The Ultimate Guide to the Consolidated Omnibus Budget Reconciliation Act (COBRA)

COBRA is a health insurance program that allows employees to continue to receive benefits under their employer’s group health plans after losing coverage.

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COBRA (the Consolidated Omnibus Budget Reconciliation Act)

Consolidated Omnibus Budget Reconciliation Act (COBRA) allows employees to continue to receive benefits under their employer’s group health plans after losing coverage due to a change from full-time to part-time employment, or after termination. From an employee’s perspective, COBRA coverage is essentially the same as normal (full-time) coverage, except for 2 primary differences:

  • Employees pay their entire premium, plus an administrative fee. Companies have the option to cover the premium, but are not required to.
  • COBRA coverage is temporary. Actual duration depends on the type of COBRA (state or federal), but usually lasts up to 18 months.

Eligibility

Employees who were previously actively enrolled in health insurance coverage for at least one day, but lost it due to a change from full-time to part-time employment or termination (both voluntary and involuntary), are eligible for the Consolidated Omnibus Budget Reconciliation Act (COBRA). Eligibility requirements for specific workers depend on their company’s COBRA Classification, which is determined by number of full-time employees or full-time equivalents (FTEs).

  • Employees who work for a company with at least 20 FTEs and who have been enrolled under their employer’s insurance for at least one day are eligible for Federal COBRA. There is no minimum number of work days required to be eligible for COBRA.
  • Employees who work for a company with less than 20 FTEs and who have been enrolled under their employer’s insurance may be eligible for State COBRA, if they’ve worked the minimum number of days determined by the state where their insurance plan is provided.
    • Each state has rules for COBRA eligibility based on how long employees were enrolled in coverage before termination. Contact your COBRA Administrator to determine if an employee is eligible.

However, COBRA coverage is not available for employees who lose coverage when their company goes out of business.

Are employees covered under their insurance until they enroll in COBRA?

In most cases, when an employee is terminated or moved to part-time, their normal insurance continues until the last day of the month. However, if the company has a same-day termination setting, then insurance will end on the day of termination. If they choose to enroll in COBRA, and do so within the election period, their COBRA will start (retroactively) on the day after their normal insurance ends.

For example, assume an employee’s coverage ends on 4/30:

  • Their COBRA election window begins on 5/1. So long as they enroll in COBRA within the election period, they’ll be covered by COBRA from 5/1 on.
  • Even if their COBRA is not approved until 5 /20 or some later date, they still have COBRA coverage from 5/1, and can submit claims for care expenses that occur between 5/1 and 5/20.

In some cases, insurance carriers have slightly different rules about when coverage ends, but COBRA always starts on the day after coverage ends.

Why is the first COBRA payment so expensive?

COBRA coverage begins on the date that coverage is lost (usually the first of the month following termination). Employees who enroll in COBRA later in their election window (which begins on the date of coverage loss) will have coverage retroactively to that date, and will need to pay for retroactive coverage. In some cases, this cost may include up to 2 months of coverage.

For example, federal COBRA has an election window of 60 days. Let’s assume the following:

  • The employee is terminated on September 27th, and their coverage extends through the end of that month.
  • COBRA coverage would begin on October 1st (first of the month following termination).
  • The employee has 60 days from October 1st to elect COBRA. However, their COBRA effective date of October 1st stays the same regardless
  • The employee elects COBRA on November 15th, and is responsible for paying retroactively for coverage in October and November.

How much does COBRA cost?

The cost of COBRA coverage includes the full amount of the participant’s premium, any premiums for dependents, and the administrative fee, which is a percentage of the total premiums (2% for Federal COBRA; percentage varies by state for State Mini-COBRA). This will be handled by the COBRA administrator.

What’s the difference between federal and state COBRA?

While plan coverage stays the same for the COBRA participant regardless of the type of COBRA they are enrolled in, there are 2 primary differences between Federal and State COBRA:

  • Where payments are sent:
    • Payments for Federal and non-carrier administered State COBRA are paid by the employer who is then reimbursed by the employee.
    • Payments for carrier-administrated COBRA (e.g., Cal-COBRA) are paid by the employee directly to the carrier.
  • The cost of COBRA:
    • FederalPremium + 2% administrative fee
    • State: Premium + variable state-specific administrative fee

In rare cases, COBRA participants are limited in the types of coverage they can select during open enrollment for Federal and State COBRA.

COBRA election deadline

Employees eligible for federal COBRA coverage must elect COBRA coverage within 60 days from the employee’s insurance termination date, or for state COBRA, the date specified on the employee’s COBRA election notice. Employees should refer to the notice to confirm their election deadline date.

COBRA election deadlines are hard deadlines. Employees who miss this strict deadline will be unable to elect COBRA and continue their previous employer’s coverage, at which point they will need to enroll in coverage elsewhere (i.e. state exchange, spouse coverage, etc.).

COBRA election deadline examples

If an employee is terminated on 4/25:

  • COBRA notice sent on 4/27
  • Group insurance cancels 4/30
  • Employee has until 6/30 to enroll

If an employee is terminated on 4/30:

  • Group insurance cancels on 4/30
  • Notice is sent on 5/2
  • Employee has until 7/2 to enroll using the later date

Continued coverage

  • If the employee enrolls during the 60-day period, then there’s no lapse in coverage. COBRA applies retroactively to date the employee loses coverage.
  • For example, if an employee’s employer-provided coverage ends on 6/30, COBRA picks up on 7/1.

Federal COBRA durations and qualified beneficiaries

Eligible qualified beneficiaries and the maximum length of Federal COBRA coverage are determined by the type of qualifying event.

For more information about gross misconduct and termination, see the Department of Labor’s website.

Qualifying Event

Qualified Beneficiaries

Max. Duration

of Coverage

Termination (whether voluntary or involuntary) for reasons other than gross misconduct.

  • Employees terminated as a result of gross misconduct may be denied COBRA coverage.
  • Employee
  • Spouse
  • Dependent Child
18 months
Reduction in hours of employment (FT to PT)
  • Employee
  • Spouse
  • Dependent Child
36 months
Employee entitlement to Medicare resulting in a loss of coverage
  • Spouse
  • Dependent Child
36 months
Divorce or legal separation
  • Spouse
  • Dependent Child
36 months
Death of employee
  • Spouse
  • Dependent Child
36 months
Loss of dependent child status under the plan
  • Dependent Child
36 months

Can employees add a dependent to COBRA who has aged out of their group plan?

For most states, children age out of their parents’ medical insurance plans when they turn 26.  However, the insurance carrier may allow them to stay enrolled on the plan if they are a full-time student or disabled.  There may also be specific state rules that allow dependents to stay enrolled longer, so make sure to check with your insurance carrier or your insurance broker.

For dental and vision insurance, there may be different rules that dictate when a dependent child is no longer eligible to remain on the plan.  For example, some dental providers only allow children to stay enrolled until age 19, so make sure to check the rules of your specific plan.

Can employees remove dependents from their COBRA coverage?

To remove a dependent from COBRA coverage, employees will need to contact their COBRA Administrator.

Yes, dependents who are removed from the employee’s group insurance plans via a qualifying life event with the reason as divorce or legal separation, are eligible to enroll in COBRA. The employee or dependent can notify the COBRA administrator for enrollment.

COBRA and cancelation of group insurance policies

In the event that a company cancels their group insurance policy/policies, any COBRA enrollees on those plans will experience a QLE. This is considered a “loss of coverage,” as the policy and plans are no longer active or available to “continue” under COBRA.

COBRA enrollees can then use the loss of coverage QLE to enroll in coverage outside of open enrollment, such as coverage on the individual marketplace, coverage under a spouse, etc.

If the company cancels the policies, they need to inform any COBRA enrollees about the change.

Employee eligibility when a company goes out of business

If a company closes its doors, employees cannot participate in COBRA because there is no health plan to continue coverage under. Employees who lose their health coverage in this manner are advised to visit their local health care exchange to purchase health insurance.

Union members who are covered by a collective bargaining agreement that provides for a medical plan may be entitled to continued coverage.

COBRA complete contact information

For inquiries about enrollments, payments, or any general questions, please utilize the information below.

COBRA Participant Contact

Phone – 855-893-0011

Email – [email protected] com

Broker and Employer Contact

Phone – 877-791-3399

Email – [email protected] . com

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