by Staff - Original publish date: December 5, 2011

The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) is a federal law that protects your right to continued health insurance. COBRA gives former employees, retirees, spouses and dependent children, who were covered by a group health plan on the day before a qualifying event, the right to temporary continuation of health coverage at group rates.

One overwhelming drawback to COBRA is the cost. If you and/or your family members qualify for COBRA, you will pay 102% of the insurance premiums until coverage is terminated. Most companies pay a portion of health insurance premiums, so 100% of the premium plus an extra 2% for administrative fees can come as a shock. However, in most instances, COBRA health coverage is less expensive than purchasing an individual health insurance policy.

The COBRA law applies to you if you have group health benefits through your employer and your employer has more than 20 (full and part-time) employees within the past calendar year. COBRA eligibility also extends to workers in state and local governments, as well as workers classified as independent contractors. However, the law grants an exemption to the District of Columbia, federal employees, certain church-related organizations, and organizations employing fewer than 20 people.

Who can continue coverage and for how long? Through COBRA, you may continue your benefits for a maximum of 18 months and under specific circumstances, coverage may extend to 36 months.

To extend insurance coverage for you and your enrolled family members for 18 months you must meet the following qualifying events:

Termination of employment (other than for gross misconduct)
Involuntary reduction of employee's work hours
FMLA ends and the employee did not return to work.
Disability of an employee within the first 60 days of COBRA coverage

** Special rules for disabled individuals may extend the maximum periods of coverage. If a qualified beneficiary is determined, under Title II or XVI of the Social Security Act, to have been disabled when they lost their health care benefits, they must notify the employer of the disability determination. Then the 18-month period will be expanded to 29 months.

Your family members may be eligible for COBRA continuation for 36 months if they meet the following qualifying events:

Death of covered employee
Divorce or legal separation
Dependent child turns 19 years old and is not a full-time student.
Dependent child over the age of 19 ceases to be a full-time student or turns 25 years old, whichever occurs first.
Employee enrolls in Medicare and the spouse or dependent children are not eligible for Medicare.

Notification, Payments, and Termination of COBRA _ Your employer, upon notification of a qualifying event, must automatically provide a notice to you and/or your family members of your election rights. The notice must be provided in person or by first class mail within 14 days of receiving information that a qualifying event has occurred. Your employer is also obligated to inform you of benefit changes and premium cost increases that may occur during the open enrollment period.
You and/or your family members then have 60 days from the date your coverage would end to inform your employer of your desire to continue coverage. If an election is not made to continue coverage within 60 days, then you and/or your family member's coverage will end. If you and/or your family members elect to continue coverage within 60 days, your employer is required to provide the same coverage provided under the plan that is given to active employees.

The first premium payment must be made to your employer within 45 days of election to continue coverage. Thereafter, the premium will most likely be due prior to the last day of each month. If payment is not received within 30 days of the due date, your coverage will be automatically canceled. It is important to know that your employer is not obligated to send monthly premium notices.

COBRA coverage begins on the date that coverage would otherwise have been lost by reason of a qualifying event and will end at the end of the maximum period. You and/or your family members may elect to end COBRA coverage at anytime. In addition, your employer may terminate your coverage before the normal expiration date if premiums are not paid on a timely basis, your employer ceases to maintain any group health benefits, your employer goes out of business, or if you and/or your family members becomes eligible for Medicare.

Some employers may allow you and/or your family members to convert group health coverage to an individual policy. If this option is available, your employer must notify you within 180 days before COBRA coverage ends. If you decide to convert your COBRA coverage into an individual policy, the premium will most likely be more expensive and the policy may provide a lower level of coverage. If you and/or your family members end your COBRA coverage before the maximum end date, then you will not be eligible to convert your group health plan to an individual policy.

Additional resources:

Department of Labor - Health Plans & Benefits