When health insurance is tied to employment, the loss of both the job and coverage can pose a serious financial challenge. The Consolidated Omnibus Budget Reconciliation Act, however, requires many employers to offer extended health insurance to recently terminated employees. The law sets out guidelines on who must offer COBRA, who is eligible to accept it, and how long the "continuation" coverage lasts.
Federal law governs COBRA continuation coverage. The law requires any employer with 20 or more employees, and who maintains a group health insurance plan, to offer an extension of insurance coverage to employees who are about to lose it. The law covers private and public employers, whether for-profit or non-profit, with the exception of religious institutions and the federal government. Employers must notify employees about the COBRA option when the employee first gains overall coverage, and at the "qualifying event" that makes them eligible for extended insurance.
Any termination is considered a qualifying event for Cobra unless the employee was let go for gross misconduct. In addition, if an employee loses group coverage because his hours were cut, the employer must notify him of his COBRA option. A spouse or child of the employee can also take advantage of COBRA if they lose coverage through termination, a loss of work hours, divorce or legal separation, or death of the covered employee.
Premiums and Minimum Election Periods
Employers are not required to pay any portion of extended COBRA coverage. In most cases, the employee will bear the full cost, which can be higher than for a similar private insurance plan. It could also exceed what the person would pay for Medicaid or Medicare premiums. The law allows an enrollment window of 60 days from the time the employee loses his regular coverage or receives the continuation notice. In addition, COBRA coverage must continue for at least 18 months. If the employee became eligible for Medicare within 18 months of the qualifying event, COBRA coverage must continue for at least 36 months from the Medicare eligibility date.
The ACA Impact
The Affordable Care Act from 2009 set up federal and state insurance exchanges where private insurance companies could offer health plans during limited annual enrollment periods. The law also opened "special enrollment periods" to employees who are otherwise eligible for COBRA continuation coverage. In this way, a COBRA-eligible employee can turn to the private market throughout the year to choose a new plan. Going through an exchange also allows a health insurance customer to apply a tax credit to the premium amount. The amount of the credit depends on family size, location and household income.