Cobra Insurance Explained

Before COBRA insurance was passed as a law in 1986, the only way people could receive insurance coverage under a group health plan for themselves and their families was through active full-time employment. The Consolidated Omnibus Budget Reconciliation Act allows people who lose their health insurance, as a result of job termination or a reduction in work hours, to keep their group health insurance for a limited amount of time. The beneficiaries of this health coverage must follow certain guidelines to qualify.

Function

Two elements must exist for individuals to receive health insurance coverage under COBRA: (1) there must be a triggering event and (2) the triggering event must cause the covered person to lose coverage under the health plan. The COBRA insurance law requires administrators to notify qualified beneficiaries by a letter explaining their rights to elect to continue health coverage.
The plan gives specified former workers of a company, retirees, spouses and dependent children the right to health coverage under the company’s group health plan. To take advantage of the COBRA, persons must elect to obtain the coverage in 60 days or the right is lost, and they must pay for the health insurance coverage.

Company Eligibility

Generally, COBRA insurance is less expensive compared to individual health coverage; however, it usually costs more than the premium paid by current employees of the company. The COBRA law generally applies to company health plans of 20 or more employees during the prior year. Private industry, state and local governments must comply with this law. Small health plans of 20 or less employees, the federal government and some religious-related organizations are exempt from the requirements.
Employers are required to give two notices to employees regarding COBRA. The initial notice should spell out to employees and their dependents their COBRA rights and responsibilities. Workers should also receive a qualifying event notice. Companies who fail to issue the appropriate notices in a timely manner are subject to litigation.

Qualifying Beneficiaries

Individuals and the family would have to meet the qualified beneficiary test. This means that person must be eligible for health coverage the day before the qualifying event. Qualifying beneficiaries are the former employee, a spouse or dependent children. Other people, such as agents, directors or independent contractors, may be qualified beneficiaries under COBRA insurance.

Qualifying Events

One of six possible qualifying events must take place for an individual, spouse or dependent child to lose health coverage: (1) the death of the covered worker; (2) termination of employment for a reason other than gross misconduct; (3) a reduction in the work hours of the covered worker; (4) divorce, or legal separation of the covered worker from the his spouse; (5) a dependent child who is no longer eligible under the requirements of the health plan; and (6) employers who are bankrupt, thus affecting the health coverage of retirees and their families.

Enrollment

Employees must elect to enroll in COBRA insurance coverage within 60 days. The premium may be payable directly to the insurer or to the COBRA administrator. Eligible employees should receive notification in the mail, which should include information like the amount of the premium and where to send the payment.
Sometimes, a new health insurance card is issued, and the premium should be paid as long as the COBRA insurance is needed or until eligibility expires in 18 months. Some disabled employees may be eligible for coverage for up 29 months. Spouses and dependent children may qualify for coverage up to 36 months in cases of separation, divorce or death of the covered individual.