The Consolidated Omnibus Budget Reconciliation Act (COBRA) was enacted in 1985 as a measure to allow employees to continue to benefit from their insurance plan when they are no longer eligible for employer-sponsored health insurance. This may be due to termination of employment or moving to part-time hours. At their own expense, employees can continue to pay into a group health plan organized by their employers.
The Advantages of COBRA Insurance for Employees
According to the Affordable Care Act (ACA), large companies that employ 50 or more full-time employees are required to offer health coverage for their employees. These group insurance plans offer basic healthcare services for employees, as well as spouses and other dependents.
If someone is terminated, either voluntarily or involuntarily, they may be forced to go without health insurance coverage. According to the United States Census Bureau, in 2020, there were 28 million people who did not have health insurance. COBRA insurance works to bridge the gap for these employees, allowing them to pay the entire insurance premium to continue with an additional 18 to 36 months of coverage after the qualifying event.
If you opt for COBRA, you’ll keep all deductibles, co-pays, insurance cards, and out-of-pocket expenses from your previous employer’s insurance plan. You’ll also be eligible for retroactive reimbursement under COBRA for any of the medical expenses that you received before starting the plan.
Employees can even keep their existing COBRA insurance when they get a new job, as long as they don’t receive a new health plan offered by their new employer. This ensures consistency, allowing an employee to keep the same physician, drug plan, and same level of treatment for pre-existing conditions.
The Drawbacks of COBRA Insurance for Employees
COBRA is a short-term policy that can extend employer health insurance while you’re looking for other health insurance options, either through work or through individual policies. There are options for long-term coverage, but you may be required to pay the full amount of the group premium rate you were enrolled in, and possibly a 2% administrative fee. This additional cost may force you to choose other avenues for health insurance.
Also, as a COBRA beneficiary, you’ll be forced to accept any changes to the plan, such as alterations to co-payments and deductibles—even if it doesn’t offer you the best options for your needs, or causes you to incur higher out-of-pocket costs for your healthcare.
What Benefits Will be Covered?
COBRA insurance provides the same coverage offered by previous employers. Some of the benefits that you may receive from it include:
- Hospital inpatient and outpatient care
- Prescription drug plans
- Dental care
- Vision care
- Health reimbursement accounts (HRAs)
- Surgical procedures
- Preventative and wellness services for chronic disease management, including cancer treatments
Unlike healthcare, COBRA does not cover extra insurance costs, including life insurance policies or disability insurance. If you received either of these through your employer, you could look for extra individual coverage through another insurance company.
Who is Eligible for COBRA?
In order to qualify for continuation of health coverage under COBRA insurance, an employee must
- be enrolled in an employer’s health insurance plan at a midsize company where there are at least 20 employees who work 50% of regular days of operation within a year.
- not be fired under severe disciplinary measures, such as gross misconduct.
- experience a reduction in hours that places them below the required full-time hours to receive coverage under the company insurance plan.
Spouses and dependent eligibility
A spouse and any dependents of a COBRA beneficiary may become eligible for health insurance if
- their primary health insurance was from an employed spouse who was terminated.
- the beneficiary passes away.
- an employee becomes eligible for Medicare.
- they separate or file for divorce from their spouse, which means they are no longer offered health insurance through their plan.
- if a beneficiary’s child reaches the age of 26 and is therefore no longer considered a dependent under their parent’s health insurance plan.
How to Enroll in COBRA Insurance
Step 1: Receive information
In order to avoid a gap in insurance coverage, your first step is to enroll back into your previous employer’s health insurance plan as a COBRA beneficiary. You can expect to receive an election notice package from the human resources department at your previous company or a third-party administrator within 45 days of being terminated.
This package will contain information on how to elect for coverage, the amount for your monthly premiums, how to end coverage, and ways to pay for your health plan.
Step 2: Enroll in coverage
You have several options available for enrolling in coverage, including online, through the mail with a paper application, and even by phone. After receiving your election notice, you have 60 days to enroll back into your previous healthcare coverage.
Step 3: Choosing to continue coverage
After enrolling in the program, you have 45 days to make your first payment. You’ll have the same level of coverage that you experienced before, including the same doctors.
You may choose to discontinue COBRA at any point, especially if you find a more affordable coverage option or one that meets your immediate needs better. For example, you may choose to be added to your spouse’s healthcare plan, or pursue eligibility for Medicaid.
Another option may be the federal and health insurance marketplace or individual state insurance marketplace. Health insurance marketplaces provide clients with the ability to receive information about affordable coverage options, allowing them the ability to search through federal and state databases to find health insurance that meets their needs. In addition, you may also be eligible for a special enrolment period if you’ve recently lost your job.
COBRA offers employees the ability to keep their existing health insurance plan after termination or other loss of benefits. It offers a temporary solution, preventing a gap in coverage while you research other health insurance options available to you. It also offers retroactive reimbursement for any procedures or hospital visits in the period before enrollment.
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