Introduction to COBRA Continuation
The Consolidated Omnibus Budget Reconciliation Act, commonly known as COBRA, is a critical federal law that provides workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances. For the complete Accident & Health exam guide, understanding COBRA is essential as it governs the transition between group and individual coverage.
COBRA applies to specific voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified beneficiaries may be required to pay the entire premium for coverage up to a specific percentage of the plan cost. It is a bridge designed to prevent gaps in health insurance coverage, which is a primary goal of modern accident and health insurance regulation.
The 20-Employee Rule
COBRA generally applies to all private-sector group health plans maintained by employers that regularly employed at least twenty employees on more than half of its typical business days in the previous calendar cycle. Both full-time and part-time employees are counted to determine whether an employer is subject to COBRA; part-time employees are counted as a fraction of a full-time employee.
Identifying Qualifying Events
A qualifying event is a specific occurrence that causes an individual to lose health coverage. The type of qualifying event determines who the qualified beneficiaries are and how long the continuation coverage will last. You should prepare for practice Accident & Health questions by categorizing these events into those affecting the employee and those affecting dependents.
- For Covered Employees: Termination of employment (for reasons other than gross misconduct) or a reduction in the number of hours of employment.
- For Spouses: Termination of the covered employee's employment, reduction in the employee's hours, death of the covered employee, divorce or legal separation from the covered employee, or the covered employee becoming entitled to Medicare.
- For Dependent Children: The same events as listed for spouses, with the addition of the child losing "dependent status" under the plan rules (often due to reaching a specific age).
Maximum Coverage Periods
| Feature | Qualifying Event | Maximum Coverage Duration |
|---|---|---|
| Termination or Reduction in Hours | Eighteen Months | Twenty-Nine Months |
| Disability (Social Security Definition) | Twenty-Nine Months | N/A |
| Death of Covered Employee | Thirty-Six Months | N/A |
| Divorce or Legal Separation | Thirty-Six Months | N/A |
| Loss of Dependent Child Status | Thirty-Six Months | N/A |
Notification and Election Timelines
Specific timelines must be followed to ensure COBRA rights are preserved. Under the law, group health plans must provide covered employees and their families with a general notice explaining COBRA rights. When a qualifying event occurs, the employer must notify the plan administrator.
The Election Period is a critical window. Qualified beneficiaries must be given an election period of at least sixty days to decide whether to elect COBRA coverage. This period is measured from the later of the date the coverage would be lost or the date the COBRA election notice is provided. If elected, coverage is retroactive to the date of the qualifying event, ensuring no gap in protection.
COBRA Financials and Administration
Premium Costs and Premature Termination
While COBRA allows individuals to stay on a group plan, the cost is often significantly higher than what they paid as active employees. The employer is no longer required to contribute toward the premium. The beneficiary can be charged 100% of the total premium plus a 2% administrative fee, totaling 102% of the plan's cost.
COBRA coverage can terminate earlier than the maximum period if any of the following occur:
- Premiums are not paid on a timely basis.
- The employer ceases to maintain any group health plan (goes out of business).
- A qualified beneficiary begins coverage under another group health plan (after electing COBRA).
- A qualified beneficiary becomes entitled to Medicare benefits.
- A qualified beneficiary engages in conduct that would justify the plan in terminating coverage of a similarly situated participant (such as fraud).