If you've ever left a job where you had benefits, or otherwise lost eligibility for the plan(s) you were enrolled in, you’ve doubtlessly found a COBRA election form and rate sheet in your mailbox. This is because of COBRA—the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985—which “generally” requires employers with 20+ employees to provide for continuation of group health coverage following the “loss of coverage.”

Coverage-wise, it's like you never left

COBRA affords you ongoing, albeit temporary, access to coverage just like a continuing employee.  It is not a separate policy—it's a continuation of access as if you remained actively eligible.  Because your coverage is “continued,” your deductible won’t reset until the new plan year, etc. The difference is your cost for coverage because the employer no longer contributes toward meeting your premium obligation. 

Cost-wise, prepare for sticker shock

Most employees have absolutely no idea how much their employer paid for their health insurance and are very surprised when they see how much COBRA coverage costs. 

You may experience sticker shock for two reasons: 

1. For “employee only” coverage, most insurance plans require the employer pay at least half of the cost of coverage. 
2. Most employers also set-up an IRS Section 125 plan so both the employer and employee contributions towards premium are paid on a pre-tax basis. With COBRA, you pay the full premium yourself, plus a 2% additional fee collected by the COBRA administrator, without the benefit of doing so via a pre-tax paycheck deduction.

On the other hand, you do get the benefit of a group policy

Though you're no longer getting part of the full premium paid by an employer, you are still getting the benefit of a group policy. In general, group plans tend to offer richer benefits at a lower cost than comparable individual policies.

It’s often in your best interest to delay the decision

The COBRA election and payment period allow for some decision making flexibility. It’s the only situation that allows you to choose insurance coverage AFTER you discover you need it. 

This is because COBRA provides a 60-day decision period for you to make up your mind. And, upon electing COBRA continuation, you have another 45 days to pay. If during those 45 days you get covered by a new employer or somewhere else, and you don’t have any health care claims, you simply don’t pay your premium. In this scenario, you don’t have COBRA; you just have the option available. 

Just know that if you do need to “activate” COBRA, you will always need to pay premiums retroactively to your loss of coverage date. A gap in coverage isn’t allowed. This means you will always need to “catch up on” any outstanding premiums.

Who is eligible for COBRA?

A "qualified beneficiary" is the employee, spouse, or dependent child covered under the group health plan on the day before a qualifying event. Each has the right to temporary continuation of coverage at group rates (called "individual" rights). For example, one member of a family may independently choose to elect COBRA and the others may choose not to.

Domestic partners are not qualified beneficiaries

Domestic partners are not qualified beneficiaries under COBRA, so they have no right to elect individual continuation coverage. However, an employee who elects to continue health plan coverage under COBRA may also elect coverage for a domestic partner who was on the employer's plan.  

Without individual COBRA rights, a domestic partner's coverage is contingent upon the employee having COBRA. This means the domestic partner is only entitled to coverage until the employee's COBRA coverage ends (whether for cancellation, failure to pay premiums, or at the end of the maximum coverage).

Qualifying events

For an employee

• Voluntary or involuntary termination of employment (other than gross misconduct)
• Reduction in work hours

For a spouse

• Employee becoming qualified due to termination or reduction in work hours
• Employee becoming entitled to Medicare
• Divorce or legal separation from the employee
• Death of employee

For dependent children

• Employee becoming qualified due to termination or reduction in work hours
• Employee becoming entitled to Medicare
• Death of employee
• Loss of dependent child status (the Affordable Care Act extends coverage until a child turns 26)

How long does coverage last?

Federal COBRA continuation requirements for employers with 20+ are provided below. However, it's worth pointing out that many states have passed "mini-COBRA" laws that cover smaller (fully insured) employers and/or provide greater COBRA rights. 

In general, 18 months

COBRA coverage lasts up to 18 months unless you meet the criteria below.

36 months

Coverage lasts up to 36 months for the following qualifying events:

• Divorce or legal separation from the employee
• Employee becoming entitled to Medicare
• When a child loses dependent child status under the plan ("ages out" of a parent's plan)
• When any qualified beneficiary experiences a secondary qualifying event (two qualifying events)

29 months ("disability extension")

Coverage can last 29 months for all of a family's qualified beneficiaries if one of the qualifying beneficiaries in a family is disabled. 

Important Timeframes

Pay attention to the following timeframes. When you lose coverage, you will be sent a notification and have the opportunity to elect COBRA continuation. Refer to your notification for detailed instructions.

• You have 60 days from your date of notice or your termination date, whichever is later, to enroll in COBRA.
• If you don't get a notification letter within 3 weeks of your termination, call your insurance carrier or administrator. You only have 60 days whether you received the notification letter or not.
• Your COBRA election form must be in the mail and postmarked no later than the end of the 60-day window.
• You have 45 days from the date you sign the election form to catch up on premiums. All back premiums must be paid so you have no lapse in coverage. (COBRA coverage must be continuous; your effective date will be the date following your termination date).
• Once you are caught up, your ongoing premiums are due on the 1st of each month. Make sure your payment arrives before the due date.
• Most insurance carriers do not send COBRA billing statements. It is your responsibility to make sure you pay your premium on time. If you want COBRA, you have got to stay on top of it.
• You have a 30-day grace period to pay your premium, but be aware that the grace period is exactly 30 days and not rounded up to match a calendar month. And, if you enter a grace period, your coverage may be suspended until you've paid in full. This means claims that come in will be held, and you might not be able to pick up prescriptions, etc. 
• If you go beyond the 30-day grace period, you lose coverage. There's no way to pick it back up regardless of the circumstances.

What happens to my FSA?

If you have unspent funds, COBRA continuation will be offered for your health Flexible Spending Account (FSA). If you have "overspent" your FSA, COBRA continuation will not be offered.

You can use funds remaining in your Health FSA to reimburse yourself for qualified health care expenses that were incurred while you were still covered under the FSA plan. If you have received qualified services prior to your loss of coverage, you should submit reimbursement claims as soon as possible.

If you elect to continue your health FSA: 

• The FSA will be terminated at the end of the plan year in which the qualifying event occurs (or if you fail to submit the premium, whichever occurs first)
• Contributions to your health FSA will be taxed (no more payroll deductions)
• The FSA may be subject to a 2% administration fee

COBRA Alternatives

If you are receiving unemployment compensation, you have the alternative to purchase health care through your state exchange, e.g., Covered California. Look into this because it provides other choices which may prove better matched to your coverage or affordability needs. There's also free and low cost healthcare coverage for kids and teens.

Resources and references:

Department of Labor (DOL): Changing Jobs and Job Loss
DOL: Retirement and Health Care Coverage - FAQs for Dislocated Workers (pdf)
HealthCare.gov 
InsureKidsNow.gov