COBRA Continuation Coverage

Employer health coverage can end when work stops or hours fall below a plan's eligibility threshold, and COBRA provides a temporary way for qualified people to keep the same group coverage instead of changing plans immediately. It is not free insurance.

Federal COBRA generally applies to private-sector group health plans sponsored by employers with at least 20 employees, and to state or local government plans under applicable rules, while church plans and federal government plans have different treatment and state continuation laws may cover smaller employers. A qualifying event must cause a loss of coverage: job loss other than for gross misconduct or a reduction in hours can qualify an employee, spouse and dependent children, while divorce, a worker's death and a child's loss of dependent eligibility can affect family members.

The employer or beneficiary has notice duties that vary with the event, and the plan administrator then sends an election notice explaining coverage and deadlines. Do not rely on an informal conversation with a manager instead of the written notice.

The DOL (the US federal labour department) says the election window runs for 60 days from the later of loss of coverage or receipt of the election notice, and after electing, the beneficiary generally has 45 days for the first premium payment. Check the actual notice for applicable dates.

Coverage can be retroactive to when the prior plan ended after a valid election and payment, which can mean the first bill includes more than one month of premiums, so set aside enough cash before treating a delayed payment as a free waiting period. The person electing COBRA typically pays both their previous employee contribution and the share the employer formerly paid, and the plan may generally charge up to 102% of the cost, including an administrative allowance, while special disability-extension rules can differ.

For a $600 monthly total plan cost, a 102% charge would be $612 a month, so if the employee used to see only $150 deducted from pay, the jump is substantial despite keeping the same coverage. The employer may voluntarily cover part of the cost.

The usual maximum period after termination or reduced hours is 18 months, while certain other qualifying events permit up to 36 months for eligible beneficiaries, and special extensions have conditions. The plan notice sets out the particular period.

COBRA may preserve an existing doctor network, covered prescriptions and progress toward a plan-year deductible, but a new job plan or a Health Insurance Marketplace option could cost less, so compare premiums, out-of-pocket limits and provider coverage. The DOL notes that losing job-based coverage can trigger a Marketplace special-enrolment window, and election choices and later switching have deadlines, so do not assume a person can drop COBRA at any time and automatically enter a Marketplace plan.

The decision should compare likely care costs and premiums for each available plan.