COBRA Benefits for Terminated Employees

What Is COBRA?

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Many have heard of COBRA but not everyone understands what it is or how it works. So what is COBRA? 

"COBRA" stands for the Consolidated Omnibus Budget Reconciliation Act of 1985, and specifically to Title X of the Act. Title X includes provisions to continue health insurance coverage for members of company health plans who have lost their insurance due to a "qualifying event." 

The law states that if an employer wants to take a tax deduction for health insurance costs, it must allow employees who have been covered by the plan to continue coverage at the employee's cost at the group rate for a period of time.

What Is COBRA Eligibility? 

An employee must meet certain requirements to qualify for COBRA benefits:

  • He must work for an employer who has 20 or more employees. Part-time employees are considered at a percentage of full-time workers. COBRA is not available to employees covered by health plans sponsored by the federal government, churches and some religious organizations. 
  • The employee must have quit voluntarily or have been involuntarily terminated for reasons other than gross misconduct. He might also have had his hours reduced so he no longer qualifies for the company's health coverage.
  • A spouse may be eligible for coverage if the employee is eligible for Medicare, if the spouse and employee are divorced or legally separated, or upon the death of the employee.
  • A dependent child may be eligible for coverage if the child loses dependent status under the employer's health plan rules.

Employer Responsibilities

  • Employers must ensure that the COBRA coverage provided to eligible recipients is identical to the health plan coverage of similar current employees. If employee benefits change, COBRA coverage must change as well.
  • Employers are required to notify employees of their right to continue coverage when they terminate employment or when some other qualifying event occurs.

Some Examples 

  • Sam is laid off by Smith Electronic. He is eligible to purchase COBRA coverage to keep his health insurance benefits while he looks for another job.
  • Ellen is Julio's spouse. She became eligible for COBRA coverage when he died.
  • Susan, Anna's daughter, became eligible for COBRA coverage when she turned 25 and was no longer qualified as a dependent under Anna's employee health coverage.

Some Drawbacks 

Eligibility for COBRA will keep your health coverage in place for a period of time, but COBRA will probably cost you more than what you were paying for coverage while you were employed. Your employer most likely paid a portion of your premiums as a benefit of employment and is no longer required to do so if you elect COBRA coverage after termination.

The full cost of coverage will fall to you. The U.S. Department of Labor suggests looking into other coverage options and comparing costs. Don't jump at COBRA simply because it's available and you qualify. You might be able to find less expensive coverage elsewhere.

COBRA only lasts for a specified period of time so you'll eventually have to find alternate health insurance coverage in any event. COBRA typically extends from the date of the qualifying event for 18 or 36 months depending on the nature of your qualifying event, although some individual plans may offer longer periods of coverage.