COBRA Health Coverage: What Employers Need to Know

What exactly is COBRA insurance?

COBRA requires employers to extend temporary health coverage to employees who leave a job. The program gives departing employees the option to bridge the potential insurance coverage gap until they can get new insurance (typically by starting a new job), or for up to 18 months in most circumstances.

Do employers have to offer COBRA?

Federal law requires employers that have 20 or more employees and that also offer healthcare benefits offer COBRA’s continuation coverage benefits to departing employees who are eligible.

Who does COBRA cover?

COBRA requires coverage to be offered to employees, their spouses, former spouses, and dependent children. It requires most group health plans to provide a temporary continuation of group health coverage for employees, their spouses, and dependent children. If employees qualify for coverage, they have the option of continuing your employer-sponsored health plan for a limited period of time.

Which employees are eligible for COBRA benefits?

Employees who are covered by an employers’ plan will have the option of continuing health insurance coverage if they would otherwise lose their benefits as the result of:

• Termination or reduction in the hours of a covered employee’s employment (for reasons other than gross misconduct)
• The bankruptcy of a private-sector employer
• The death of a covered employee
• Divorce or legal separation from a covered employee
• A covered employee’s becoming entitled to Medicare
• A child’s loss of dependent status

Some states also have “mini-COBRA” laws that apply to employers with fewer than 20 workers, so it’s worth investigating what your state requires.

How much does COBRA coverage cost?

Employers can require employees or other covered individuals to pay the full cost of coverage, plus a 2% administrative charge.

COBRA coverage is often more expensive than what an employee pays for group health coverage since the employer typically pays a portion of the coverage, According to a 2017 Kaiser Family Foundation study, the average annual premium cost for employer-sponsored health insurance was $6,690 for individual coverage and $18,764 for family coverage. But employers covered 82% of the costs for individuals and 69% for families on average. Please note that costs can vary widely by state.

Through COBRA, the entire cost can be charged to individuals receiving continuation coverage.

What health plans are covered under COBRA?

COBRA generally applies to all group health plans maintained by private-sector employers with 20 or more employees or by state or local governments. It doesn’t apply to plans sponsored by the Federal Government or by certain religious organizations.

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

Employers must notify their health plan provider within 30 days of a qualifying event — in most cases when an employee is laid off or leaves their job. The election notice must be provided to former employees within 14 days from when the plan administrator receives the notice of a qualifying event.

If an employee is eligible for COBRA coverage, they must be given an election period of at least 60 days (starting when they are provided the election notice or the date they would lose coverage — whichever is later) to choose whether or not they want to continue coverage.

If an employee waives COBRA coverage during the election period, they must be permitted later to revoke their waiver and opt in for coverage — as long as they do so during the election period. But remember, the plan must only provide continuation coverage beginning on the date they revoke the waiver. This Employee’s Guide to COBRA from the Department of Labor can be a helpful guide to share with your terminated employees.

How long does COBRA last?

Typically, COBRA requires coverage that extends 18 months from the date of the covered employee’s termination of employment or reduction in hours. Under certain special circumstances, employees can extend COBRA coverage up to 36 months for themselves and their dependents. The duration is extended for specific qualifying events, like when a dependent child loses coverage.

What benefits are covered under COBRA?

Employees are entitled to the same benefits, options, and services that a “similarly situated participant or beneficiary” is currently receiving under the plan, including the option to change providers or add a dependent during open enrollment.

Can an employer cancel my COBRA insurance? 

In certain circumstances, yes. An employer can cancel COBRA coverage if it drops group health insurance coverage completely, fails to pay premiums, or goes out of business. If these things happen, COBRA law doesn’t apply because there is no health plan to “continue.”  Also, if the company reduces its employees to fewer than 20, employees are no longer eligible to under the COBRA law.

If a group health plan must terminate continuation coverage early, the plan provider must give the qualified beneficiary a notice of early termination.

Is COBRA optional?

Until 2014, COBRA was the only option to maintain employer-provided health insurance after a layoff. Today, individuals also have access to health insurance coverage through the Affordable Care Act marketplace or a short-term health plan. The state insurance marketplaces offer health insurance options to individuals who don’t have — or no longer have — access through their employers. For some, insurance through the state’s marketplace may cost less than paying for COBRA coverage.

Also keep in mind that COBRA isn’t the only benefit available to departing employees. They may be eligible for unemployment benefits, for example. Here is a state by state list of unemployment benefits and local contact information that may also be useful to your outgoing employees.

For additional information about COBRA, learn more at www.dol.gov/ebsa or contact the Employee Benefits Security Administration at 866-444-3272.