COBRA Legal Guidelines

Medical costs can pose a major financial burden to anyone who lacks sufficient health insurance. COBRA, or the Consolidated Omnibus Budget Reconciliation Act, is a federal law from 1986 that allows workers and their families to continue to receive health insurance coverage when it would otherwise not be available.

Function

• COBRA allows workers who receive their health insurance through an employer to continue coverage for themselves and their families in several situations. These include losing a job or choosing to leave the company, transitioning between jobs, death and divorce. Family members who received health benefits through the employer can receive them through COBRA instead, allowing them time to find a new health insurance plan without a gap in coverage.

Eligibility

• COBRA applies only to instances of group coverage, which is the name for the plans that employers offer their workers as an employment benefit. It applies to current and former employees, retirees, spouses or divorced spouses, and dependent children. Children who are too old to qualify for an employer's group plan are also eligible for COBRA. All eligible individuals receive the same benefits and level of care as they did under the group plan. For example, workers whose employers offered vision and dental benefits will receive them through COBRA, while workers who received more minimal coverage will not.

Deadlines

• When an employee becomes ineligible for group coverage but qualifies for COBRA coverage, the employer must report the status change to the health insurance plan administrator within 30 days. The former employee then has an additional 30 days -- 60 days from the job status change -- to file for COBRA, and another 45 days to make an initial payment. COBRA extends benefits for 18 months, but in some cases, such as a worker's disability, the coverage can last for up to 36 months.

Considerations

• Through COBRA, eligible insurance customers have the right to continue coverage by paying the same group rate that applied to their coverage while still covered by an employer. However, since employers typically pay a portion of each worker's group coverage premiums, an individual who loses his job will pay more each month for the same level of coverage. Because COBRA extends group coverage, it still offers a lower-cost option compared to purchasing a new individual health plan. Individual health plans have rates based on the specific risk factors of the individual, while group plans spread the risk evenly over a group of workers, resulting in lower rates.