Louise works for a manufacturing company. Her employer provides a health plan to all of its employees, including Louise. She is also covered by her husband’s insurance. Now it appears that Louise is going to be laid off. Her husband’s insurance is not as good as her health plan, and she does not want to rely on his insurance alone. Her human resources administrator tells her that under COBRA she can keep her insurance for a time, giving her an opportunity to find another job with a health plan. Louise is not exactly sure what she has to do under COBRA to keep her health plan. Is she still eligible to keep her health plan even though she is covered by her husband’s insurance? How long can she keep her health plan under COBRA?
COBRA is the acronym for the Consolidated Omnibus Budget Reconciliation Act of 1985. COBRA is a federal law that amends the Employee Retirement Income Security Act of 1974 (ERISA). ERISA is a federal law that controls how your employee benefit plan is administered. COBRA is a complex law that courts, employers, and employees struggle to understand. In short, COBRA lets you and your dependents continue your group insurance coverage for a specific period of time after your employment status changes.
It is important that you be able to keep your group insurance if you quit your job or are fired. Group insurance costs a lot less than buying an individual policy. With group insurance the health risks are spread among many people, which makes your premiums lower.
In addition, you probably did not have to get a physical before getting your group insurance policy. With an individual insurance policy a physical examination may be required of everyone in your family that would be covered. If you or any of your dependents have preexisting conditions, that may not be included in your individual policy, and you could be left with a big medical bill to come out of your own pocket.
A BIG BENEFIT
COBRA lets you continue your insurance for about the same cost until you can get group insurance somewhere else.
COBRA applies to private employers and local and state governments that:
COBRA applies to all group health plans regardless of whether the plans are self-insured or HMOs. It also applies to dental and vision plans.
COBRA offers “continued coverage” to “qualified beneficiaries” whose group insurance is terminated because of a “qualifying event.” When you decide to keep your health plan under COBRA, you “elect” to be covered.
You are a qualified beneficiary when you have group insurance through your employer. Your spouse and dependents are also qualified beneficiaries. COBRA allows you to continue your insurance coverage until you get group insurance someplace else. A qualifying event is when you lose your insurance coverage because you lost or quit your job or your hours were reduced. If you are fired because of gross misconduct, you are not entitled to COBRA. Your spouse or dependents qualify for COBRA when they lose insurance coverage because:
You have 60 days from the date of your qualifying event. COBRA is retroactive to the day of your qualifying event. Hence, if you elect COBRA on day 60, your health plan will also cover those first 59 days after your qualifying event.
Yes. Your employer can charge you up to 102 percent of the total cost for your benefits. The total cost for you must be calculated the same way it is calculated for other people with the same type of benefits under your health plan.
No. You do not need to do anything more than any other person with the same health plan as far your insurability is concerned.
Your benefits must be the same as employees with the same health plan. If the coverage is changed for all the employees, it is changed for you, too.
COBRA only applies to companies with twenty or more employees. With most companies that size, there will be either a human resources person or an administrator in charge of your health plan and benefits. That is the first place to start when you have a question about your health plan or COBRA.
Yes. There are three different stages at which your employer must educate you about COBRA. An initial notice will be sent to you—usually in the form of a letter—telling you that you can choose to continue your coverage under COBRA and what you must do to make that choice. An event notice will be sent to you when you leave your company or when your hours are reduced or when something else happens that would terminate your health insurance. Finally, you will receive a termination notice telling you when your COBRA coverage is about to end.
The health plan administrator for your company has 14 days to notify you of your right to elect to continue your coverage under COBRA. You then have 60 days to decide whether you want to elect to continue your coverage.
If you lose your job or your hours are reduced, your continued coverage lasts for 18 months or until you get other insurance. If you die, your coverage ends, but your spouse and dependents may pay for continued coverage for 36 months. If you are divorced or your child is no longer a dependent, continued coverage lasts for 36 months or until your spouse or child finds other insurance.
No. Some states offer insurance laws similar to COBRA. If your state requires your employer to offer you continued coverage, that coverage runs at the same time as COBRA. You cannot tack one onto the end of the other.
You can lose your COBRA coverage when:
In most cases you will lose your insurance. If you retired from your company before it filed for bankruptcy, you can continue your insurance coverage under COBRA. Your dependents can continue their coverage only if your employer took away your coverage within a year before or after filing for bankruptcy.
Generally your COBRA coverage ends when you enroll in a new health plan. The exception to this is when your new policy excludes or limits your coverage for a preexisting condition. In that case you might be able to keep your COBRA coverage for the full 18 or 36 months.
This is considered a new health plan, and your COBRA coverage will end.
COBRA is a very complex law that was enacted at the end of a Congressional session. Many commentators complain that it is a group of piecemeal amendments strung together with no rhyme or reason. The result is that the part of COBRA that concerns your insurance is confusing, at best, for you, your employer, and any court that ends up hearing your court case.
When it comes to COBRA, courts struggled with one question more than any other: What happens when you are covered by a spouse’s health plan as well as your own? Do you still qualify for COBRA? The U.S. Supreme Court says yes, ending years of debate among lower courts throughout the country. The debate is not over yet though. The Supreme Court left several questions. To understand the controversy you will need to know a little of COBRA’s background.
• In the Beginning … In the 1980s, lawmakers realized that a growing number of Americans did not have health insurance. At the same time hospitals were refusing to treat people who were not covered by insurance. Congress enacted COBRA to provide you with affordable private health insurance. It lets you keep your group health plan from your former employer while you find insurance from another employer.
• The Phrase That Causes Most of the Trouble … COBRA states that your continued coverage under your old plan ends on the day you “first become[], after the date of election” covered under any other group health plan. That means that after you decide to continue your health plan under COBRA, your COBRA coverage ends on the first day that your new health insurance begins. What does that mean for you if you are also covered under your spouse’s insurance? Technically you are covered by health insurance the entire time. Should that count for COBRA purposes? For years the courts could not agree.
• The First Line of Thought … One line of reasoning is that coverage under a spouse’s plan does not affect COBRA because it was in place before you left the company. Thus you did not “first become” covered under your spouse’s policy after you became eligible for COBRA. The law says “first become” plain and simple. This is the reasoning that the Supreme Court later adopted.
• The Other Line of Thought … The opposing point of view is known as the “significant gap” line of reasoning. This states that preexisting coverage under a spouse’s plan makes you ineligible for COBRA because COBRA is only for those people who would have no insurance at all. Because you have insurance, you do not require COBRA—unless there is a significant gap in the coverage you had under your health plan and the coverage you would have under your spouse’s plan. For example, your health plan covered medical expenses for pregnancy, but your spouse’s does not. If you are in your childbearing years, to rely on your spouse’s health plan alone would leave you without significant coverage. This gap could have entitled you to COBRA coverage.
• Why the Significant Gap Theory Did Not Hold Up … When is a gap in insurance significant? Courts were stuck trying to figure out the answer to that question, and each court came up with a different answer. Is there a significant gap when your policy puts a $1,000,000 cap on medical costs for newborns and your spouse’s policy puts a $100,000 cap on newborn costs? Is there a significant gap if your policy covers bone marrow transplants but your spouse’s does not? The courts said no. But how is an employer or an employee supposed to know when a court will say yes? There simply was no clear-cut rule to follow.
The Supreme Court decided that you cannot be disqualified from COBRA if you are covered under your spouse’s health plan before your qualifying event (such as being fired from your job). Employers considered this decision to be unfair because they said it allowed former employees to get double insurance. The Court disagreed, stating that most of us do not want to pay for more insurance than we need. If we are covered under a spouse’s policy as well, then we probably need both insurance plans.
The Supreme Court decided that even if you get a new health plan, your COBRA insurance cannot be canceled if your new insurance does not cover a preexisting condition. The problem is that the Court did not explain what it meant by preexisting condition. It also did not explain how big the gap in coverage must be in order for you to keep your insurance under COBRA. This issue will begin to appear in the courts in the near future.