct.”

If coverage is terminated early, the plan administrator must provide the beneficiary with notice describing the termination date, reason for termination and any rights the beneficiary may have according to the plan or the law.

Which companies are required to provide COBRA?

Any company that had at least 20 employees on at least 50% of its business days during the previous year is required to provide COBRA coverage. Full-time and part-time employees are included in this qualifying count. In some states, those working for companies with less than 20 employees might qualify for “mini-COBRA” benefits thanks to state-specific laws that have been implemented since the initial Consolidated Omnibus Budget Reconciliation Act (COBRA) was passed in 1985. Check with your company’s benefits department or representative for more details.

However, churches and certain church-related organizations are not required to provide COBRA coverage. This also applies to plans sponsored by the federal government.

How much is COBRA health insurance? 

The cost of COBRA health insurance varies by plan. Usually, under COBRA, the beneficiary takes on the full cost of the employer-sponsored health plan. For example, you may be required to pay 100% of the premium for COBRA continuation coverage, plus a 2% fee for administrative costs. A lot of employees have a hard time affording COBRA because premiums often absorb a large portion of their unemployment check.

Most employees don’t realize how much of their monthly premium is being paid by their employer. On average, employers pay almost 83% of their employees’ health insurance coverage and 73% of the total family premium for employees’ dependents who are added to the coverage, according to a 2020 Kaiser Family Foundation report.

The practice is rare, but employers can pay for COBRA either partially or in full for employees and their dependents as part of a severance agreement.

Health coverage tax credit

Some individuals may be eligible for the Health Coverage Tax Credit (HCTC). This federal tax credit helps qualified recipients pay for certain health coverage plans, including COBRA.

Qualified recipients of the Health Coverage Tax Credit include those who lost their jobs due to negative effects of global trade and are therefore eligible for benefits under the Trade Adjustment Assistance (TAA) program. Those receiving pension payments from the Pension Benefit Guaranty Corporation (PBGC) may also be eligible.

The HCTC is good for 72.5% of the cost of premiums with the beneficiary being responsible for the remaining 27.5%.

Alternatives to COBRA

COBRA health coverage isn’t your only option. Before electing for continued coverage through COBRA, it is wise to explore the marketplace to see what other plans you may enroll in.

• Individual Health Insurance. Employees who lose their jobs and become eligible for COBRA are also eligible for a Special Enrollment Period (SEP), which allows them to purchase an individual health insurance plan on the Affordable Care Act (ACA) marketplace.
• Medicaid. Losing a job typically means a loss of income, and this financial strain can leave one eligible for free or low-cost health insurance under Medicaid.

How do I get COBRA health insurance?

If you become eligible for COBRA due to a qualifying event, you must be provided with a 60-day election period to decide whether to enroll. Covered employees and their families must be provided with specific notices explaining their COBRA rights. Beneficiaries and their qualified dependents do not have to enroll together; they are free to acquire COBRA benefits independently of one another.

Losing a job doesn’t have to mean putting you or your loved ones in jeopardy. Continued coverage through COBRA, Medicaid, or an affordable individual health insurance plan can help provide peace of mind during this turbulent time. If you want to learn more about your options, HealthMarkets can help you find coverage, even if your best option doesn’t include plans we offer. Get started finding health insurance coverage.