As we continue to review the alphabet soup of health insurance, COBRA is one program that has played a large role for many people during the past 25 years. And during the economic downturn the last few years, I have seen more individuals take advantage of the program. Though it provides a nice safety net, it does have pitfalls as well.
COBRA is an acronym for Consolidated Omnibus Reconciliation Act. This federal legislation was passed in 1986 and is the vehicle by which an employee can extend health insurance once a qualifying event occurs. It is the program for larger employer groups, but most states have very similar continuation coverage laws for the small businesses and their employees.
In order to be eligible to participate, a qualifying event (QE) must have occurred. The main qualifying events are voluntary or involuntary termination of employment, death of a covered employee or divorce of a covered employee. Based on the QE, there are a number of months that an individual can continue coverage…and this is usually 18 or 36 months. And so this legislation is very helpful for those than can not obtain coverage due to health conditions or who are in between jobs.
But it comes with a cost. The individual must pay the full amount of the monthly health insurance premium to the employer in order to maintain coverage. And the employer does have the right to add a 2% administrative fee as well. Many individuals were not aware of the total monthly cost, because their employer had been subsidizing part of it. Also, if the employer changes health insurance carriers, changes plans or their rates change, then the individual on COBRA must follow suit. And lastly, once the coverage period ends, the individual must find an alternative method of coverage…and that for many people is difficult.
If you are considering the option of coverage continuation through COBRA, make sure you are aware of what is expected. COBRA may or may not be the only answer for you. Check around for alternative coverage and see what is the best fit.