Cobra insurance

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a landmark federal law that provides continuing coverage of group health benefits to employees and their families upon. COBRA maintains health benefits upon the occurrence of certain qualifying events where such coverage would otherwise be terminated.

The qualifying events under which COBRA continuation health coverage can be extended include voluntary or involuntary job loss, reduction in hours worked, job transition, death, divorce and other life events. Group coverage under COBRA may be extended for a maximum of 18 months due to employment termination or reduction of hours worked, though coverage may be extended to 36 months under certain circumstances. COBRA covers health plans maintained by employers with more than 20 employees.

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BREAKING DOWN ‘Consolidated Omnibus Budget Reconciliation Act — COBRA’
COBRA continuing coverage is meant to provide an element of financial security to workers who would otherwise lose coverage because of a layoff, divorce or other event. COBRA participants may be required to pay the full premium for health coverage up to 102% of the plan cost. While COBRA coverage is therefore more expensive than coverage for active employees, for whom the employer generally pays a portion of the premiums, it can still be more economical than individual health plans.

How COBRA is Used to Provide Continuing Coverage
COBRA typically requires employers to make the opportunity known to employees and their families about receiving a temporary extension on their health coverage. COBRA coverage is available for fulltime and some part-time employees at companies that offer a group health plan that had been in effect in the prior year. Employers and plan providers must also provide notice to the employees and their families that they have this option.

The law also outlines how employees and their families can go about electing to receive continuation coverage. COBRA coverage commences the day after an employee is terminated. If the former employee elects to take COBRA insurance coverage, the first payment for this insurance typically falls to the employer to make. The ongoing costs for this coverage after that payment will solely be the former employee’s responsibility.

Companies that do not offer group health benefits to employees are exempt from offering COBRA coverage. Likewise companies that are going out of business typically do not have to adhere to COBRA’s requirements. COBRA coverage can be denied certain circumstances, such as in instances where employees are fired for misconduct that is related to their jobs.

In addition to the federal regulations, many states have their own laws that govern the continuation of health coverage after a qualifying event.
As originally enacted, Title X of the Act provided that a qualifying employer will not be permitted to take a tax deduction for its health insurance costs unless its health insurance plan allows employees of the employer and the employee’s immediate family members who had been covered by a health care plan to maintain their coverage if a «qualifying event» causes them to lose coverage. However, the legislation was subsequently amended to instead impose an excise tax upon an employer whose health plan fails to satisfy the applicable rules. A qualifying employer is generally an employer with 20 or more full-time-equivalent employees.[a]

Among the «qualifying events» listed in the statute are loss of benefits coverage due to (1) the death of the covered employee; (2) an employee loses eligibility for coverage due to voluntary or involuntary termination or a reduction in hours as a result of resignation, discharge (except for «gross misconduct»[4][5]), layoff, strike or lockout, medical leave, or slowdown in business operations; (3) divorce or legal separation that terminates the ex-spouse’s eligibility for benefits; or (4) a dependent child reaching the age at which he or she is no longer covered.[b] COBRA imposes different notice requirements on participants and beneficiaries, depending on the particular qualifying event that triggers COBRA rights.[c] See DOL.GOV’s FAQs For Employers About COBRA Continuation Health Coverage

COBRA also allows for coverage for up to 18 months in most cases. If the individual is deemed disabled by the Social Security Administration, coverage may continue for up to 29 months.[d] In the case of divorce from the former employee, the former spouse’s coverage may continue for up to 36 months. In the case of death of the former employee, the widow’s coverage may continue for up to 36 months.[e]

COBRA does not apply, on the other hand, if employees lose their benefits coverage because the employer has terminated the plan altogether or if the employer has gone out of business. In cases where COBRA does not apply, some states have stepped in with state health insurance continuation laws, usually called «mini-COBRA» laws, which help employees continue their health insurance when federal COBRA does not apply.[12]

COBRA does not, unlike other federal statutes such as the Family and Medical Leave Act (FMLA), require the employer to pay for the cost of providing continuation coverage. Instead it allows employees and their dependents to maintain coverage at their own expense by paying the full cost of the premium the employer and the employee previously paid, plus up to a 2% administrative charge (50% for the latter 11 months under the disability extension).

According to the U.S. Department of Labor:[13]

…the coverage you are given must be identical to the coverage that is currently available under the plan to similarly situated active employees and their families (generally, this is the same coverage that you had immediately before the qualifying event). You will also be entitled, while receiving continuation coverage, to the same benefits, choices, and services that a similarly situated participant or beneficiary is currently receiving under the plan, such as the right during an open enrollment season to choose among available coverage options. You will also be subject to the same rules and limits that would apply to a similarly situated participant or beneficiary, such as co-payment requirements, deductibles, and coverage limits.

Employees and dependents can also opt for a lesser form of coverage, e.g., to choose continuation coverage under a plan that only covers the employee, but not his or her dependents, or that only provides medical and hospitalization coverage and does not pay for dental work, if those options are available to covered employees.

Employees and dependents lose coverage if they fail to make timely payments of these premiums. Employers are required to inform employees and dependents upon loss of coverage, in writing, by at least fifteen days before the coverage ceases.

Coordination of coverage
An individual covered under COBRA may also be covered by another group health plan or Medicare[14] as long as either of two conditions is met:[15]

The other coverage was in force as of or prior to the coverage under COBRA.
The other coverage is subject to pre-existing conditions exclusions or limitations.
Subsidy under federal stimulus
Only 10% of Americans eligible for COBRA insurance in 2006 used it, many because they were unable to afford to pay the full premium after their job loss.[16] While some employers may voluntarily help subsidize or fully cover the cost of COBRA insurance as part of a termination or exit package, it is more common for the ex-employee to cover the entire cost.[17]

The American Recovery and Reinvestment Act of 2009 as signed by President Barack Obama includes a 65% subsidy to employees for COBRA-enabled insurance for up to 9 months[18] after an involuntary termination (this has since been expanded to 15 months). An employee is eligible for this subsidy if

the termination of employment was involuntary,
the terminated employee has no other group sponsored health insurance option, and
the terminated employee is otherwise eligible to enroll in COBRA.
If the employee has an adjusted gross income in 2009 over $125,000 if filing as single ($250,000 if filing jointly), then the subsidy will be recaptured in a phased manner from the employee through the tax system.

Termination of employment must have occurred between September 1, 2008 and December 31, 2009 (later expanded to February 28, 2010, expanded again to March 31, 2010, and then expanded again to June 2, 2010). Specific provisions and responsibilities may differ in the state specific mini-COBRA plans for employers with fewer than 20 employees throughout half of the previous calendar year. Those employees who are eligible for the ultimate benefits of this subsidy are referred to as Assistance Eligible Individuals (or AEIs).

Employers subject to Federal COBRA are required to:[18]

Notify terminated employees of their potential rights under ARRA by sending a series of notices
Provide a method for qualified AEIs to enroll
Pay the full amount of the premiums and seek reimbursement of the 65% subsidy by including it in the Employer’s Quarterly Federal Tax Return (Form 941)
This Act was signed into law by President Barack Obama on February 17, 2009.

On December 19, 2009, President Obama signed into law the Department of Defense Appropriations Act, 2010, which made several amendments to the COBRA provisions of the American Recovery and Reinvestment Act of 2009 (ARRA). The Act extends COBRA subsidy eligibility to employees who lost their jobs due to no fault of their own between January 1 and February 28, 2010. The nine-month subsidy period was also expanded to fifteen months.[19][20]

On March 3, 2010, President Obama signed into law the Temporary Extension Act of 2010.[21] The Act extends COBRA subsidy eligibility to employees who lost their jobs due to no fault of their own between March 1 and 31, 2010.[22] In addition, employees who lost group health insurance due to reduced work hours on or after Sept. 1, 2008, followed by involuntary termination between March 2 and March 31, 2010, will now be eligible for the COBRA subsidy.[23]

The Continuing Extension Act of 2010 extends premium assistance for COBRA benefits through May 31, 2010.[24]

As of June 2010, an extension of COBRA’s premium assistance has not materialized, and attempts by congressional members to include such provisions have been dropped. As of June 1, 2010, all newly unemployed workers must pay full coverage costs as determined by their respective plans.[25] This is due in part to conservative Democrats in Congress who have expressed concerns about treating some unemployed workers differently from others, such as people priced out of the private insurance market.[25] A number of Senate Democrats expressed concern about this situation and have introduced legislation to expand COBRA coverage to people who become unemployed through November 2010,[25] but such legislation did not pass in 2010.[citation needed]

Similar state and local legislation
Forty-one states have legislation similar to federal COBRA requiring employers to allow employees and their dependents to continue their group health insurance coverage following certain qualifying events.[26][27] The district of Columbia also has laws covering COBRA.

California’s legislation only applies to non-government employers with a group health insurance plan with fewer than twenty employees.[28]

District of Columbia
The District of Columbia’s Continuation of Health Coverage Act of 2001 applies to employers with a group health insurance plan with a situs in the District of Columbia and with fewer than twenty employees. Coverage must be offered to be extended for a period of three months following the date that coverage would have ended.[29]

Maryland’s legislation only applies to employers with a group health insurance plan with a situs in Maryland and with fewer than twenty employees that continuation coverage must be offered to an employee who lives in Maryland, who had coverage from the employer for at least three months, and who either resigns or loses employment due to no fault of their own. Continuation coverage must also be offered to the former spouse and dependent children of an employee after a divorce. One exception to the eighteen-month rule is that coverage may end for the former spouse upon the former spouse’s remarriage. Continuation coverage must also be offered to the surviving spouse and dependent children of an employee who dies. The employee must have resided in Maryland and had coverage with the employer for at least three months prior to death. In all cases, continuation coverage must be offered for eighteen months, with the exception that a former spouse’s continuation coverage ends upon biye.[30]

Virginia’s legislation applies to employers with a group health insurance plan, other than an HMO plan, and with twenty or fewer employees. Employers must offer continuation coverage to employees for twelve months.[31] The legislation does not apply to employees who did not have coverage from the employer for at least three months prior to the qualifying event.[32]