Understanding COBRA Rules

Kathleen Esposito
woman lost her job

COBRA is the Consolidated Omnibus Budget Reconciliation Act. It allows people who have lost their jobs or who get divorced to continue to participate in an employer-provided group health insurance plan for a certain amount of time. Otherwise the former employee or the newly divorced person may wind up lacking this important coverage.

COBRA Basics

There are three basic rules that govern who can continue their coverage under the legislation's provisions:

  1. The group health plan must be eligible for COBRA
  2. A qualifying event must take place
  3. The person must be a qualified beneficiary

Eligible Health Plans

If you worked for a private company with 20 or more full-time employees, it's likely you are eligible for COBRA. If there are less than 20 full-time workers at your company but there a good number of part-time workers, you may be eligible as well. The hours they work are used to determine eligibility. For example, two half-time employees equal one full-time employee.

State and local government employees can apply to continue their benefits under COBRA, but federal government employees are usually not eligible. Church-sponsored plans are typically exempt as well.

Qualifying Event

A "qualifying event" occurs when an employee experiences a circumstance resulting in loss of his or her health insurance coverage. Either of the following events results in eligibility for COBRA:

  • Loss of employment (unless fired for gross misconduct)
  • Reduction in work hours, which effects insurance coverage

For the employee's spouse or dependent child, the qualifying events are the same, with the addition of the following circumstances:

  • The covered employee qualifies for Medicare
  • The covered employee dies
  • The spouse gets a divorce or legal separation from the employee

Qualified Beneficiary

A qualified beneficiary is a person who is eligible for COBRA coverage when the qualifying event occurs. To be a qualified beneficiary a person must be covered under the group health plan at least the day before the event takes place, even if the coverage isn't dropped immediately.

Qualified beneficiaries can be:

  • The employee
  • The employee's spouse or former spouse
  • The employee's dependent children
  • Children born to the employee during the time when health insurance coverage is continuing under COBRA
  • Children adopted by the employee during the COBRA continuation period

Employer's Responsibility Under COBRA

Employers must include COBRA information in a statement or summary plan description (SPD) and give this disclosure to employees within 90 days of their enrollment in the health plan. The general notice should include the following information:

  • Name of the plan
  • Contact person for COBRA information
  • Description of COBRA coverage
  • Information on how to notify the health plan's administrator to take advantage of the coverage

If you do not receive an SPD in a timely fashion, contact your company's human resources department as soon as possible. If you need more information about your rights and obligations under COBRA rules, visit the Department of Labor Employee Benefits Security Administration website.

The Benefit of COBRA

COBRA coverage allows you to maintain health insurance comparable to the coverage you enjoyed as an employee (or as the spouse or dependent of an employee). Though coverage will likely be more expensive than the coverage provided by an employer, it can be one less worry when trying to find a new job.

Understanding COBRA Rules