How Does Cobra Work?

Written by Kendra Knouff

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Many people never hear of COBRA coverage until they qualify to receive it, and even for those who have heard the term, they often don’t understand what it means or how this form of healthcare works.  COBRA  (the Consolidated Omnibus Budget and Reconciliation Act of 1985)  provides for continuation of group healthcare coverage if coverage is lost as the result of a specific qualifying event.

Group healthcare generally consists of the medical, dental and vision benefits an individual receives from an employer, but it can also include healthcare coverage received as part of union benefits. The COBRA law defines basic qualifying events that would allow for the continuation of that group coverage beyond full-time employment.

How To Qualify For COBRA Coverage

There are a variety of circumstances that can qualify an individual to receive COBRA continuation coverage.  The five most common qualifying events are:

• Death of the covered employee
• Termination of employment or reduction of work hours
• Employee gets divorced or becomes legally separated from spouse
• Covered employee qualifies for Medicare benefits
• A dependent child ceases to be dependent under the terms of the group healthcare plan

Any one of these events could  enable an individual to be eligible for continued coverage.  In most cases, an employer will track qualifying events. However, if the qualifying event is divorce, legal separation or a child who is no longer a dependent, the employee may need to notify the employer or insurance carrier.

How You Enroll in COBRA

Once the employer learns of a qualifying event, they – or their third-party administrator- have 14 days to send the affected beneficiaries a COBRA election notice outlining their rights to continuing coverage. (A third-party administrator is a company specializing in payroll and/or benefits administration.)

A beneficiary then has 60 days to elect COBRA. To elect, you must sign and return your election notice and make your first month’s payment. Coverage can last either 18 or 36 months depending on the qualifying event, and disability can extend the length of coverage for some beneficiaries by an additional 11 months.

Monthly Premium Payments

A COBRA premium includes the monthly amount that was paid by the qualified individual before the qualifying event, plus the pretax amount paid by the employer. In addition, employers or their third-party administrators may charge an extra 2 percent for administrative costs, meaning the premium can be as much as 102 percent of the cost of the plan.  The covered beneficiary is responsible for paying this full cost of coverage.

For example, if Sara was enrolled in a health plan offered by her employer but then experienced a reduction of hours, causing her to lose eligibility for health care enrollment, she is now eligible for COBRA continuation coverage.   If Sara used to pay a monthly premium of $150 and her employer paid the remaining $450 portion of her coverage, Sara is now responsible for paying the full $600 per month, plus an additional 2 percent administrative fee.  This would bring her total monthly payment to $612.

Once Sara elects COBRA, she has 45 days to make the first payment, and she must continue to make payments within a 30-day grace period each month thereafter in order to keep her benefits. Failure to pay is seen as a decision to end COBRA coverage.

It’s Your Choice, But We Can Help

It can be tough to decide if COBRA is right for you, particularly when you must pay a high premium for coverage, which is often the case. Redquote partners with third-party administrators to help you decide whether to enroll in COBRA or explore other options, like an individual health plan in your state marketplace. Redquote also provides COBRA administration for employers who want Redquote’s enhanced service but do not have a third-party administrator relationship.

Now that you know how COBRA works, maybe the more important question to consider is: Will COBRA work for you (or your employees)? If you think Redquote can help, don’t hesitate to contact us.

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Published Apr 30, 2018.