Everything You Need to Know about COBRA Health Insurance - Netchex

Health insurance provides peace of mind for policyholders and their families. Losing a job, or even changing jobs, can mean the end of insurance benefits, in addition to income. For the past few decades, COBRA health insurance has made gap coverage for insurance more widely available, but what exactly is it and how does it work?

Discover everything you need to know about COBRA health insurance:

What is COBRA health Insurance?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) was passed in 1985. It protects employees and their families (under certain circumstances) from having to go without insurance. 

Smaller businesses are not legally required to offer COBRA. Generally, it’s required at companies with more than 20 full time employees, as well as state or local government jobs. (Federal workers have similar protections with Temporary Continuation of Coverage under FEHB.)

Who qualifies for COBRA coverage?

Recently unemployed people and their dependents are usually eligible for COBRA coverage at larger companies. As long as the termination wasn’t the result of gross negligence, it doesn’t matter whether the employee quit voluntarily or was fired.

Dependents may also qualify for COBRA after the death of the policyholder or after a divorce. Even children who lose dependent status may be eligible.

Which events trigger COBRA?

In addition to death, divorce and unemployment, you may qualify for COBRA after a big reduction in work hours (e.g. you no longer qualify for health insurance benefits).

If your employer reduces staff to less than 20 full time employees (and they won’t be obligated to provide COBRA in the future), then you can access COBRA while searching for a new insurance provider.

Additionally, if your employer files for Chapter 11 bankruptcy, then you may not be fired, but you still may want coverage while searching for your next job.

How much does COBRA cost?

COBRA health insurance can be expensive. Many employers pay more than half of the monthly premiums for health insurance coverage for their employees. COBRA requires the departing employee to pay the full premium, as well as an administrative fee. The administrative fee can be up to 2% of the premium cost.

For someone in between jobs, paying more than double for insurance is a noticeable drain on savings. On the other hand, an unexpected medical emergency can end up costing a lot more than insurance premiums. Going without insurance can be a big financial risk.

What benefits does COBRA health insurance cover?

COBRA provides coverage for dependents as well as the original policyholder. Not all benefits are eligible. Vacations, disability leave, retirement plans, and life insurance are not included with COBRA.

Depending on what benefits are already offered to employees, companies may have to offer COBRA coverage on all the following benefits:

  • Health care plans
  • Medical spending accounts
  • Vision coverage
  • Dental coverage
  • Hearing coverage
  • Mental health coverage
  • Alcohol and substance abuse plans
  • Prescription drug coverage

Do employers have to offer COBRA health insurance?

Since 1985, qualifying employers have been required to offer and facilitate COBRA coverage. Within 90 days of first signing up for insurance benefits, employees must be notified of their COBRA rights.

If the workers qualify for COBRA because of workplace circumstances like termination or bankruptcy, then the employer must notify the plan within 30 days. If a divorce or a child’s loss of dependent status triggers COBRA, then the employee is responsible for notifying the provider. Once the insurance provider has been notified about a qualifying event, they must provide beneficiaries an election notice within 14 days.

Given the complexity of COBRA administration, many companies choose to outsource this important HR task. Use benefits administration software to reduce the burden on HR staff and better serve employees. Electronic COBRA paperwork automatically tracks form completion for compliance and clear documentation. 

How do I sign up for COBRA health insurance coverage?

Departing employees have 60 days to decide whether to sign up for COBRA. Talk to HR staff and look through onboarding paperwork you received as a new employee. COBRA policies are one of the important things to include in employee handbook.

How long does it take for COBRA coverage to kick in?

COBRA is intended to prevent a gap in insurance coverage, so your health insurance coverage should continue without interruption. The biggest difference will come with the premium being paid completely by the employee.

Under most circumstances, like a beneficiary getting fired, COBRA coverage may last up to 18 months. Less often, coverage may last for 36 months or 3 years. Beneficiaries who find a new job quickly can drop the COBRA coverage (and premiums) as soon as benefits become available with their new employer.

If departing employees choose not to take advantage of COBRA, they can sign up for coverage in the healthcare marketplace, established by the Affordable Care Act. ACA coverage may be cheaper, but it would not be a continuation of the same insurance policy provided by the employer. ACA health insurance coverage can be scheduled to begin on the first of the month, immediately following the end of employer coverage.

Can I lose COBRA coverage?

Yes, COBRA coverage can be lost at the end of the time limit (18 or 36 months). COBRA coverage also stops when premium payments are missed. You may have up to 45 days to submit your first payment for COBRA coverage.

If the past employer stops providing any kind of group health insurance for employees, that might result in an early termination of COBRA coverage. Learn more about the federal requirements by checking out the COBRA resources with the US Department of Labor

COBRA coverage provides a safety net for the newly unemployed and their dependents. It’s not always the cheapest insurance option, but it minimizes the disruption of repeatedly changing plans and providers. During stressful times like unemployment and family tragedies, it may be worth paying extra for the peace of mind that comes with continued coverage.

Improve efficiency and reduce the room for error in your HR department by outsourcing COBRA health insurance administration with Netchex.

Learn more about Netchex’s Benefits Management software, including COBRA administration:

Learn more about our Benefits Administration software, where comprehensive doesn’t have to mean complex. Netchex makes Benefits Administration (and COBRA health insurance) easy, straightforward, and worry-free.

Industry news & tips sent straight to your inbox!

Enter your email below to subscribe to industry news, product updates, and tips.

 

For more information on HR topics, read our HR blog and follow Netchex on social media—Facebook, LinkedIn, and Twitter.