Consumer Guide to Continuation of Coverage

What is continuation coverage?

Millions of people each year lose access to the health insurance they were offered through an employer (group health insurance coverage) due to a job change, divorce, job loss or other reason. Many people are able to continue their group coverage, temporarily, through a continuation coverage program. Yet another option may be a special enrollment into other group health coverage of a spouse or parent, for example.

With the implementation of the ACA, those facing a loss of coverage also have another option. This option allows a person, in most cases, to enroll in individual coverage through the marketplace or individual plans in the broader insurance market. Most people who are able to continue their group health insurance benefits are eligible to do so according to federal law called the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). However, COBRA does not apply to all employers, so many states have developed other continuation-of-coverage options for people who are not covered by COBRA. Also, many people leaving group insurance to buy individual health insurance privately have portability benefits required by HIPAA, another federal law.

Most Americans with employer-sponsored health insurance have the option of continuing that same coverage for 18-36 months, at their own cost, if they lose access to their coverage. If your employer is required to abide by COBRA, and if you are qualified to receive benefits under it, you also have to experience what is known as a qualifying event to be eligible for coverage. For each type of person receiving COBRA benefits, the various qualifying events are:

• Covered Employee 
  Voluntary or involuntary termination of employment for reasons other than gross misconduct. 
  Reduction in the number of hours of employment.
  
• Spouse of the Covered Employee 
  Voluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct. 
  Reduction in the hours worked by the covered employee. 
  Covered employee becoming entitled to Medicare.
  Divorce or legal separation of the covered employee. 
  Death of the covered employee. 
  
• Dependent Children of the Covered Employee 
  Loss of dependent child status under the plan rules. 
  Voluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct. 
  Reduction in the hours worked by the covered employee. 
  Covered employee's becoming entitled to Medicare. 
  Divorce or legal separation of the covered employee. 
  Death of the covered employee.
  

How long an individual can receive COBRA benefits depends on who is receiving the benefit and what qualifying event is involved. Employees, dependent children and dependent spouses can continue coverage for 18 months when the qualifying event is job termination or a reduction of work hours. Children and spouses can continue coverage for up to 36 months if a covered employee becomes eligible for Medicare or dies, if there is a divorce or legal separation, or if the child loses dependent status.

Does COBRA coverage cost anything?

Yes. When you receive COBRA benefits, the cost involved for coverage is generally more than what you were paying previously. Employers that paid for all or part of your health insurance premiums before COBRA may continue to do so, but they are not legally required to. Most employers do not continue to pay premiums for those wishing to continue coverage.

Under COBRA, most beneficiaries are required by their employer to pay the entire amount it costs for coverage. This includes the amount that the employee had paid as well as the amount that the employer had contributed to the cost of coverage. In addition, there may be a two-percent administrative fee charged, but overall costs charged to the COBRA recipients cannot exceed 102% of their premium. If an individual or family on COBRA does not make timely premium payments to the group plan, they may be terminated by the group plan and lose their coverage and COBRA rights.

How do I know if I’m eligible for COBRA?

Employers are required to provide notices to employees about their rights under COBRA. For those employers not subject to COBRA, the availability of any continuation of coverage is generally discussed in the health plan booklet.

To whom does COBRA apply?

In terms of which types of group health plans are subject to COBRA, plans for employers with 20 or more employees on more than 50% of its typical business days in the previous calendar year are subject to its requirements. Both full and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee is counted 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.

COBRA applies to private employers and state and local government health plans, but it does not apply to federal government plans and those sponsored by certain church organizations. (The federal government offers its own continuation-of-coverage benefits to eligible individuals.) COBRA also does not apply if a company goes out of business or if it ceases to offer group health insurance to its employees.

Within group health plans that are subject to COBRA, individuals must be what are known as qualified beneficiaries in order to receive benefits. A qualified beneficiary generally is an individual covered by the group health plan on the day before a qualifying event who is an employee, the employee's spouse, or an employee's dependent child. In certain cases, a retired employee, the retired employee's spouse, and the retired employee's dependent children may be qualified beneficiaries. In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary. Agents, independent contractors and directors who participate in the group health plan may also be qualified beneficiaries.

COBRA and Medicare

It’s important to note that COBRA coverage and retiree health plans are not considered coverage based on current employment. As such, an individual is not eligible for a Special Enrollment Period when COBRA coverage ends. More importantly, enrolling in COBRA may result in a person paying a penalty for late enrollment in Part B of Medicare, which carries a penalty for as long as a person has Part B coverage.

Where can I get more information about COBRA?

The U.S. Department of Labor regulates COBRA, and it has published a list of frequently asked questions for consumers.

If I am not eligible for COBRA coverage, are there other options?

Many states have enacted legislation requiring smaller employers and others not bound by COBRA to offer some type of continuation-of-coverage benefits to their employees.

With implementation of the Affordable Care Act (ACA) individuals who lose coverage in what would typically be a COBRA qualifying event have the option at the time they lose coverage to enroll in an individual plan. It’s important to understand that should the person enroll in COBRA coverage they will only have an option to enroll in individual coverage during:

• The annual open enrollment period for individual coverage
• Once the COBRA coverage is exhausted.

It’s also important to note that a person choosing individual coverage will likely have to meet a new deductible or cost-sharing even if they had already met applicable limits under the employer plan. Coverage under the individual plan may also result in a gap in coverage between the date the person lost coverage and the date the new individual coverage is effective.