People often don’t understand what COBRA coverage is until they need to use it. Even then, individuals may struggle to understand the fundamentals. This lack of understanding can have costly consequences.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) protects workers who lose their health benefits. Since 1985, COBRA, has given workers (and their families) the right to choose to continue health benefits provided by their group health plan for limited periods of time.
Let’s break it down…
1) COBRA Coverage is Available for a Variety of Benefits
COBRA coverage is available for more than just medical insurance. Any employer-sponsored benefit is potentially eligible for COBRA coverage. This includes: medical, dental, vision, Medical Flexible Spending Accounts (Medical FSAs) and Health Reimbursement Accounts (HRAs). After a qualifying event, the COBRA administrator will use provided plan information to determine the premium and eligible benefit amount of each coverage type. While a Health Savings Account (HSA) is not technically covered by COBRA, funds in the HSA are owned and may be used by the individual.
2) Timing Matters
COBRA rules outline certain events that must occur at set time periods. This includes when:
- plan sponsors must notify an administrator,
- administrators must provide notice,
- beneficiaries must enroll, and
- premiums must be paid.
Learn more about COBRA Timelines.
3) Premium Amounts May Be Alarming
There are two factors regarding premiums that often surprise qualified beneficiaries — the true cost of premiums and the retroactive nature of COBRA coverage.
True Cost of Premiums
Prior to a qualifying event, an individual typically doesn’t see the full cost of insurance premiums — particularly for medical insurance. Their employer may have been covering 75 percent (or more) of the cost. “Sticker shock” is common when the individual becomes responsible for the full premium.
Retroactive Nature of COBRA Coverage
When an individual decides to enroll in COBRA, they are responsible for the full premium as of the date of the qualifying event, not the date of enrollment in COBRA. This often means the individual is responsible for paying 2-3 months worth of premiums to obtain coverage.
4) Each Benefit Can Be Selected Independently
COBRA is not a take it or leave it program. Each eligible benefit can be selected independently. For example, an individual could opt to go to the Exchange for medical coverage while electing COBRA coverage for their dental plan and FSA.
5) Each Beneficiary has Independent Rights
Each Qualified Beneficiary has an independent right to elect COBRA coverage. At the time of the qualifying event, the existing coverage may have included the employee, their spouse, and a child. Each would receive notification of their rights to COBRA. Further, the spouse and child could opt to enroll without the actual employee remaining on the plan.
6) Utilizing the Exchange Works (and when you are eligible to enroll)
Some qualified beneficiaries enroll in COBRA as soon as they receive notice. This is often done to ensure continuous medical coverage. Then, they realize the premiums are too high and look at options on the Federal or State Exchange. They don’t realize they have a limited time period following a qualifying event in which they can enroll in an Exchange. Once the period passes, they are not eligible to enroll at the Exchange until open enrollment begins (typically Nov. 15). Cancelling COBRA is not generally a qualifying event for enrollment in an Exchange and can put an individual in a limbo state for a period of time.
Want to learn more of the nitty-gritties of COBRA coverage? Check out an Employer’s Guide to Continuation Coverage under COBRA by the Department of Labor.