The Consolidated Omnibus Budget Reconciliation Act of 1985, more commonly referred to as COBRA, is a federal law which is designed to ensure that an individual can continue to receive health insurance coverage for a period of up to 18 months following the termination of his employment. Most, but not all, companies that offer group health insurance schemes to their employees are subject to COBRA. In some circumstances coverage under COBRA can be extended from 18 months up to a maximum of 36 months.
COBRA protects individuals from losing their health insurance benefits when they lose their employment and is a temporary measure that is designed to help people through this potentially difficult time This said, not every employee who loses his employment will qualify for COBRA but employers should be conversant with the law and be able to advise their employees accordingly.
The law permits a terminated employee to purchase health insurance for himself and his family (provided the family were covered during employment) at the group coverage rate even though the employee is technically no longer a part of the group. The cost however can be high as the employee will now need to pay 100% of the cost each month, together with a surcharge of 2%.
Although most often thought of in terms of termination, COBRA can also come into effect in the event of a change of employment status such as reduced hours, or divorce from an employee of eligible status. Cover will normally continue for the time specified in the act or a shorter period if the employee takes out individual health insurance or is covered by another group health insurance plan.
Because COBRA extends a terminated employees health insurance for a period of 18 months, terminated employees do not need to worry about a change in their health insurance benefits. Coverage under COBRA insurance remains exactly the same as that provided during employment and the only change is in the responsibility for the payment of monthly premiums. It should be noted however that it is possible for the benefits under COBRA to change if an employer changes the health insurance plan being offered to current employees during the period of cover.
The important thing to remember about COBRA is that it is designed to be a temporary measure and, while that guarantees health insurance coverage for a period of up to 18 months, once this period expires you will find yourself without health insurance unless you make alternative arrangements or are covered by a group scheme from a new employer.
One of the dangers of COBRA insurance lies in the very fact that it is temporary. If, for example, you should fall ill while covered by COBRA you may find it difficult, or indeed impossible, to get future health insurance if this illness is subsequently classed as pre-existing and is ‘uninsurable’, as might be the case if you were to develop cancer.
