What it means
Health insurance is usually tied to an employer, and employees can normally join or change plans only once a year. A qualifying event is the exception.
It opens a special window so that people do not lose protection at a vulnerable moment. Under COBRA, a federal law that lets people keep employer group coverage temporarily, qualifying events include the end of employment for reasons other than gross misconduct, a cut in hours, the death of the covered employee, divorce or legal separation, and a child ceasing to be a dependent.
The length of coverage depends on the event, commonly 18 months for job loss and up to 36 months for others. The person pays the full premium, plus a small administrative fee, which is generally capped at 2%.
Without the employer's contribution, the cost can feel steep, and many people compare it with alternatives such as a spouse's plan or the public insurance exchange. Each alternative may have its own deadlines.
Time limits are critical. Employers must tell the plan administrator about the event, the administrator must send a notice, and the individual then has a limited period to elect coverage.
Missing those deadlines can mean losing the right entirely. Similar concepts exist elsewhere.
Public insurance exchanges allow special enrolment after events such as marriage, birth or moving to a new area, and other countries have different employer-linked benefits. Finance and HR teams should record the date of each event, because the dates start the clocks for all that follows.
Employers sometimes overlook the cost of administration. Many outsource COBRA notices to a specialist provider, and the fee is a business expense that should be budgeted when planning restructures.
A late or missing notice can lead to penalties, so the cost of getting it right is usually modest by comparison.
In practice
Real-world examples.
Example
A marketing manager is made redundant and loses her employer coverage at the end of the month. She elects COBRA within the allowed window and keeps the same doctors while she looks for a new job.
Example
A man divorces and loses the coverage he had through his spouse's employer. The divorce is a qualifying event, so he can continue on the plan for a limited time or look for other coverage.
Example
An HR director builds a checklist for managers that lists each qualifying event, the date it occurred and the deadline for sending notices. It helps the company avoid penalties for late paperwork. Each entry is checked by a second person before the letters are sent.
Formula
Calculation
Monthly COBRA premium = full plan cost per month x 102%
Total cost over the coverage period = monthly premium x number of months
Suppose the full cost of an employee's plan is $700 a month, of which the employer used to pay most. The COBRA premium is 700 x 1.02 = $714 a month. For 18 months, the total cost is 714 x 18 = $12,852. The extra 2% adds 700 x 0.02 = $14 a month, or $252 over the 18 months.Case study
Seen in the real world.
Stonebridge Interiors is an illustrative, fictional design firm with 60 employees. When it closed one office, 12 staff lost their jobs, and the HR manager realised that each loss was a qualifying event with notice deadlines.
She created a timetable that recorded the termination date, the date the notice letter went out, and the 60-day election period. For a typical employee paying a $700 plan cost, the COBRA premium would be $714 a month, and she explained this clearly in the letter.
In the illustrative result, ten of the twelve staff chose COBRA for a few months while they found new roles. The company had no complaints about missed notices, and the HR manager kept the timetable as a template for future restructuring. The company also budgeted for the outside administrator that sent the notices, which it considered cheaper than the risk of a missed deadline.
Watch out
Common mistakes.
- Missing the notice or election deadlines, which can end the right to continue coverage.
- Assuming the employer keeps paying its share, when the person normally pays the whole premium plus a small fee.
- Forgetting to compare other options, such as a spouse's plan or a public exchange, which may cost less.
Questions
People also ask.
What counts as a qualifying event?
Examples include job loss, reduced hours, death of the covered employee, divorce and a child ageing out of dependent status.
How long does COBRA coverage last?
Commonly 18 months for job loss or reduced hours and up to 36 months for some other events, subject to the rules.
Does every employer have to offer COBRA?
No, it generally applies to employers above a minimum size, and some states have similar rules for smaller firms.
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