Understanding COBRA: Health Insurance Continuation Explained

In today's ever-changing job market, understanding your healthcare options is crucial, especially when faced with unexpected changes in employment. If you find yourself without a job or lose access to group health benefits as a covered dependent, COBRA might be the safety net you need to maintain your health insurance coverage. 

But what exactly is COBRA, and how does it work? Let's dive into the details of COBRA coverage, its benefits, and how you can enroll.

What is COBRA Insurance?

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act, a federal law passed in 1985. It allows individuals to continue participating in employer-sponsored health insurance at their expense even after they no longer work for the company or otherwise become ineligible for coverage. This law ensures that people who lose eligibility for an employer-sponsored health plan due to certain life events don't automatically lose access to health insurance.

What is a COBRA Qualifying Event?

To become eligible for COBRA coverage, a person must experience a COBRA qualifying event and already be covered by a group health plan provided by an employer with 20 or more employees. Common qualifying events include:

• Voluntary or involuntary job loss (except in cases of gross misconduct)

• Reduction in the number of hours worked

• Divorce or legal separation from the covered employee

• Death of the covered employee

• A dependent child losing dependent status

If you experience any of these events, you may qualify for COBRA coverage that allows you to opt to maintain your health insurance on a temporary basis. 

How Does COBRA Coverage Work?

COBRA coverage essentially allows you to keep the same health insurance policy you had while eligible for coverage as an employee or a dependent of an employee. However, instead of your employer covering part of the premium, you'll be responsible for the entire premium amount, plus a small administrative fee. 

This can make COBRA more expensive than what you paid as a participant in the group plan, but it provides a vital coverage bridge that may be more affordable than what you can get elsewhere as an individual seeking coverage.

Duration of COBRA Coverage

COBRA coverage typically lasts 18 months, but certain circumstances can extend it to 36 months. For example, if a person loses eligibility for their employer’s group plan due to termination of employment or for transitioning from a benefits-eligible role to one that is not benefits-eligible, such as moving from full-time to part-time, the maximum COBRA timeframe is 18 months. 

Longer timeframes apply for employees who become disabled and the dependents of former employees who become eligible for Medicare. The same is true for dependents of an employee who lose eligibility for group benefits due to a divorce or the death of an employee. 

The Cost of COBRA Insurance

While COBRA provides continuity, the cost can be a significant factor. You'll pay the entire premium plus up to an additional 2% for administrative costs. Since employers usually offset the premium cost for those who participate in their group plans, the price of COBRA coverage can be significantly more than the amount the employee was accustomed to paying. This is because employers don’t offset part of the coverage cost for those on COBRA. This sudden increase often catches people by surprise, so it's essential to budget accordingly.

How to Enroll in COBRA

Enrolling in COBRA isn't automatic. You must act promptly to secure COBRA coverage if you are eligible. The process includes: 

1. Notification: The employer or health plan administrator must notify you of your COBRA rights within 14 days after your qualifying event.

2. Election notice: You'll receive an election notice that outlines how to enroll in COBRA. You will have 60 days from the date of this notice to decide whether to enroll.

3. Enrollment: Complete and return the enrollment forms within the 60-day window. Missing this deadline means losing your right to COBRA coverage.

4. Payment: Once enrolled, you must pay your premiums promptly to maintain coverage. Some plans may require payment for retroactive coverage from the date the qualifying event occurred.

Benefits of COBRA Insurance

Electing to continue your health insurance via COBRA offers several benefits ,including:

• Continuity of care: You won't have to change doctors or healthcare providers since your existing plan remains intact when you have COBRA coverage in place.

• Comprehensive coverage: Since you will not change insurance plans when you elect continuation of coverage under your right to COBRA, your benefits won’t change. 

• Bridge to new coverage: COBRA is a practical, temporary solution you can count on while you look for new employment or secure alternative insurance.

Alternatives to COBRA

While COBRA is a valuable option, it may not suit everyone due to its cost. Fortunately, there are some alternatives, including: 

• Marketplace insurance: Under the Patient Protection and Affordable Care Act (PPACA), you can explore insurance plans on the Health Insurance Marketplace. Depending on your income, you may qualify for a subsidy for these plans, which may make them more affordable.

• Medicaid: If your income qualifies, Medicaid may be an option for low-cost or free coverage.

• Short-term health plans: You may be able to secure a low-cost limited coverage plan that offers a temporary solution until you find a better option. 

Maintaining Health Coverage During a Job Transition or Life Change

While the cost of COBRA can be a concern, having the right to retain your existing coverage can provide peace of mind during uncertain times. Always compare COBRA with other options to find the best fit for your health insurance needs. By staying informed about your rights and responsibilities under COBRA, you can make educated decisions that safeguard your health and financial well-being. Whether you choose COBRA or explore alternatives, the key is to remain protected.

Justworks Is Here to Help

Navigating COBRA can be just as challenging for employers as it is for employees, but Justworks is here to help. We provide COBRA-related compliance support to Justworks customers who offer health insurance and other benefits to their employees and 24/7 customer service to employees who participate in group plans at these organizations. If you’re looking for a partner who can help you navigate the complexities of group health plans and related compliance matters, such as COBRA notifications and coverage, you can rely on Justworks. Contact us today to find out how your organization can get started.