COBRA Overview: the Consolidated Omnibus Budget Reconciliation Act
In 1985, the Employee Retirement Income Security Act (ERISA), which regulates employee benefit plans, was amended to include the Consolidated Omnibus Budget Reconciliation Act (COBRA). COBRA requires employers to offer extended benefits to employees who experience a change in their employment status that would otherwise make them ineligible for plan coverage. Read on to learn more about COBRA benefits, eligibility requirements, and more.
What Kind of Benefits Will You Receive Under COBRA?
COBRA entitles you to coverage identical to the coverage available to other, similar employees who are currently covered under the plan. However, COBRA coverage is often more expensive because you are responsible for the entire cost. COBRA coverage typically lasts between 18 and 36 months, depending on the qualifying event. However, your plan can provide for longer periods of coverage. You may be eligible to extend your coverage if another qualifying event occurs, or if a family member qualifies as disabled.
How Do You Know if You’re Eligible for COBRA?
In order to be eligible for COBRA benefits, you must meet certain criteria.
Subject to ERISA
First, to be eligible for COBRA your benefits must be subject to ERISA. Generally, all group health plans maintained by private sector employers with 20 or more employees are subject to ERISA and required to offer COBRA coverage. Your plan administrator must provide you with notices detailing your COBRA rights within the first 90 days of coverage.
Second, you must qualify as a beneficiary. A qualified beneficiary is an individual covered by a group health plan on the day before the event occurs that causes the person to lose coverage. For example, if you wish to exercise your right to COBRA continuation coverage because you were laid off from your job, you must have been covered by your group health plan the day before the day you were laid off. You are also a qualified beneficiary if you are the spouse, former spouse, or dependent child of the COBRA beneficiary.
Third, the event that caused you to lose health coverage must qualify for COBRA. If you were terminated from your job for any reason other than gross misconduct, or if your number of working hours was reduced, you (and your spouse and dependant children) qualify for continuation coverage. However, if the qualifying event was the reduction in your work hours, you can only receive 18 months of COBRA - unless you qualify for Medicare, or if your plan has chosen to provide a longer period of coverage.
Additionally, if you’re a beneficiary spouse – meaning you are married to the person entitled to the insurance benefits - you can typically receive coverage if your covered spouse has become entitled to Medicare, if you have divorced or legally separated from the covered spouse, or if the covered spouse has died. Beneficiary dependant children are eligible if their parent is eligible, with one added qualifying event - if the child loses dependant status under the plan rules.
How Do You Claim COBRA Benefits?
If you’re a qualified beneficiary who has experienced a qualifying event, you must notify the plan administrator within the filing period. Your plan can set the time limit for filing, but it cannot be shorter than 60 days from whichever of these events occurred last:
- The qualifying event
- The loss of your coverage (due to the qualifying event)
- You’re informed of your responsibility to notify the plan administrator and provided with the proper procedures
Once the plan receives notice that you have experienced a qualifying event, it must provide you with an election notice within 14 days. The election notice describes your rights to continuation coverage and explains how you make an election. Once you’ve received the election notice, you have 60 days to decide if you would like COBRA coverage. However, if the date you would lose your health coverage is later than the date you received the election, you have 60 days from the date of your loss of coverage to make your election.
Can COBRA Coverage Be Terminated Early?
COBRA coverage can be terminated early for any of the following reasons:
- The employer cancels the health plan
- You fail to pay your premiums on time
- You become eligible for Medicare
- You begin coverage under another plan, as long as that plan doesn’t have restrictions against preexisting conditions
- You engage in conduct that justifies terminating your coverage (i.e. fraud)
If your coverage is terminated early or you would like to seek alternative health coverage, you can try the health insurance marketplace at Healthcare.gov, special enrollment with HIPAA (Health Insurance Portability and Accountability Act), Medicaid (for those with limited income and assets), or the Children's Health Insurance Program (CHIP).