COBRA health insurance coverage originated with the Consolidated Omnibus Budget Reconciliation Act of 1986 as an amendment to the Employee Retirement Security Act. COBRA provides an option for an employee leaving his job to continue coverage by his former employer's health plan for up to 18 months at his own expense.
You are eligible for COBRA if your former employer had 20 or more full-time or part-time employees with at least six months' tenure enrolled in a group plan. You must have left your job for a reason other than being terminated for "gross misconduct" to qualify for COBRA coverage. Family members also can be eligible for COBRA coverage on your employer's plan if you get divorced, if you die or if a child no longer can be claimed as a dependent. You and your family can buy COBRA coverage for 18 months after you leave your job. All other events would make your family eligible for coverage for 36 months.
If your former employer provided a health plan that included dental coverage or a separate dental-insurance plan, you can carry that over through COBRA coverage. If the employer submitted to separate health insurance plans for medical, vision and dental coverage, you may select which coverages you want to carry under COBRA. If you were covered for all three under one plan provided by your former employer, you must elect to continue with the entire plan.
End of COBRA Coverage
COBRA coverage will be terminated on the last day of eligibility and cannot be renewed unless your former employee grants you an extension. Coverage can be canceled if you do not pay COBRA premiums on time or if your former employer cancels its group health plan or goes out of business. You cannot be covered by COBRA if you become eligible for Medicare benefits or obtain coverage through another employer’s group health plan. Coverage is retroactive and can be canceled at any time. If you waive coverage, you can later elect to activate it as long as the 18-month election period has not expired.
COBRA coverage can be expensive. You could be required to pay 100% of the premium as well as a 2% administration fee. Payment on the first monthly premium generally is due within 45 days of the start of coverage. Premiums can go up if costs for employees covered under the group health plan rise.
COBRA Premium Reduction
The American Recovery and Reinvestment Act of 2009 provides a temporary premium reduction for COBRA coverage. The reduction is available to people who leave their jobs involuntarily between Sept. 1, 2008, and Dec. 31, 2009, and elect COBRA coverage. The terminated employee pays 35% of the premium and allows the employer to recover the remaining 65% as a credit on quarterly employment-tax returns.