Know Your COBRA Rights

What is COBRA?

COBRA is a federal law, the Consolidated Omnibus Budget Reconciliation Act. Under COBRA, employees, their spouses, and their dependent children usually can't lose their employer health insurance coverage when a worker loses a job, dies, divorces, or experiences certain other life changes. Instead, these individuals may continue an employer-provided health plan for up to eighteen months, as long as they personally pay the premiums.

Who is eligible for COBRA coverage?

Three types of people, known as "beneficiaries," are protected by COBRA: employees or former employees, their spouses, and their dependent children. The beneficiaries must be covered under an employer health plan. In order to trigger COBRA coverage, one of several "qualifying events" must occur. These include employment termination, reduction in work hours, death, employee becoming entitled to Medicare coverage, divorce, legal separation, and a child losing dependent status.

COBRA is available to employees in the private sector, in state and local government, and working as independent contractors. However, employees of the federal government, the District of Columbia, some church-related organization, and firms employing less than twenty people are exempt. Some states have adopted similar laws covering exempt employers.

Once a qualifying event happens, how long will COBRA eligibility last?

COBRA eligibility may last as long as eighteen months, depending on the circumstances. Coverage may end for any of these reasons: on the last day of the maximum coverage period, when it lapses for nonpayment, the employer stops offering any group health plan, the beneficiary obtains coverage through another employer group health plan that does not limit or exclude coverage for the beneficiary's pre-existing condition, or the beneficiary becomes entitled to Medicare benefits.

What does COBRA coverage cost?

Unfortunately, an employer does not pay for any part of COBRA premiums. Therefore, a beneficiary must pay the full amount of the group insurance's monthly premiums plus an administrative fee of up to two percent. Cost can be a major deterrent to taking advantage of COBRA, since many privately held health policies cost less than group health policies.

The main reason for paying the high premiums is that some people have "pre-existing conditions"-medical problems that existed before buying a policy. Many insurers will not cover them, or will exclude the condition from coverage. Therefore, paying the premiums for COBRA coverage may be the only way that a beneficiary can continue certain needed health care when a qualifying event happens. The Health Insurance Portability and Accountability Act (HIPAA) guarantees that people who have continuous health coverage can't be denied insurance even if they have pre-existing conditions. Therefore, using COBRA at least long enough to get other insurance would ensure HIPAA protection. If a beneficiary's coverage lapses completely, causing a gap in insurance, he or she would completely lose the benefits of HIPAA.

The first COBRA payment may be a big one, because it covers the entire period retroactive to the qualifying event. Under the notification scheme, this could easily be seventy-five days, or even more, plus the next month's coverage-at least three months of premiums all at once! A beneficiary must also keep payment dates in mind, since neither the employer nor the insurer must send premium notices.

Qualified beneficiaries must be offered coverage identical to that available to similarly situated beneficiaries who are not receiving COBRA coverage under the plan (generally, the same coverage that the qualified beneficiary had immediately before qualifying for continuation coverage). A change in the benefits under the plan for the active employees will also apply to qualified beneficiaries. Qualified beneficiaries must be allowed to make the same choices given to non-COBRA beneficiaries under the plan, such as during periods of open enrollment by the plan.

How is COBRA initiated?

Within thirty days after certain qualifying events, the employer must notify its health plan administrator of the event. A qualified beneficiary must notify the plan administrator of a qualifying event within 60 days after divorce or legal separation. Within fourteen days, the administrator must alert the employee and family members, in person or by first class mail, of their right to elect COBRA. The only exceptions, if the health plan allows them, are: (1) the time limit for both notifications may be extended, and (2) it may be left up to plan administrators to determine whether an employee quit or reduced work hours, or whether a qualifying event occurred.

Beneficiaries have sixty days to decide whether to buy COBRA coverage. This period starts from the date that eligibility notification is sent by the plan administrator, or the date that the beneficiary lost the health insurance, whichever comes later. The COBRA coverage will be retroactive to the date that insurance benefits were lost.

A beneficiary may initially decide not to buy coverage, waving his or her right to it. However, beneficiaries may change their minds during the election period. COBRA coverage would then start on the date the waiver was revoked.

If a beneficiary moves, relocating out of the COBRA plan's coverage area, the beneficiary will simply lose the coverage. The employer is not required to offer a plan in the new area.

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