COBRA Explained

The word COBRA is an acronym for Consolidated Omnibus Budget Reconciliation Act. The COBRA act is a federal law that requires employers with twenty or more employees to provide a continuation of benefits under the employers group health insurance plan, for employees and their families. Coverage may be continued for 18 to 36 months.

Employees and other qualified family members, who would otherwise lose their coverage because of a qualifying event are allowed by COBRA to continue their coverage at their own expense at specified group rates. COBRA specifies the rates, coverage, qualifying events, beneficiaries, notification of eligibility procedures, and time of payment requirements for the continuation of insurance.

Qualifying Event...A qualifying event is an occurrence that triggers an insured's protection.

Events Include;

• The death of a covered employee
• Termination or reduction of work hours
• Medicare eligibility for the covered employee
• Divorce or legal separation
• The termination of a child's dependent status
• Bankruptcy of the employer

Note: Termination of employment is not a qualifying event if it is the result of misconduct by the covered employee. A qualifying event occurs when the employee, spouse, or dependent child becomes ineligible for coverage under the group insurance plan.

Notification Statements...Employers are obligated to provide notification statements to individuals eligible for COBRA continuation. Notifications must be provided under the following circumstances...

• When a plan becomes subject to COBRA
• When an employer is covered by a plan subject to COBRA
• When a qualifying event occurs

Following the notification of eligibility of benefits an individual has 60 days in which to elect continuation. If continued coverage is not elected within 60 days the option to do so is forfeited.

Duration of Coverage...An employer is not required to make continuation coverage indefinite. The object of COBRA is to provide health care coverage until the employee or family member can obtain coverage or employment elsewhere. The maximum period of coverage for termination of employment or a reduction in hours of employment is 18 months. For all other qualifying events the maximum period of coverage continuation is 36 months.

Disqualifying Events or Termination

• The first day on which the individual is covered by another group plan
• The first day for which timely payment is not made
• The date the employer ceases to maintain any group health plan
• The date the individual becomes eligible for Medicare

Remember that COBRA deals with continuation of the same group coverage that the insured had as a covered employee. Not only is this type of coverage the same that the insured had while employed, the premium is also the same except now the terminated employee will pay the entire premium to the employer for the privilege of continuing the group benefit.