What Is the Consolidated Omnibus Budget Reconciliation Act (COBRA)?
The Consolidated Omnibus Budget Reconciliation Act (COBRA), enacted in 1985, is a significant federal law that allows certain employees and their families to retain group health insurance coverage post-job loss or other qualifying events.
Key Points to Note:
- The COBRA enables employees to remain on their employer’s group health plans for a specified period after losing their jobs.
- Private-sector employers with over 20 employees generally offer COBRA coverage.
- Participants must cover the full insurance cost plus a small administrative fee.
- Coverage typically extends for up to 18 months, with potential extensions at the employer’s discretion.
Understanding the Consolidated Omnibus Budget Reconciliation Act (COBRA)
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a critical provision offering continuation of health coverage to individuals facing job-related health insurance loss. COBRA affords participants the opportunity to stay on their employer’s group health plan, albeit at a higher cost. Additionally, COBRA extends coverage to spouses, former spouses, and dependent children.
As part of the American Rescue Plan Act of 2021, individuals (and their dependents) who lost jobs due to the pandemic between April 1 and September 30, 2021, have their COBRA premiums covered by the federal government.
COBRA applies to health plans from private-sector organizations with 20 or more employees, as well as state and local governments. It does not encompass plans offered by the federal government, churches, or certain related entities.
Qualifying events for COBRA participation include job loss, reduced work hours, employee death, divorce, or legal separation.
Typically, COBRA coverage lasts up to 18 months but may extend to 36 months under specific conditions. Employers may also choose to prolong coverage beyond the mandated period.
Advantages and Disadvantages of COBRA
COBRA necessitates participants to cover the entire premium, including the employer’s share, along with an administrative fee, totaling up to 102% of the plan cost.
Given that employers typically cover a significant portion of insurance costs, opting for COBRA often results in higher out-of-pocket expenses for individuals.
While COBRA participants may pay more for insurance compared to active employees, it could still be a cost-effective option, especially if an individual is ineligible for Affordable Care Act subsidies.
COBRA ensures that the health coverage remains unchanged, meeting the same standards available to active employees and their families
Special Considerations
Group health plans must inform employees of their COBRA eligibility post-layoff or qualifying events. Full-time (and some part-time) employees are typically eligible if their company’s health plan was in effect the prior year.
COBRA eligibility usually commences the day after termination or a qualifying event. Participants have up to 60 days to decide on coverage acceptance. Employers may make the initial payment in some cases, following which participants are responsible for premium payments to maintain coverage.
Companies without group health benefits or those in the process of closure are typically exempt from offering COBRA coverage. Denials of COBRA coverage can occur in specific situations, such as job-related misconduct terminations.
Apart from federal regulations, numerous states have their own laws governing post-qualifying event health coverage continuation. Some states mandate COBRA coverage for even smaller firms, promoting broader access to health benefits.