COBRA – Frequently Asked Questions

COBRA stands for The Consolidated Omnibus Budget Reconciliation Act and it gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified individuals may be required to pay the entire premium for coverage up to 102 percent of the cost to the plan.

Federal law requires that group health plans sponsored by employers with 20 or more employees in the prior year offer employees and their families the opportunity for a temporary extension of health coverage (called continuation coverage) in certain instances where coverage under the plan would otherwise end.

California employers with 2 to 19 employees are not covered by federal COBRA. They fall under Cal-COBRA (California Health and Safety Code section 1366.20 and following), which requires a comparable continuation offer. Cal-COBRA runs up to 36 months, and the premium can be up to 110% of the group rate compared with 102% under federal COBRA.

COBRA outlines how employees and family members may elect continuation coverage. It also requires employers and plans to provide notice.

There are three elements to qualifying for COBRA benefits. COBRA establishes specific criteria for plans, qualified beneficiaries, and qualifying events:

1. Plan Coverage – Group health plans for employers with 20 or more employees on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA. 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 an employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.

2. Qualified Beneficiaries – A qualified beneficiary generally is an individual covered by a group health plan on the day before a qualifying event who is either an employee, the employee’s spouse, or an employee’s dependent child.  In certain cases, a retired employee, the retired employee’s spouse, and the retired employee’s dependent children may be qualified beneficiaries.  In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary.  Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.

3. Qualifying Events – Qualifying events are certain events that would cause an individual to lose health coverage. The type of qualifying event will determine who the qualified beneficiaries are and the amount of time that a plan must offer the health coverage to them under COBRA. A plan, at its discretion, may provide longer periods of continuation coverage.

Qualifying Events for Employees:

• Voluntary or involuntary termination of employment for reasons other than gross misconduct
• Reduction in the number of hours of employment

Qualifying Events for Spouses:

• 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’s becoming entitled to Medicare
• Divorce or legal separation of the covered employee
• Death of the covered employee

Qualifying Events for Dependent Children:

• Loss of dependent child status under the plan rules
• 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’s becoming entitled to Medicare
• Divorce or legal separation of the covered employee
• Death of the covered employee

To be eligible for COBRA coverage, you must have been enrolled in your employer’s health plan when you worked and the health plan must continue to be in effect for active employees. COBRA continuation coverage is available upon the occurrence of a qualifying event that would, except for the COBRA continuation coverage, cause an individual to lose his or her health care coverage.

Employers must notify plan administrators of a qualifying event within 30 days after an employee’s death, termination, reduced hours of employment or entitlement to Medicare.

A qualified beneficiary must notify the plan administrator of a qualifying event within 60 days after divorce or legal separation or a child’s ceasing to be covered as a dependent under plan rules.

Plan participants and beneficiaries generally must be sent an election notice not later than 14 days after the plan administrator receives notice that a qualifying event has occurred.  The individual then has 60 days to decide whether to elect COBRA continuation coverage. The person has 45 days after electing coverage to pay the initial premium.

The Family and Medical Leave Act, effective August 5, 1993, requires an employer to maintain coverage under any group health plan for an employee on FMLA leave under the same conditions coverage would have been provided if the employee had continued working. Coverage provided under the FMLA is not COBRA coverage, and FMLA leave is not a qualifying event under COBRA. A COBRA qualifying event may occur, however, when an employer’s obligation to maintain health benefits under FMLA ceases, such as when an employee notifies an employer of his or her intent not to return to work.

Federal COBRA applies to employers with 20 or more employees. Cal-COBRA covers California employers with 2 to 19 employees, so between the two, almost every California group is covered by something.

The differences that matter:

• Length: Cal-COBRA runs up to 36 months. Federal COBRA is usually 18 months, and up to 36 in certain situations.
• Cost: Cal-COBRA can charge up to 110% of the group rate. Federal COBRA is capped at 102%.
• Extension: If you exhaust 18 months of federal COBRA, California law may let you continue under Cal-COBRA up to a combined 36 months. Election deadlines are short, so ask about this before your federal COBRA runs out rather than after.

Price both before you decide. Losing job-based coverage is a qualifying life event that opens a 60-day special enrollment period with Covered California, and a subsidized plan is very often cheaper than COBRA, sometimes dramatically so. With COBRA you pay the full group premium plus an administrative load and there is no subsidy.

The usual reasons to choose COBRA anyway are keeping a specific doctor or hospital that is not in any marketplace network, or avoiding restarting a deductible you have already partly met mid-year.

One thing to watch: you generally cannot switch from COBRA to a marketplace plan mid-year just because you change your mind. Electing COBRA and then regretting it usually means waiting for the next open enrollment. Run the numbers first, and we are glad to run them with you.

COBRA is so expensive because you are paying the entire health insurance premium. When you were working, your employer was likely covering some (if not all) of the cost. Now, you are responsible for the whole premium. In addition, COBRA can charge an extra 2% in administrative costs.

Fortunately, there are several other health insurance options.

One alternative to COBRA is finding a health insurance provider through the Marketplace established under the Affordable Care Act. Web brokers  can direct you to your state’s Marketplace, or if they don’t have one, allow you to compare policies on the national site.

You can also compare policies and providers directly online through a health insurance tool or even by speaking with an agent.

One limitation to purchasing an Affordable Care Act plan is that, under most circumstances, you can only do so during the annual open enrollment period. However, your job loss could qualify you for enrollment outside of the annual open enrollment period. You’ll have to apply to see if you qualify.

Finally, if you have considerably limited assets and income, you could qualify for assistance through your state’s Medicaid office.

COBRA is only one of many options for health coverage after a job loss. Each policy you look at will have different features along with varying costs. To avoid being stuck with unexpected medical debt, make sure you always read the fine print and look at details such as doctors and hospitals covered in the network, deductibles, exclusions and copayments.