What is COBRA?

COBRA gives workers and their families who lose their health benefits the right to purchase group health coverage provided by the plan under certain circumstances.

If the employer continues to offer a group health plan, the employee and his/her family can retain their group health coverage for up to 18 months by paying group rates. The COBRA premium may be higher than what the individual was paying while employed but generally the cost is lower than that for private, individual health insurance coverage.

The plan administrator must notify affected employees of their right to elect COBRA. The employee and his/her family each have 60 days to elect the COBRA coverage; otherwise, they lose all rights to COBRA benefits.

COBRA generally does not apply to plans sponsored by employers with fewer than 20 employees. Many States have similar requirements for insurance companies that provide coverage to small employers. The premium reduction is available for insurers covered by these State laws.

The American Recovery and Reinvestment Act of 2009 (ARRA), as amended on December 19, 2009 by the Department of Defense Appropriations Act, 2010 (2010 DOD Act) provides for premium reductions for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly called COBRA. Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. To qualify, individuals must experience a COBRA qualifying event that is the involuntary termination of a covered employee’s employment. The involuntary termination must occur during the period that began September 1, 2008 and ends on February 28, 2010. The premium reduction applies to periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 months.

To read more about this click here.

Update on COBRA Extension

President Obama signed a bill [Temporary Extension Act of 2010 (H.R. 4691)] extending federal funding for the COBRA subsidy and unemployment benefit on March 2nd, shortly after the Senate passed it with a 78–19 vote. The main purpose of the bill is to extend unemployment benefits and health care subsidies for the unemployed. The federal tax credit that allows the federal government to subsidize 65% of the cost of COBRA premiums is now extended from February 28, 2010 through March 31, 2010. 

In order to be eligible, individuals must have been involuntarily terminated from their employment after August 31, 2008 and before April 1, 2010.  The law also cleared up some misunderstandings about the treatment of COBRA continuation that results from reductions in hours followed by termination of employment. Under this bill, if an eligible individual pays 35% of the premium for COBRA continuation coverage, the group health plan must treat the individual as having paid the full premium. Eligible individuals can then receive this subsidy for up to 15 months. Employers are reimbursed for the 65% subsidy by taking a credit on their payroll tax returns. 

The bill also added special rules for individuals who lost their health coverage because of a reduction in working hours. If an individual did not make a COBRA continuation coverage election when his or her hours were reduced (or made an election but then discontinued COBRA coverage), if the individual is then involuntarily terminated from employment, that will be considered as a qualifying event for COBRA continuation coverage purposes.

The bill now allows thousands of workers whose unemployment benefits expired on February 28, 2010 to receive them for another 30 days – this is very important to those individuals who have lost their jobs. Obama said in a statement, shortly after the Senate’s approval of the bill, “During these difficult economic times, supporting American workers, their families and our small businesses must be everyone’s focus.”

Congress is now considering a much larger bill that would extend the COBRA subsidy and unemployment benefits eligibility period to December 31, 2010.

[Image Source]