COBRA Fills the Gap

COBRA Fills the Gap
How a Between-Jobs Health Insurance Program Works

By Patricia Lawrence, Human Resources Manager

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) provides temporary health insurance coverage for individuals during periods of unemployment.

This provision—which has been in effect for almost 19 years—gives former full-time employees (and their dependents) who were previously covered under a company’s insurance plan, the opportunity to extend their coverage for a period of time after their employment with the company is terminated.

The law applies to companies that employ 20 full-time or equivalent part-time workers and that sponsor a group health insurance plan. Such employers must inform their workers about COBRA upon hiring, and distribute a “COBRA notice” of continuation of health-care coverage upon termination.

The employee must respond to the COBRA notice and inform the employer within 60 days after termination that he wishes to remain on the company’s health insurance plan. Employers have no obligation to keep the ex-employee on its insurance rolls if the employee fails to meet the 60-day deadline.

Ex-employees that do meet the deadline can stay on the insurance plan, but they absorb the entire cost of the premium. Additionally, to qualify for COBRA, employees must notify the health plan’s administrator of any “qualifying events,” changes that would impact a person’s insurance coverage, including loss of employment or reduction in work hours to less than 30 hours per week, among others.

In-Between Time, in the Mean Time

The typical length of time for COBRA coverage is 18 months, but coverage for the beneficiary or his dependents can be extended under certain circumstances—such as if the beneficiary dies or is disabled—which can bring the coverage period up to a maximum of 36 months.

This coverage applies to all terminated employees, unless the employee was terminated for “gross misconduct,” an automatic disqualification for COBRA coverage.

When an individual is terminated, changes jobs or encounters another “qualifying event,” the employee should seriously consider his COBRA eligibility as it relates to how long he can afford COBRA coverage, when a new insurance plan begins or when the employee can be included in a spouse’s insurance plan. It will be more cost-effective to pay the premium than it would be to pay the full cost of prescriptions, emergency room visits or other hospital charges. Moreover, not having COBRA coverage could prevent an individual from visiting the doctor for an extended period of time, during which an illness could go undetected or a current health condition could exacerbate.

But coverage can be discontinued under certain circumstances. Coverage can be cut short when an employer no longer provides health insurance for its employees, when the COBRA beneficiary fails to pay the premium on a timely basis or when the beneficiary qualifies for Medicare.

COBRA is an important benefit that former employees should not overlook. A former employee that fails to opt for COBRA coverage will have to wait until he is covered under a new plan. If an individual forfeits COBRA coverage, pre-existing condition rules and other waiting periods may apply to acquiring new insurance coverage, which could extend the period of time an individual would be without health insurance.