What Is COBRA Insurance?

COBRA Insurance, put simply, is the continuation of an employer-sponsored group health plan (medical, dental, or vision) at the expense of the employee rather than the former employer. After an employee is terminated (voluntary or involuntary) from a company, they may elect to pay the entire insurance premium to continue coverage.

COBRA is a law that stands for “Consolidated Omnibus Budget Reconciliation Act,” and was enacted in 1985. Former employees are known as Qualified Beneficiary (QB) when they elect for coverage.

COBRA vs Individual Health Insurance

COBRA is one health insurance option for former employees. Benefits include continuing the same coverage levels, visiting previously selected physicians, and avoiding a reset of the annual deductible.

There may be more affordable or generous coverage options

through other group health plan coverage (such as a spouse’s plan), the Health Insurance Marketplace, or Medicaid.

Who Qualifies for COBRA?

According to the Department of Labor, to qualify for COBRA, an employee must:

  • Be enrolled in a group health plan (medical, dental or vision insurance) at a company with more than 20 employees who work more than 50 percent of the company’s typical business days.
  • Be terminated for any reason other than “gross misconduct.”
  • Receive a reduction in hours of employment that disqualifies them from the employer’s group healthcare coverage.

A spouse or dependent child can become eligible for COBRA if:

  • Their coverage was provided by the QB’s group health plan and the above requirements are met.
  • The QB becomes entitled to Medicare.
  • They divorce or legally separated from the employed spouse and are no longer eligible for coverage from their group health plan.
  • The covered employee dies.
  • The child loses “dependent” status under the plan rules. According to the Affordable Care Act, plans that offer healthcare coverage to children on their parents’ plan must be available until the adult child is  26.

Once COBRA is in effect, coverage would end if one of the following occurs:

  • The QB is covered under another group health plan (such as new benefits with a new employer).
  • The QB becomes entitled to Medicare.

How Long Does COBRA Last?

COBRA lasts up to 18 months of continued insurance coverage. In some instances, an extension up to 36 months can be granted for a qualifying event. As mentioned above, qualifying events include the death of the employee, divorce, a dependent child becoming ineligible, and becoming entitled to Medicare.

How Do I Sign Up for COBRA?

Step 1: Wait for the Initial Letters

After termination from the employer, two letters will arrive called a “general rights notice” and “specific rights notice.” The general rights letter details what COBRA is and how it works; the specific rights notice details how much monthly premiums will be, how to pay premiums, and how to end coverage if needed. Employers can provide these letters themselves or hire a third-party benefits administrator to handle COBRA.

Step 2: Elect for Coverage

After the letters arrive, a QB can select one, two, or all the insurance options for continued coverage. There are 60 days from the first day of COBRA availability to select the coverage and make payments to ensure no gaps in coverage.

Step 3: Maintain Active Coverage

After electing for COBRA, QBs must maintain coverage month to month to avoid cancellation of benefits. Payments can be made month to month or for multiple months at a time. Those on COBRA will use the same insurance card and policy information to receive services.