What is COBRA?

COBRA Coverage

COBRA stands for Consolidated Omnibus Budget Reconciliation Act. Congress passed COBRA health benefit provisions in 1986.

The law may allow you to temporarily keep your group health coverage after your employment ends or you lose coverage as a dependent of the covered employee.

COBRA covers employees who resign or are terminated for any reason other than gross misconduct.

♦ COBRA applies to plans maintained by private-sector employers and sponsored by most state and local governments. The law does not apply to plans sponsored by the Federal Government or by churches and certain church-related organizations.

Are all employers required to offer COBRA?

No. Employers with 20 or more employees are usually required to offer COBRA coverage and to notify their employees of the availability of such coverage.

Who can get COBRA?

Three pieces of the puzzle must fall into place for COBRA to be available.

♦ The first is the plan or company involved. Is the employer required to offer COBRA?

Your employer must have or had 20 or more employees during at least 50 percent of the previous calendar year. Both full and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee counts as a fraction of full-time employee based upon hours work.

To determine if an employer meets the 20-employee threshold, part-time hours are combined weekly. For example, two part-time employees working 15 hours a week equal exactly one Full-Time Equivalent (FTE) employee (assuming a 30-hour standard work week)

♦ The second is the person or beneficiary.

A qualified beneficiary generally is an individual covered by a group health plan on the day before coverage was lost. This is usually either an employee, the employee's spouse, or an employee's dependent child. In certain cases, retirees may also be eligible for COBRA.

♦ The third is the qualifying event. The reason why COBRA coverage might be needed.

For the employee it might be:

• Voluntary or involuntary termination of employment for reasons other than gross misconduct.

• Reduction in the number of hours of employment.

For the spouse of an employee it might be:

• Voluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct

• Reduction in the hours worked by the covered employee

• Covered employee becoming entitled to Medicare

• Divorce or legal separation of the covered employee

• Death of the covered employee

Will the benefits change under COBRA?

No. You must be offered coverage identical to that before coverage was lost. However, if the plan changed for active employees, then the plan would also change for COBRA coverage.

Who pays for COBRA?

You will usually be required to pay for COBRA coverage. The premium cannot exceed 102% of the cost to the plan. The 2% is for administrative costs.

• However, if a beneficiary qualifies for a disability extension (extending coverage from 18 to 29 months), the law allows the employer to charge up to 150% of the plan's cost during those extra 11 months.

COBRA premiums must be fixed for a 12-month premium cycle. They may be increased only if the costs to the plan increases.

How long will COBRA last?

COBRA requires that coverage be extended in most cases up to 18 months and in a few rare situations up to 36 months. The employer has the option to provide longer periods of coverage beyond the maximum period required by law.

How much will COBRA cost?

The cost can be quite high.

Most employers who offer a group policy also pay a portion of the costs for the employee. This is considered a benefit. Larger employers usually offer richer more expensive health insurance plans and also contribute a larger portion.

Due to sharp premium spikes across the country, the total average cost for employer-sponsored health insurance is hitting historic highs. Total family coverage plans are averaging over $30,000 annually, while single coverage plans average over $10,000 annually.

If you choose COBRA, this is the full amount you will have to pay out of your own pocket.

On average, employees contributed 16% of the cost for single coverage and 26% of the cost for family coverage.

• The average premium would be higher at smaller employers. The average premiums for covered workers at firms with a relatively large share of older workers would also be higher.

How to estimate cost of COBRA?

Your employer will notify you in writing. If you want to try to estimate before you receive something in writing you can look at your last W2 form.

♦ Employers are asked to report the total cost of health insurance on the W2 form. Box 12 (labeled with Code DD) will show the total cost of health insurance.

It includes what you paid plus what your employer paid. Most people are shocked by the number.

What to do if COBRA is too expensive?

Prior to the Affordable Care Act, anyone with a serious health condition had no choices. Insurance companies routinely denied covered for pre-existing conditions.

Today, you have a few choices.

You could try going without insurance or enroll in short-term insurance, both of which are very risky.

♦ Your first option should be to see if you qualify for Obamacare. An Obamacare plan probably will not have as nice a benefits as your employer’s group plan but the cost will be a lot less.

♦ You do not need to wait until open enrollment. It is likely that you will qualify for a special enrollment period. It is fast and easy to find out if you qualify by going to your state’s exchange or HealthCare.Gov and answering a few questions related to how you lost coverage.

You might receive premium tax credits to help reduce the cost of a Marketplace plan. If you don’t qualify for tax credits then you should also look at plans sold off-exchange.

It will take some work but don’t give up. Your chances of finding something are much higher these days.

Further reading ...FAQs on COBRA Continuation Health Coverage.

Can I drop COBRA coverage and enroll in a Marketplace plan ?

• Within the first 60 days: Losing your job-based health insurance gives you a 60-day Special Enrollment Period. If you sign up for COBRA and quickly realize it is too expensive, you can drop it and buy an Obamacare plan—as long as you submit your Marketplace application before your original 60-day window expires.

• After 60 days: Once your initial 60-day window ends, you cannot voluntarily drop COBRA to move to the Marketplace. You are locked in until the standard fall Open Enrollment period (for plans starting January 1st)

• The only exceptions: You can only switch to the Marketplace outside of Open Enrollment if your COBRA coverage completely runs out (usually after 18 months), or if you experience a separate life event like marriage or having a baby.

♦ Choosing to not pay COBRA premiums is not a special situation.