The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) ensures that an employee who loses his or her job (as well as the individual’s spouse and/or children) will continue to receive coverage through the former employer’s group health insurance plan. Although typically more expensive for the former employee because they must now pay the entire premium, participating in the group coverage is almost always less expensive than if the employee had to purchase individual coverage.
According to the Bureau of Labor Statistics (BLS), nearly 9 million jobs were lost during the lowest point of the most recent recession and the overall unemployment rate rose from 5% to 10%. Historically, 1 million people have lost health insurance coverage for every single percentage point of the nationwide unemployment rate. If more people understood how to apply for and receive COBRA coverage, then a larger number of unemployed individuals would be able to safeguard the health of their families.
Following three years of double-digit inflation, the early 1980s were struck by two recessions. During the first, more than 1 million jobs were lost; a year later, when the second recession hit, another 3 million people became unemployed. In response to so many blue-collar and white-collar workers losing their health insurance coverage, President Ronald Reagan signed COBRA into law in 1985.
COBRA remained mostly unchanged until the most recent recession, when Congress, realizing that the average annual premium for a newly employed worker with a family would exceed $13,000, included a federal subsidy in the American Reinvestment Recovery Act (ARRA). After subsequent amendments, ARRA subsidized 65% of the cost of healthcare for fifteen months after an involuntary termination; as a result, the average family’s annual premium dropped below $5,000. This subsidy only applies to terminations that occurred prior to May 31, 2010.
Not everyone who loses their job may participate in COBRA. The law only applies to employers who have 20 or more employees and a group health plan. Employees, their spouses, ex-spouses, and dependent children may qualify; in some cases, retirees may also receive COBRA benefits. Generally, unless the employee has committed gross misconduct, COBRA will be available even if he or she chooses to leave the company. In fact, COBRA may apply even where the employee has not fully lost his job, but suffers a reduction in his number of work hours. Typically, COBRA continuation coverage lasts 18-36 months, although it may be extended in the event of a disability.
Note that those who work for smaller employers (fewer than 20 employees) will not be covered. Similarly, those who do not participate in a group health plan on the day before they are terminated are not eligible for COBRA. Finally, if the employee is terminated because of gross misconduct, then there is likely no COBRA coverage.
COBRA and HIPAA
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) can be used in conjunction with COBRA to ensure continuous coverage. For example, when someone changes jobs, HIPAA prevents the new employer’s health insurance plan from excluding him and his children for pre-existing conditions. There are exceptions to this rule, such as a child who has a 63-day “significant break in coverage,” that may lead to coverage exclusion. Those who are not eligible for the new insurance due to a waiting period can avoid the break in coverage by participating in COBRA.
Generally, an employee who is terminated or receives reduced hours, his spouse, and his dependent children may participate in COBRA for 18 months. Furthermore, if an eligible employee is not terminated but either gets divorced, dies, or switches to Medicare coverage, his spouse (or ex-spouse) and dependent child may participate in COBRA for 36 months. Finally, a child who is no longer dependent may continue to participate in the group health plan via COBRA for 36 months. All of these different developments that impact an individual’s ability to receive COBRA coverage are known as ‘qualifying events.’
In order to be bound by COBRA, an employer must have at least 20 employees working for at least half the typical business days during the previous calendar year. Part-time employees count, but only as a fraction of a full-time employee. The continuation coverage provided to eligible employees must be identical to coverage provided under the group health insurance plan; this means that co-payments, deductibles, choices, and limits remain the same. Typical plans that are covered include medical, dental, vision, and prescription drug plans.
One of the most common violations employers make with respect to COBRA is failure to provide error-free COBRA notices. These notices are required before an employee is typically terminated. In fact, the first notice (COBRA rights) must be provided within 90 days of the employee’s coverage beginning under the plan. Subsequently, each time a material change is made to the plan, a notice of those changes must be provided within 90 days, as well.
Within 30 days of a qualifying event (typically a termination or reduction of hours), the employer must send notice of COBRA coverage to the employee. Following that, within 14 days, the employer must provide all qualified beneficiaries (including spouses and ex-spouses) with notice of their right to elect COBRA coverage.
How to Apply for COBRA
Employers are obligated to notify their health plan administrators within 30 days of the qualifying event. After that, a notice of the employee’s (or beneficiary’s) right to receive COBRA coverage must be sent within 14 days. Those who wish to participate in COBRA coverage will be provided with explicit rules from the group health plan on how to apply for and make claims under the plan. The election must be made within 60 days of the later of the written notice being sent or the last day the employee’s health insurance coverage ended. This is a hard and fast rule, and failure to elect within the 60-day time period extinguishes all rights to COBRA benefits.
Even if you lose your job, it doesn’t mean you have to lose your health care. In the event of an adverse work event, take time to ensure you know your rights and eligibility, so that you and your family can continue to enjoy healthy lives.