What is COBRA?

COBRA is a very important piece of legislation that guarantees the continuation of health insurance benefits for past employees and their families.

What is COBRA?

In 1985, Congress passed the Consolidated Omnibus Budget Reconciliation Act that required employers to provide health insurance coverage for eligible employees after leaving employment. Most people don’t know, but the act also covers a wide range of topics, such as pension plans, disability insurance and emergency room treatment.

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The act requires that employers offer a continuation of health insurance coverage for past employees and their spouse and dependents. The act is primarily beneficial for employers who are unexpectedly terminated. However, the coverage amounts under the act are usually more expensive because the employer does not financially contribute to the coverage. The act only comes into effect under certain qualifying events.

What is a Qualifying Event?

The Consolidated Omnibus Budget Reconciliation Act is generally associated with employment terminations. However, employees terminated because of gross misconduct may not qualify. Coincidently, this may also disqualify the employee’s unemployment compensation claim. Other reasons include death, retirement and divorce or legal separation of a covered employee. There are additional qualifying events: when the employer declares bankruptcy, when covered employee becomes eligible for Medicare benefits and when a dependent child exceeds the legal age for health insurance coverage.

What Does Not Trigger the Act?

There are also specifically mentioned qualifying events, or triggering events, that do not make an employee eligible under the act. First, a change in insurance carriers does not make employees eligible. This is important because employees who are dissatisfied with a new expensive health insurance plan cannot apply for coverage through the act. Second, employees who resign on their own accord are not eligible. Third, if an employee removes coverage for their spouse or dependents, they do not qualify under the act. Finally, an employee who resigns from a union is not eligible under the act. Keep in mind that while almost all employee group health plans fall under the act, there are specific exceptions.

What are the Exceptions to the Act?

First, small employer plans are completely exempt from the act. This means that any employer that uses less than 20 employers on a normal business day will fall under the small employer plan exception. The federal government’s Group Health Plan was originally not subject to the act. However, the Federal Employees Health Benefits Amendments Act of 1988 requires that federal agencies offer employees continued insurance coverage. Certain group health insurance plans of religious organizations may also not be covered under the act.

What Paperwork Must Employees Send to Past Employees?

The Consolidated Omnibus Budget Reconciliation Act requires specific paperwork to be sent to the past employee. First, the initial notice explains eligibility guidelines, employee rights and employer obligations. Second, the qualifying event notice explains the specific event that resulted in the employee qualifying under the act. HR managers generally ensure that these documents are sent to past employees through registered mail. Failure to send these two notices may result in serious liability and litigation problems down the road.

In summation, COBRA is an important law that protects a past employee’s right to continue their health insurance coverage for themselves and their family.