Until 1986, an employee who was fired, changed employment, or got divorced was at risk of immediately losing employer-sponsored health care coverage. In 1986, a federal law was passed that ensured continued coverage; this law is known as the Consolidated Omnibus Budget Reconciliation Act ("COBRA"). COBRA requires employers to offer employees and their families the opportunity for a temporary extension of health coverage under certain circumstances.
COBRA applies to public or private employers, including state and local government employers, who employ twenty or more employees and have done so for at least 50% of its typical business days in the previous calendar year. However, COBRA does not apply to plans sponsored by the federal government or church and some church-related organizations. Health insurance, vision, dental and prescription drug policies all fall under COBRA's provisions.
Payment of Premiums
An employer may require an employee (or a dependent) who elects continuation coverage to pay the cost of the coverage and a 2% administrative fee. Because an employer usually pays a portion of the insurance premiums for its active employees, a person electing continuation coverage often pays more than active employees.
Eligibility / Qualifying Events
A "qualifying event" is an event that would ordinarily cause an employee to lose health care coverage. An employee who has voluntarily or involuntarily discontinued employment or experienced a reduction in working hours is eligible for COBRA coverage. The following are qualifying events for an employee, spouse or dependent child:
- The employee's employment is terminated for any reason other than "gross misconduct;"
- The employee's working hours are reduced;
- The employee becomes eligible for Medicare;
- The employee divorces or legally separates from his spouse; or
- The employee dies.
A child of a covered employee is also entitled to continuation coverage upon the loss of "dependent child" status.
Notice and Election
Upon the happening of a qualifying event, the employer has 14 days to give the qualifying beneficiaries an election notice describing their continuation of coverage rights and the procedures for electing coverage. An employee and his dependents have 60 days to elect COBRA coverage. A person who waives coverage within 60 days may still elect coverage as long as the 60 day period has not yet expired.
Length of Coverage
Employees who have their hours reduced or are terminated may have COBRA coverage for up to 18 months as long as the covered employee continues premium payments. Other dependents for all other qualifying events may purchase COBRA coverage for up to three years. COBRA establishes a minimum period of coverage, but an employer may choose to extend the period of continuation coverage.
Extension of 18 Month Coverage Period
An 18 month coverage period may be extended if any one of the qualified beneficiaries becomes disabled or if a second qualifying event occurs. The coverage may be extended for 11 months upon disability. Coverage may be extended for 18 months (for a total of 36) months for a second qualifying event such as the death or divorce of the covered employee, eligibility for Medicare, or loss of "dependent child" status.
Employees who voluntarily or involuntarily discontinue employment or experience a reduction in work hours have a right to elect continued coverage under their employer's health insurance plan. The spouse and dependents of the employee have a concurrent right to elect coverage. Those electing coverage may have to pay the full amount of the insurance premiums plus a 2% administrative fee.