COBRA Explained in Simple Terms

Between the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 and the 2010 passage of the Affordable Care Act (ACA), most employers are required to give qualifying employees access to health insurance. The former was implemented 30 years ago to provide a health insurance safety net to workers whose employment was terminated. Since that time, millions of workers have used COBRA.

Employers may find COBRA somewhat complex. Fortunately, BenefitMall takes the hassle out of COBRA administration and compliance by taking over those responsibilities on behalf of our clients. We urge you to consider our HR and payroll solutions if health insurance administration is approaching a point of being overwhelming. In the meantime, we have outlined the most important things you need to know about COBRA below. 


COBRA Is a Law, Not a Health Insurance Plan

Many employers and employees confuse COBRA with health insurance plans. The first thing you need to know is that COBRA is a law, not a kind of health insurance.

Under the COBRA law, most employers with more than 20 workers are required to offer COBRA coverage to qualifying employees who leave their jobs or are otherwise terminated. Insurance under the law can be provided by the same company that handles the employer’s primary health insurance, or an alternate provider may be chosen. 


Coverage under COBRA is Temporary

Coverage under the COBRA law is intended to be temporary only. In other words, an employee could not quit his or her job and continue to receive health care coverage under COBRA indefinitely. A former employee can typically continue receiving coverage for up to 18 months. Should a second qualifying event occur within that time, coverage can be extended for up to 36 months.

Another important point to note is that employees have only 60 days from the date of their termination to elect COBRA coverage. If election is not made within that 60-day window, the employee loses all rights to coverage under the law. 


Typical COBRA Benefits

There are no ‘typical’ COBRA benefits that apply across the board. Why? Because the law requires that COBRA coverage is identical to the insurance coverage the employee had prior to termination. 


Payment of Premiums

Who pays for health insurance benefits under COBRA depends on individual circumstances. The law allows employers to shift the entire responsibility for premiums to those former employees who elect to receive COBRA coverage. However, payment cannot exceed 102% of the premium.

For example, let us assume a monthly premium of $500 to which the employer contributed 75% and the employee the remaining 25%. At termination, the employee could be required to pay the entire $500 plus a 2% administrative fee. His or her maximum monthly premium would then be $510. 


Qualifying Events

A qualifying event is some sort of occurrence that results in the end of employment and the opportunity to elect COBRA health insurance benefits. Qualifying events differ among employees and their spouses. For employees, there are only two qualifying events:

  • A reduction of employment hours that results in the loss of health insurance benefits; and
  • Voluntary or involuntary termination for reasons other than gross misconduct.

Spouses have the advantage of more qualifying events. In addition to the two listed above, qualifying events also include divorce or legal separation, the death of a covered employee, and a covered employee being eligible to receive Medicare coverage.

COBRA can be confusing to company owners and HR departments. If you are having trouble administering your health insurance plan, please consider working with BenefitMall. Our solutions make health insurance and COBRA simple and understandable.