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Know your COBRA rights

If you lost your job, continuing your group health coverage may be a challenge. Whether you received a pink slip, resigned or have been cut down to part-time, you should know your COBRA rights.

COBRA health insurance informationCOBRA, the Consolidated Omnibus Budget Reconciliation Act, enacted in 1986, is an amendment of the Employee Retirement Security Act. It provides safety net when you lose your group health plan.

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Under COBRA, if you voluntarily resign from a job or are terminated for any reason other than "gross misconduct," you are guaranteed the right to continue your employer's group plan for up to 18 months at your own expense. In many cases, your spouse and dependent children are also eligible for COBRA coverage, sometimes for as long as three years (36 months).

If you continue your plan under COBRA, you can be charged 100 percent of the premiums plus a 2 percent administrative fee. According to a 2009 report by the nonprofit group Families USA, group health coverage for COBRA participants is useful but comes at a high price. The report shows that COBRA eats up 84 percent of the average monthly unemployment benefit.

Even if you're eligible for COBRA, you may want to consider buying individual health insurance or short-term health insurance to bridge the gap until you land a new job with health benefits.

COBRA eligibility rules

If your company has 20 or more employees enrolled in a group plan who have worked at least half the year, you are eligible for COBRA coverage. This includes full and part-time workers.

One of several types of "qualifying events" must occur to make you eligible for COBRA, as the chart below outlines. You then are eligible to buy COBRA for the maximum coverage period as determined by your beneficiary status and the qualifying event.

Additionally, your spouse or any of your children may enroll in COBRA regardless of your own COBRA-election decision, assuming they were insured under your employer's group plan. Even if you forgo COBRA, any of your qualified family members may elect to continue their health insurance benefits under your former employer's plan. According to the Insurance Information Institute (III), qualifying events may include:

  • You leave a company and become unemployed or self-employed.
  • You are a widow or widower or child of an employee who died.
  • You are the divorced spouse or child of an employee who has left the company.
  • You are the child of an employee and you have reached the plan's cut-off age.

 

COBRA coverage periods

Qualifying event

Beneficiary
 eligible for COBRA

Maximum
 coverage
 time

Voluntary or involuntary termination of job other than gross misconduct

Reduced hours

Employee

Spouse


Dependent child

18 months

Total disability

Employee

29 months

Employee entitled to Medicare

Divorce or legal separation

Death of employee

Spouse


Dependent child

36 months

Loss of dependent-child status

Dependent child

36 months

COBRA eligibility also extends to workers in state and local government, as well as to workers classified as independent contractors. Nonprofit organizations with 20 or more employees and a group health plan are subject to COBRA regulations.

However, the law grants an exemption from COBRA continuation rules to federal employees, certain church-related organizations and firms employing fewer than 20 people. (Federal employees are covered by rules similar to COBRA. The U.S. Department of Labor advises federal employees to contact the personnel office serving their agency for information on extending health insurance coverage.) The IRS rules state that employers must figure part-time workers into their employee total to determine if they can claim exemption. Some states have enacted "mini-COBRA" laws that apply to employers with 2 to 19 workers; see state-specific laws for COBRA.

You must be covered under an employer health plan at the time of your job departure to be eligible for COBRA. If your employer has more than 20 workers but doesn't offer health coverage, or offers coverage only to certain groups of employees and you're not one of them, you won't be eligible for COBRA even if one of the qualifying events occurs — nor will your spouse or children be eligible.

In addition, if your employer goes out of business, you won't be eligible for COBRA because there is no longer a health plan to "continue."

Your COBRA coverage ends when:

  • You reach the last day of your 18- or 36-month COBRA coverage period.
  • Premiums are not paid.
  • The employer ceases to maintain any group health plan.
  • The employer goes out of business.
  • You obtain coverage through another employer group health plan that does not contain any exclusion or limitation regarding pre-existing conditions. (Eligibility under a spouse's group health plan does not count.)
  • You become eligible for Medicare benefits.

Plan selection

Employers can — but are not required to — give you the option of dropping such benefits as dental and vision care while you're on COBRA. On the other hand, if you were covered by three different health plans at the same time (such as one each for hospitalization, prescriptions and medical), you have the right to elect continuing coverage on any or all of them.

Additionally, if your former employer changes its health insurance plan for its current employees, you are entitled to receive benefits under the new plan.

If your employer switches plans, you won't be able to keep the old plan — you'll have to move to the new plan with the rest of the group.

Separate vs. "bundled" health insurance plans

If your former employer offers separate health insurance plans (dental, medical and vision, for example), you and each of your qualified family members may choose to continue any combination under COBRA. However, if your employer sponsors one plan with multiple health insurance benefits, you must each elect all the benefits or nothing.

Health plans subject to COBRA are:

  • Medical plans.
  • Dental, vision and prescription drug plans.
  • Drug and alcohol treatment programs.
  • Fully insured and self-insured group health plans, including HMOs.
  • Employee Assistance Plans, known as EAPs, that provide medical care such as counseling or psychological treatment.
  • On-site health care, including discounted or free medical services.
  • Section 125 flexible spending accounts, also known as cafeteria plans, under certain circumstances.

Benefits not subject to COBRA are:

  • Wellness programs.
  • Some church plans.
  • Federal government health plans.
  • Disability-income policies.
  • Accidental death and dismemberment (AD&D) policies.
  • Life, disability and long-term care insurance plans, and medical savings accounts (MSAs).
  • EAPs that do not provide medical care.

The rules for beginning COBRA

Both you and your former employer must follow proper procedure to initiate COBRA, or else you could forfeit your rights to coverage.

The employer must notify the health plan administrator within 30 to 60 days after an employee's "qualifying event." In cases of divorce, marital separation or a child's loss of "dependent" status, it is you or your family's responsibility to notify the health plan administrator within 60 days of the event. Once notified, the plan administrator then has 14 days to alert you and your family members — in person or by first-class mail — about your right to elect COBRA.

The IRS gets tough here: If the plan administrator fails to act, he or she can be held liable for a breach of duties. If you move, it is your (or your family's) responsibility to tell the health plan administrator.

You, your spouse and/or your children have 60 days to decide whether to purchase COBRA. This "election period" is counted from the date your eligibility notification is sent to you, or the date that you lost your health insurance coverage.

Changing your mind

Your COBRA coverage will be retroactive to the date that you lost your benefits (as long as you pay the premium). During the election period, you might initially decide not to take COBRA, which means you waive your right to coverage. However, as long as the election period hasn't expired, you can change your mind and revoke your waiver.

Even if you enroll in COBRA on the last day you are eligible, your coverage is retroactive to the date you lost your job, provided you pay all the retroactive premiums.

If you waive your right to COBRA but then incur medical bills during the election period, you can change your mind and elect COBRA, and your plan will cover those bills.

Conversely, if you elect COBRA, you can cancel it at any time. You don't have to use it for your full eligibility period.

Other COBRA details

Premium payments. After you elect COBRA, you have to pay the first premium within 45 days. That first premium is likely to be high because it covers the period retroactive to the date coverage ended through your employer. Successive payments are due according to health plan requirements, but COBRA rules allow for a 30-day grace period after each due date for payment.

Short-payment rule. If your COBRA payment is short by an "insignificant amount" — either 10 percent or $50, whichever is less — an employer must accept the short payment as payment in full, or notify you of the deficiency and allow you another 30 days from the date that you receive the notification to pay the remainder.

Extensions. Although COBRA sets specific time limits on coverage, there is nothing stopping the employer from extending your benefits beyond the mandated coverage period.

Notification rights. Because COBRA is a federal law, the U.S. Department of Labor has jurisdiction over issues involving notification of COBRA coverage. Employers that fail to comply with the notification rules face fines for every day that no notice is sent after the deadline. In addition, the IRS can assess an excise tax against any company that does not comply with COBRA regulations.

New workers. Newly hired employees must be given an initial general notice about their COBRA rights.

Plan description. COBRA information must be contained in the summary of the health plan description employees must receive when they are new to the plan.

Switching plans. If your employer offers an open enrollment period to active employees and you're on COBRA, you must also be given the option to switch plans during that time. You may also add new dependents (a newborn, newly adopted child or new spouse) if your employer offers this option to active employees.

Conversion plans. If the health plan offers the option of converting from a group plan to an individual policy under COBRA, you must be given that option and allowed to convert within 180 days before COBRA ends. But you'll pay individual, not group, rates, and switching to individual coverage could weaken any protections you have under the federal HIPAA law.

Moving. If you relocate out of your COBRA health plan's coverage area, your former employer is not required to offer you a plan in your new area.

Premium costs. Your premiums can be increased if the costs of the health plan increase for everyone at the workplace, but generally they must be fixed in advance of each 12-month cycle. The plan must also allow you to pay premiums on a monthly basis if you want. To offset the extra administrative costs of servicing a COBRA participant, the plan may charge up to an additional 2 percent of the normal group premium.

Premium notices. Neither the health plan nor the employer are required to send you monthly premium notices, so make sure you pay attention to due dates.

Disability. People eligible for Social Security Disability benefits may receive COBRA coverage for 29 months if the Social Security Administration determines that the individual is totally disabled.

Foreign competition. People who lost their jobs due to foreign competition or people ages 55 to 64 who are enrolled in pension plans taken over by the Pension Benefit Guaranty Corp. (PBGC) are eligible for a tax credit to pay 65 percent of their COBRA premiums. For additional information, go to the PBGC Web site

For more information regarding COBRA, visit the U.S. Department of Labor’s frequently asked questions site about COBRA.

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