COBRA - What is it & How Does It Work?

What is COBRA? COBRA is the acronym for the Consolidated Omnibus Budget Reconciliation Act. This is a federal law that allows for the temporary extension of group health coverage to former employees whose health benefits would otherwise be terminated. COBRA should be considered a short-term bridge to other health insurance. It is not permanent coverage.

How does COBRA work? COBRA allows certain employees, retirees, spouses, former spouses and dependent children to continue health insurance coverage at group rates for specific time periods.

Who is eligible? To be eligible former employee must have been enrolled in the employer's heath plan when he or she was working for the employer.

When does COBRA take effect? COBRA becomes available when an individual covered by a group health plan loses health insurance coverage because of a "qualifying event". The qualifying event could be triggered when an active employee's hours are reduced or job is terminated for reasons other than the person's gross misconduct.

Spouses and dependent children may become "COBRA Eligible" when a covered employee's job is terminated or hours are reduced; when the employee becomes eligible for Medicare; upon the employee's death; or in the event of divorce or legal separation from a covered employee.

How Long Does COBRA Stay In Effect? COBRA eligibility begins on the date when a qualifying event triggers the loss of the employer's health plan coverage. The law allows for up to 18 months of continued coverage for certain qualifying events and up to 36 for other qualifying events or a second qualifying event during the initial period of coverage. Employers may choose to provide coverage for longer periods at their discretion.

What do Employers Need to Know? COBRA takes effect for employers providing group health plans with 20 or more employees on payroll for more than 50% of its normal business days during the organization's previous calendar year. Both full and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee counts as a fraction of an employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.

What are the Disadvantages to COBRA?
    · You only have 60 days to qualify for private health insurance
         before enrolling in the COBRA plan - as a last resort.
    · Your premiums are no longer subsidized by your employers - this
         can result in a substantial increase in monthly cost.
    · Only the employee, spouse and dependents are eligible.
    · Companies with fewer than 20 employees may be able to claim an
         exemption.
    · Coverage ends after 18 months - or if your employer ends his
         group plan.
    · Medical expenses incurred before you enrolled will not be covered.

When is COBRA extremely effective?
    · If you are terminated with a serious pre-existing condition
    · If you or your spouse are pregnant
    · If you are on expensive long term medications
          Note: Under HIPPA, you can continue coverage even with a pre-
                     existing condition if your COBRA plan has run out.

Recent Developments with Cobra Benefits? Both HIPAA and COBRA were modified by the American Recovery and Reinvestment Act (ARRA) of 2009. Provisions both expanded and broadened the privacy protections of HIPAA, while a COBRA premium reductions (subsidy) was included for the federal government to subsidize 65 percent of COBRA payments through the end of 2009 for those "involuntarily terminated."

All businesses that offer health benefits to their employees must notify plan participants in writing of their rights under ERISA, COBRA, USERRA, and other applicable benefit plan laws. Failure to comply with benefit plan notice requirements can result in fines up to $110 per violation per day, or even disqualification of your health benefit plan.

BenefitPlace recommends working with an Benefits Consultant and /or a Law Firm specializing in Employee Benefits when negotiating the changes in COBRA and HIPPA Regulations.