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Quick Overview of COBRA

COBRA stands for the Consolidated Omnibus Reconciliation Act. This federal law was enacted by United States Congress in 1986 to help Americans who have lost their employer-sponsored health insurance.

Under COBRA, a worker can continue employer health insurance for up to 18 months in most circumstances.

A Brief History of COBRA

In 1985, U.S. Congress passed COBRA, which was signed into law by President Ronald Reagan. The official name of COBRA is the Consolidated Omnibus Budget Reconciliation Act of 1985, even though COBRA officially became law on April 7, 1986.

COBRA is actually not a stand-alone law - it's an amendment to another law, called the Employee Retirement Income Security Act of 1974, also known as ERISA. Along with ERISA, COBRA also amends the Internal Revenue Code and the Public Health Service Act.

How COBRA Works

COBRA gives working Americans who lose their employer-sponsored group health insurance the right to continue that coverage for a temporary period of time. You might also hear COBRA referred to as "continuation health coverage."

Once you become eligible for COBRA, your employer/former employer is required by law to inform you within 30 days of your access to continuation coverage.

By law, your COBRA coverage must provide the exact same benefits as your old group plan - and any pre-existing health conditions will be covered without waiting periods. If premiums for your old plan go up, your COBRA premiums will increase at the same rate.

Who Qualifies for COBRA Coverage?

There are 3 main criteria for an employee, their spouse, and dependent children to qualify for COBRA continuation coverage:

  1. Your former company must employ over 20 employees at least 50 percent of the year.
  2. A "qualifying event" must occur (see list below).
  3. You must have been covered by your former employer's plan when a qualifying event occurs.

Qualifying events include:

  • Loss of job or cut hours - the employee, their spouse, and dependent children are eligible
  • Divorce or legal separation - a spouse and dependent children are eligible
  • Eligibility for Medicare (turning 65 years old) - a spouse and dependent children are eligible
  • Death of the employee - a spouse and dependent children are eligible
  • A child becomes no longer a dependent – the formerly dependent child is eligible

If you start a new job and enroll in their group health plan, you can still qualify for COBRA if your new plan imposes limits, exclusions, or waiting periods on your coverage.

How Long Can I Keep COBRA Coverage?

If you lost your employer coverage because of a job loss or reduced hours, you can keep your group health insurance under COBRA for up to 18 months. Other qualifying events (see above) allow a spouse or dependent children to keep COBRA coverage for up 36 months.

Americans who are disabled can keep COBRA coverage for up to 36 months.

COBRA is based upon the availability of a former employer's plan. If an employer drops health insurance benefits or the company goes out of business, COBRA coverage will not be available.

There are a few other situations when you might lose COBRA insurance early:

  • Failure to pay your premiums.
  • You enroll in a new group health plan with a new employer if that new plan imposes no coverage limits, exclusions, or waiting periods.
  • You become eligible for Medicare

When COBRA Coverage Runs Out

After you've exhausted your COBRA coverage, and if you still don't have access to employer-sponsored group health insurance, you'll need to purchase your own individual health insurance plan to stay covered.

If you've kept COBRA coverage the maximum number of months, you have certain rights under a law called the Health Insurance Portability and Accountability Act (HIPAA).

HIPAA became law in 1996. It helps Americans obtain health insurance after losing employer–sponsored coverage and ensures the protection and privacy of their medical information.

Under HIPAA, you can purchase an individual plan with no limitations or exclusions for a pre–existing health condition. You are eligible for HIPAA protections as long as you've had no break in health coverage for 63 days.

In some states, however, health insurance companies may only make certain plans available to HIPAA-eligible applicants.

Even though a HIPAA plan will cover your pre-existing conditions, they are typically very, very expensive – regardless of what state you live in.

So if you are healthy right now, it may actually make more sense to find individual health insurance coverage rather than choosing COBRA in the first place. Why?

  • An individual plan may cost less than a COBRA premium even with the subsidy
  • If you stick with COBRA then develop a condition during that period, you to choose between buying an expensive HIPAA plan or getting the condition excluded when your COBRA coverage ends

Before you decide on a plan, it's best to compare your options with multiple companies.

If you'd like to find additional information about the COBRA law, visit the United States Department of Labor online.