In 1985 President Ronald Reagan signed the Consolidated Omnibus Reconciliation Act now commonly known as COBRA. Among other provisions, the legislation makes it possible for qualified employees, their spouses, and dependent children to continue to be covered by their company’s health insurance plan after job loss or the occurrence of a "triggering event." For a period of 18 to 36 months, the employee, spouse, or dependent child may assume responsibility for their insurance premium plus a 2% administrative fee. Normally these arrangements involve companies with 20 or more employees, but some states have created similar programs for businesses with fewer workers.
Two conditions must be met for individuals to qualify for the COBRA program. A triggering event must have occurred and that event must have caused the person to lose their health plan coverage. Employers are required by law to apprise employees, their spouses, and dependent children of their qualification to continue their health coverage under the COBRA umbrella. The eligible individual will have 60 days to elect to participate in the program or forfeit their right to do so.
Qualifying events for employees, their spouses, and dependent children include:
- The death of an employee with insurance coverage.
- Reduction of work hours or loss of job (except for instances of misconduct.)
- Medicare eligibility for the employee with insurance coverage.
- Legal separation or divorce.
- The end of a child’s status as a dependent.
- Bankruptcy of the employer.
Continuation of coverage under COBRA is not intended to be indefinite. The original purpose of the program was to provide health care coverage until the qualified individual obtains new coverage from another source. Duration of COBRA coverage varies by circumstance. For instance the program will provide 18 months continuation for those who have lost their jobs or had their hours reduced. The maximum duration of the continuation is 36 months.
COBRA coverage will cease on:
- The first day the individual in question is covered by another plan.
- The first day when a payment is not made.
- The day the employer discontinues the group health plan.
- The day the individual is eligible to participate in Medicare.
Although COBRA does guarantee that the qualified individual has access to health insurance, it is important to remember that that person will become responsible for the entire amount of the premium, NOT the previous level of contribution. For many people, especially those who are attempting to find a new job, that cost is simply too great to bear. Consequently, many insurance companies have developed temporary insurance products written and priced to address just such gaps in coverage. Comparing the cost and provisions of such policies against the cost of continuing previous health insurance under COBRA is always recommended.
