What is COBRA?

If you’ve ever switched jobs, chances are you’ve heard of COBRA. But what is it? And why is it important?

COBRA is short for the Consolidated Omnibus Budget Reconciliation Act, a law approved by the U.S. Congress in 1985. The passage of COBRA changed parts of earlier laws — the Employee Retirement Income Security Act, along with the IRS code and the Public Health Service Act.

The idea behind COBRA was to let people keep their group health insurance coverage for a period of time after leaving a job. Under COBRA, you can continue your health coverage for up to 18 months.


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How COBRA Works

To take advantage of COBRA, there are three conditions that must be met: your group health plan must be provided by a “qualifying employer,” you must be a “qualifying beneficiary,” and you must have experienced a “qualifying event.”

COBRA applies to most medium-sized and large businesses.

A qualifying employer is any employer who:

  • Offers a group health plan
  • Has 20 or more employees
  • Has at least 50% of their employees covered under the health plan.

A qualifying beneficiary is someone covered under a group plan offered by a qualifying employer. This could be:

  • An employee
  • An employee’s spouse
  • An employee’s dependent child

In addition to employees, independent contractors are also sometimes entitled to COBRA benefits.

Qualifying events vary depending on the beneficiary. For employees, qualifying events include:

  • The end of employment, for any reason other than “gross misconduct”
  • A reduction in the number of hours worked

Qualifying events for spouses and dependent children include:

  • The end of the covered employee’s employment, for any reason other than “gross misconduct”
  • A reduction in the hours worked by the covered employee
  • Divorce or legal separation from the covered employee
  • The covered employee becomes eligible for Medicare
  • The death of the covered employee

An additional qualifying event for children includes the loss of “dependent child status” (usually when the child turns 18 or, in some cases, when they graduate from college).

What COBRA Isn’t

COBRA does not mean that your former employer continues to pay for your health coverage. Instead, COBRA gives you the right to continue that coverage at your own expense. You are responsible for paying the entire premium, and you may also have to pay an additional 2% of the premium as an “administrative fee.”

Unfortunately, that means that continuing your health insurance coverage under COBRA can be expensive. Many people are surprised group health plan premiums can be much more than individual health plan premiums.

Even so, it can be a good idea to continue your coverage under COBRA if you’re not enrolling in a new plan right away. Here’s why:

When you enroll in a new health plan the insurance provider may place limitations and exclusions on your coverage based on your health status.

You can reduce or entirely avoid these limitations by having continued creditable coverage. That means you have had no significant breaks in coverage longer than 63 days. The rules about avoiding limitations when joining a new health plan are provided under another federal law, called HIPAA.

Regardless of your situation, it’s smart to stay covered — with COBRA, a short-term health plan, or an individual health plan.

If you want to explore individual and short-term options, get started with free online quotes and view plans instantly. Compare rates and benefits, and find a health insurance plan that works for you.