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What Is COBRA Insurance (Explained: All You Need To Know)

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What Is COBRA Insurance

COBRA insurance provides U.S. workers and their families who lose their job in certain circumstances the right to choose to continue their group health benefits offered by a group health plan.

COBRA is actually the acronym for the Consolidated Omnibus Budget Reconciliation Act.

In other words, further to the COBRA requirements, employers having 20 employees or more in the prior year must offer their employees and their families the ability to obtain a temporary extension of their health coverage in certain circumstances when their employment ends.

The main objective of COBRA is to give the chance to employees and their families to elect continuation of their coverage at the end of their employment.

What Does COBRA Insurance Cover

COBRA allows eligible employees who lose their job to continue their group health benefits offered by their employers.

When an employee elects a COBRA continuation coverage, his or her group health coverage will extend for a period between 18 to 36 months depending on the circumstances of the case.

In essence, COBRA is a health insurance coverage program possibly covering things like:

  • Prescription drugs
  • Dental treatment 
  • Vision care

The coverage is offered to the employee, their spouse, dependent children, or former spouses.

COBRA is not a life insurance or disability insurance where it would make a payout should a particular event were to occur.

What Are The COBRA Qualifications

To be eligible for COBRA, you need to meet the COBRA qualification requirements.

In addition to that, you will be eligible to receiver COBRA coverage when a qualifying event were to take place.

The first aspect to consider is that employers with more than 20 full-time employees or more are required to offer COBRA coverage to their employees.

If a company goes out of business or their employee count drops below 20 employees, then an employee losing his or her job may not be eligible for COBRA.

The legal requirements under COBRA apply to private-sector plans and various plans sponsored by local and state governments but it does not apply to federal employees who have their own specific program.

Here are the COBRA qualification factors to consider:

  • The individual must have been enrolled in the employer’s group insurance plan the day before the qualifying event
  • The group health benefit must have been in effect for at least half of the business days in the previous calendar year 
  • The employer must continue to offer the same group health benefit to existing employees 
  • The qualifying event must result in a loss of the employee’s group health coverage such as voluntary or involuntary loss of a job or a decrease in the number of hours worked

Should a qualifying employee lose his or her job, then the person’s spouse may be eligible under COBRA to the extent the employee is entitled to Medicare, divorce, legal separation, or death.

The same conditions apply for the dependent children along with the loss of a dependent child status can give the employee to continue the coverage.

How Does COBRA Insurance Work

A COBRA insurance is a type of insurance program that you get when you are employed by a company and consists of a group plan offered to all the eligible employees of the company.

The objective of COBRA is to give you the option to continue your group benefits even after you are no longer an employee provided you are an eligible person and you lost your job due to a “qualifying event”.

If you are eligible for COBRA, the way it works is as follows:

  • You get a notice from your employer and insurance provider giving you information about COBRA
  • You will be given 60 days to elect to continue your health coverage or not under COBRA
  • If you elect to continue your coverage, your COBRA insurance will start the day after your employer’s group plan ends 
  • You get the same coverage under COBRA as under your employer’s group plan
  • COBRA will provide you coverage for a period of 18 to 36 months 

If you find another job and get enrolled in another group health insurance plan, then your COBRA coverage will end.

Your COBRA coverage can also end if you choose to terminate it should the premiums be too expensive for you or if you’ve found an individual health insurance plan somewhere else.

What Are COBRA Benefits

The main COBRA benefit is that you are able to continue the same health plan coverage you had with your employer even after you lose your job.

In other words, even though you are no longer employed by your former employer, as an ex-employee you are still able to take advantage of the plan benefits and your beneficiaries remain protected as well.

Once you are no longer eligible to receive your company’s group health insurance coverage, you will have up to 60 days to elect whether or not you’d like to continue your coverage.

If you elect to continue your coverage, you’ll continue receiving the same COBRA benefits as before for a period ranging between 18 to 36 months depending on the case.

Your COBRA benefits are exactly identical to what your employer is offering to its existing employees.

Should the group benefits be modified or changed by the employer in its normal course of business will also apply to you.

What Is The Cost of COBRA Insurance

The cost of COBRA insurance can be high for an employee electing to continue coverage.

In certain cases, the qualifying person may be required to pay all of the premiums to benefit from continued coverage.

Employers usually pay an important portion of the COBRA insurance premiums.

However, for an employee who loses his or her job, the cost of COBRA insurance is very high as they will have no income and must assume the full cost of the insurance premium including the portion that their employer used to pay.

For example, if your employer assumed 60% of your premiums and as an employee you assumed 40%, to continue your benefits, you’ll be asked to pay your portion of 40% and also your employer’s portion of 60%.

In some cases, an additional 2% administrative charges can apply resulting in you having to pay 102% of the total premium costs.

What Is COBRA Continuation Coverage

In the United States, COBRA is a law requiring employers who employ a certain number of full-time works to mandatorily provide health insurance coverage to their qualifying employees and pay part of their insurance premiums.

Now when a person is no longer an employee for different reasons and becomes ineligible to receive group health coverage, the employer has the right to stop paying for the person’s insurance premiums.

When that happens, the employer must give the chance to the former employee and their dependents to keep the same health insurance coverage for a temporary period by assuming the full cost of the premium.

In other words, the former employee will be required to pay his or her share of the insurance premium and also pay the portion the employer used to pay as well.

Although it’s more costly for an employee to continue the same group health insurance coverage by paying the full cost of the premium, in many cases the cost will be less than if the individual were to get the same coverage under an individual health plan.

Frequently Asked Questions

Let’s look at a few common questions related to what is COBRA coverage so you can better understand the concept.

What Is A COBRA Plan

The Consolidated Omnibus Budget Reconciliation Act, known as COBRA, is a health insurance program allowing employees and their families to continue their health insurance benefits should the employee lose his or her job.

Typically, companies employing more than twenty employees are required by law to offer COBRA coverage to their employees.

What Does COBRA Stand For

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act.

COBRA is a US federal law requiring that employers give the right to their employees and workers to keep their group health plan if they were to lose their job, experience a reduction of work hours, or in certain circumstances.

What Does COBRA Cover

COBRA will provide you with the exact same benefits that you had under your employer’s health insurance plan.

On the other hand, COBRA will not provide you with benefits or coverages outside of what you previously had with your former employer such as disability insurance, life insurance, hospital care coverage, or other forms of supplemental coverages.

How Do You Qualify For COBRA Health Insurance

You can qualify for COBRA health insurance when you are a qualifying individual and you lose your job due to a qualifying event.

As an employee, you are an eligible person if:

  • You have been employed by the employer offering a group health plan
  • You were covered by the group health plan 
  • You lose your job in cases like lay off, termination, retirement, or your work hours are reduced 

Your dependents may be eligible if:

  • They are dependents of a person qualifying under COBRA
  • Spouses of a qualifying person who files for divorce or files for legal separation 
  • The spouse of an eligible employee who dies 

What Is COBRA Coverage Takeaways 

So there you have it folks!

What is COBRA insurance and how does it work in simple terms?

What does COBRA cover?

COBRA insurance is a legally mandated requirement allowing you to temporarily continue your health coverage after you lose your job based on a qualifying event.

The Consolidated Omnibus Budget Reconciliation Act is a federal law enacted in 1985 giving individuals who lose their job or for other qualifying events the option to continue their existing health insurance coverage for some time.

The law requires that employers have 20 or more full-time employees to offer COBRA coverage to their qualifying employees.

If you are an employee of a company benefiting from a group insurance plan, should you lose your job due to a qualifying event such as being laid off or fired, you will have the ability to continue your group health care plan under COBRA for a limited period of time.

Under COBRA, you will get the same coverage as you used to get under your company group benefit plan.

However, to get COBRA insurance coverage, you will need to assume all of the insurance premiums for the coverage and possibly an additional 2% administration fee.

If you take the COBRA coverage, you can then terminate it if you cannot afford to pay the premiums or it will end if you find another job giving you group benefits.

You now have the main takeaways relating to a COBRA coverage.

I hope that I was able to answer your questions such as what is COBRA in healthcare, what is COBRA benefit, what does COBRA cost, and how does it work.

Good luck!

Let’s look at a summary of our findings.

What Is COBRA Insurance Summary

  • COBRA is the acronym for Consolidated Omnibus Budget Reconciliation Act
  • It provides eligible employees and their families or dependents the opportunity to continue their group health insurance coverage when the employee loses their job or in certain circumstances 
  • With COBRA, you can continue the same group health plan that you had when you were employed by your previous company including medical, dental, or vision care 
  • When you take COBRA, your coverage starts the day after your employer’s group benefits send
  • You must pay the entire premium for the coverage including the portion you used to pay as an employee and the portion your employer used to pay for you (you may also be subject to an extra 2% administration fee)
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