Understand COBRA

As you may have heard, the American Recovery and Reinvestment Act of 2009, the stimulus package passed in 2009 to help combat the recession, had provisions that would extend the benefits of the COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) insurance act. Specifically, the stimulus bill provided a benefit to those eligible of a 65% tax credit on insurance premiums. Eligible individuals would pay only 35% of their COBRA premiums out of pocket and the balance was return as a tax credit.

The reduction applies only to periods of health insurance coverage starting in February 17, 2009 for nine months as long as you were involuntarily terminated between the period of September 1st, 2008 and December 31, 2009. For more information, you can check out the Department of Labor COBRA page.

Getting COBRA health insurance may be an easy and convenient option but it’s not necessarily the cheapest option. You should always consider researching independent health insurance using a search engine like eHealthInsurance, named 2008 Best Health Insurance Site by Kiplinger’s, because you probably can get it for cheaper. The company searches through all the major health insurance providers like Blue Cross Blue Shield, Aetna, etc. and gives you a variety of options from HMOs to PPOs to simple indemnity.

The reason why COBRA is so expensive is because you get the same insurance but you have to pay the entire price. With employer provided health insurance, the employer subsidizes some of the cost of that insurance.When the employer stops paying for half, the price usually goes up a tremendous amount.

There are a few reasons why you might want to stick with COBRA, at least until it expires:

• You have a pre-existing condition. Since you must be covered by your employer’s plan until COBRA expires, you don’t have to pay increased premiums or have to deal with exclusions because of a pre-existing condition. When you have employer provided insurance, the insurance company is required to cover the entire class (the set of employees is considered a class) and so the added estimated cost of your pre-existing condition is averaged across all in the class. When you are a class of one, you pay the full price of your condition.
• It’s easy. You have 60 days to elect COBRA, so many people wait out the 60 days to see if they need it. if you do, elect it retroactively and get your insurance needs met.
• It’s cheaper. Independent health insurance isn’t necessarily cheaper, sometimes COBRA is. However, it pays to do the research.

The main thing to remember is that when you sign up for COBRA health insurance, you are actually just being allowed to continue coverage under your former (or current if you lost coverage because of hours) employer’s health insurance program and so you are entitled to the same rights and benefits as a full time non-COBRA insurance covered employee. So, what happens if you have a child while you’re on COBRA? Usually that, and getting married and any other time you would add a dependent, is considered a qualified event and lets you change your coverage.

When you leave your company, whether it’s because you were let go or whether you left on your own, you will always have the option to elect COBRA health insurance for a specified period afterwards. The way COBRA works is that you are part of the existing health insurance coverage your company provides, except you pay the whole bill rather than just the employee’s half.

Unfortunately, what this means is that COBRA insurance is not available if your company goes bankrupt. The reason this is the case is because there is no health insurance for you to be a part of. With COBRA, you’re joining the company insurance but paying your whole way. If the company is bankrupt, there’s no company insurance for you to join.

The only option you have is independent health insurance.

Under certain circumstances, you can have extend COBRA insurance coverage and it’s crucial that you take advantage of this if you qualify. In order to qualify for additional months of COBRA coverage, the beneficiary must have a ruling by the Social Security Administration that the beneficiary became disabled within the first 60 days of COBRA continuation coverage. Then the beneficiary must send the plan a copy of the SSA ruling letter within 60 days of receipt but prior to the expiration of the 18 month period (of original COBRA coverage). If they do both then the entire family qualifies for an additional 11 months of COBRA coverage, though the insurance plan can charge 150% of the original premium cost for that extended period.

If you decided to waive COBRA coverage during the initial election period and then change your mind, you can do so as long as you revoke the waiver of coverage before the end of the election period. If the election period has passed then unfortunately you cannot revoke your waiver. After you revoke the waiver, simply elect COBRA coverage but the plan only needs to provide continuation coverage beginning the date of the waiver.

For example, if you elected to revoke your waiver of COBRA coverage on January 15th because you suffered an event on the 14th, your COBRA plan may not cover you for that event on the 14th because they are only obligated to cover you after the date of your waiver.

The main thing to remember is that when you sign up for COBRA health insurance, you are actually just being allowed to continue coverage under your former (or current if you lost coverage because of hours) employer’s health insurance program and so you are entitled to the same rights and benefits as a full time non-COBRA insurance covered employee. So, what happens if you have a child while you’re on COBRA? Usually that, and getting married or any other event where a dependent is added, is considered a qualifying event on most health insurance plans and you’re allowed add that dependent to your insurance coverage. If that is the case with the main plan then you will be allowed to add that dependent onto your COBRA coverage since it will be identical to the other plan, it’s just that you pay the full bill (instead of being subsidized as a benefit by your employer). You will have to contact your plan administrator for the paperwork.

So in summary, if you need to add a dependent to your COBRA coverage and the dependent came by way of a qualifying event such as a birth, marriage, etc. you will usually be allowed to add that dependent to your COBRA health insurance, just contact your plan administrator. If you just want to add a child that wasn’t covered before, that will likely not be possible since you had the option to add them when you enrolled – again, check with your plan administrator but usually health insurance plans won’t let you add dependents without a qualifying event such as birth or marriage.

COBRA insurance is often very very expensive because you’re getting your existing coverage, which is likely not going to be cheap, without the subsidies provided by your (potentially former) company. So, before you opt into COBRA, which is the easiest thing to do, you should consider researching how much short term medical insurance would actually be for someone with your medical characteristics.

Now, if your current medical condition is not ideal (perhaps because you have pre-existing conditions), COBRA may be your best option. However, if you are in excellent health, it pays to consider alternatives because they can be far cheaper because they may be catering to consumers on a budget. Since you do have quite a bit of time before you elect COBRA, it pays to just send out a lot of requests and see what the ballpark is for insuring you.

eHealthInsurance is one of many reputable medical insurance quoting sites and they offer both Individual & Family Health Insurance and Short-Term Health Insurance. When my fiancée left her job, this was the first site she visited to research her health insurance options.

Good luck!

CONTENTS
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INTRODUCTION

WHAT IS THE CONTINUATION HEALTH LAW?

WHO IS ENTITLED TO BENEFITS?

Plan Coverage

Beneficiary Coverage

Qualifying Events

Chart: Periods of Coverage

YOUR RIGHTS: NOTICE AND ELECTION PROCEDURES

HOW COBRA COVERAGE WORKS

COVERED BENEFITS

DURATION OF COVERAGE

PAYING FOR COBRA COVERAGE

CLAIMS PROCEDURES

ROLE OF THE FEDERAL GOVERNMENT

CONCLUSION

INTRODUCTION

Health insurance programs allow workers and their families to take care of essential medical needs. These programs can be one of the most important benefits provided by your employer.


There was a time when group health coverage was available only to full-time workers and their families. That changed in 1986 with the passage of health benefit provisions in the Consolidated Omnibus Budget
Reconciliation Act (COBRA). Now, terminated employees or those who lose coverage because of reduced work hours may be able to buy group coverage for themselves and their families for limited periods of time.


If you are entitled to COBRA benefits, your health plan must give you a notice stating your right to choose to continue benefits provided by the plan. You have 60 days to accept coverage or lose all rights to benefits. Once COBRA coverage is chosen, you are required to pay for the coverage.


This page is designed to:

WHAT IS THE CONTINUATION HEALTH LAW?


Congress passed the landmark Consolidated Omnibus Budget Reconciliation Act (COBRA) [1] health benefit provisions in 1986. The law amends the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code and the Public Health Service Act to provide continuation of group health coverage that otherwise would be terminated.


COBRA contains provisions giving certain former employees, retirees, spouses and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available in specific instances. Group health coverage for COBRA participants is usually more expensive than health coverage for active
employees, since usually the employer formerly paid a part of the premium. It is ordinarily less expensive, though, than individual health coverage.


The law generally covers group health plans maintained by employers with 20 or more employees in the prior year. It applies to plans in the private sector and those sponsored by state and local governments. [2] The law does not, however, apply to plans sponsored by the Federal government and certain church- related organizations.


Group health plans sponsored by private sector employers generally are welfare benefit plans governed by ERISA and subject to its requirements for reporting and disclosure, fiduciary standards and enforcement. ERISA neither establishes minimum standards or benefit eligibility for welfare plans nor mandates the type or level of benefits
offered to plan participants. It does, though, require that these plans have rules outlining how workers become entitled to benefits.


Under COBRA, a group health plan ordinarily is defined as a plan that provides medical benefits for the employer’s own employees and their dependents through insurance or otherwise (such as a trust, health maintenance organization, self-funded pay-as-you-go basis, reimbursement or combination of these). Medical benefits provided under the terms of the plan and available to COBRA beneficiaries may include:

WHO IS ENTITLED TO BENEFITS?


There are three elements to qualifying for COBRA benefits. COBRA establishes specific criteria for plans, beneficiaries and events which initiate the coverage.


PLAN COVERAGE


Group health plans for employers with 20 or more employees on more than 50 percent of the working days in the previous calendar year are subject to COBRA. The term “employees” includes all full-time and part-time employees, as well as self-employed individuals. For this purpose, the term employees also includes agents, independent contractors and directors, but only if they are eligible to participate in a group health plan.


BENEFICIARY COVERAGE


A qualified beneficiary generally is any individual covered by a group health plan on the day before a qualifying event. A qualified beneficiary may be an employee, the employee’s spouse and dependent children, and in certain cases, a retired employee, the retired employee’s spouse and dependent children.


QUALIFYING EVENTS


“Qualifying events” are certain types of events that would cause, except for COBRA continuation coverage, an individual to lose health coverage. The type of qualifying event will determine who the qualified beneficiaries are and the required amount of time that a plan must offer the health coverage to them under COBRA. A plan, at its discretion, may provide longer periods of continuation coverage.


The types of qualifying events for employees are:

PERIODS OF COVERAGE [3]

Special rules for disabled individuals may extend the maximum periods of coverage. If a qualified beneficiary is determined under Title II or XVI of the Social Security Act to have been disabled at the time of a termination of employment or reduction in hours of employment and the qualified beneficiary properly notifies the plan administrator of the disability determination, the 18-month period is expanded to 29 months.


Although COBRA specifies certain maximum required periods of time that continued health coverage must be offered to qualified beneficiaries, COBRA does not prohibit plans from offering continuation health coverage that goes beyond the COBRA periods.


Some plans allow beneficiaries to convert group health coverage to an individual policy. If this option is available from the plan under COBRA, it must be offered to you. In this case, the option must be given for the beneficiary to enroll in a conversion health plan within 180 days before COBRA coverage ends. The premium is generally not at a
group rate. The conversion option, however, is not available if the beneficiary ends COBRA coverage before reaching the maximum period of entitlement.


PAYING FOR COBRA COVERAGE


Beneficiaries may be required to pay the entire premium for coverage. It cannot exceed 102 percent of the cost to the plan for similarly situated individuals who have not incurred a qualifying event. Premiums reflect the total cost of group health coverage, including both the portion paid by employees and any portion paid by the employer before the qualifying event, plus two percent for administrative costs.


For disabled beneficiaries receiving an additional 11 months of coverage after the initial 18 months, the premium for those additional months may be increased to 150 percent of the plan’s total cost of coverage.


Premiums due may be increased if the costs to the plan increase but generally must be fixed in advance of each 12-month premium cycle. The plan must allow you to elect to pay premiums on a monthly basis if you ask to do so.


The initial premium payment must be made within 45 days after the date of the COBRA election by the qualified beneficiary. Payment generally must cover the period of coverage from the date of COBRA election retroactive to the date of the qualifying event. Premiums for successive periods of coverage are due on the date stated in the plan with a minimum 30-day grace period for payments.


The due date may not be prior to the first day of the period of coverage. For example, the due date for the month of January could not be prior to January 1 and coverage for January could not be canceled if payment is made by January 31.


Premiums for the rest of the COBRA period must be made within 30 days after the due date for each such premium or such longer period as provided by the plan. The plan, however, is not obligated to send monthly premium notices.


COBRA beneficiaries remain subject to the rules of the plan and therefore must satisfy all costs related to deductibles, catastrophic and other benefit limits.


CLAIMS PROCEDURES

Contact the plan administrator for more information on filing a claim for benefits. Complete plan rules are available from employers or benefits offices. There can be charges up to 25 cents a page for copies of plan rules.


COORDINATION WITH OTHER BENEFITS


The Family and Medical Leave Act (FMLA), effective August 5, 1993, requires an employer to maintain coverage under any “group health plan” for an employee on FMLA leave under the same conditions converge would have been provided if the employee had continued working. Coverage provided under the FMLA is not COBRA coverage, and FMLA leave is not a qualifying event under COBRA. A COBRA qualifying event may occur, however, when an employer’s obligation to maintain health benefits under FMLA ceases, such as when an employee notifies an employer of his or her intent not to return to work.


Further information on FMLA is available from the nearest office of the Wage and Hour Division, listed in most telephone directories under U.S. Government, Department of Labor, Employment Standards Administration.


ROLE OF THE FEDERAL GOVERNMENT


Continuation coverage laws are administered by several agencies. The Departments of Labor and the Treasury have jurisdiction over private sector health plans. The United States Public Health Service administers the continuation coverage law as it affects public sector health plans.


The Labor Department’s interpretative and regulatory responsibility is limited to the disclosure and notification requirements. If you need further information on your election or notification rights with a private sector plan, write to the nearest office of the Pension and Welfare Benefits Administration (See Field Directory at end of document)
or:


U.S. Department of Labor

Pension and Welfare Benefits Administration

Division of Technical Assistance and Inquiries

200 Constitution Ave., N.W.

(Room N-5619)

Washington, D.C. 20210



The Internal Revenue Service, which is in the Department of the Treasury, is responsible for publishing regulations on COBRA provisions relating to eligibility and premiums. Both Labor and Treasury share jurisdiction for enforcement.


The U.S. Public Health Service, located in the Department of Health and Human Services, has published Title XXII of the Public Health Service Act entitled “Requirements for Certain Group Health Plans for Certain State and Local Employees.” Information about COBRA provisions concerning public sector employees is available from the:


U.S. Public Health Service Office of the Assistant Secretary for Health Grants Policy Branch (COBRA) 5600 Fishers Lane (Room 17A-45) Rockville, Maryland 20857


Federal employees are covered by a law similar to COBRA. Those employees should contact the personnel office serving their agency for more information on temporary extensions of health benefits.


CONCLUSION


Rising medical costs have transformed health benefits from a privilege to a household necessity for most Americans. COBRA creates an opportunity for persons to retain this important benefit.


Workers need to be aware of changes in health care laws to preserve their benefit rights. A good starting point is reading your plan booklet. Most of the specific rules on COBRA benefits can be found there or with the person who manages your health benefits plan.


Be sure to periodically contact the health plan to find out about any changes in the type or level of benefits offered by the plan.


Written and Produced by PWBA’s Division of Public Affairs, 1994

Unfortunately, the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) is a mandate that requires employers to offer health coverage to employees after they leave however universities are not considered employers in that relationship with students. What this means is that universities are not required to and often do not extend health insurance coverage to students after graduation. Some universities offer coverage on a yearly basis which may, as a matter of coincidence, extend past the date of graduation. Ultimately, I recommend that you contact your university’s health services or medical department for further clarification and assistance.

This, however, is entirely different if you are an employee, and recognized as such, of a university. In that particular case you would be eligible for COBRA health insurance because you were an employee. Whether your status as an employee or as a student takes precedence is up to your university, so again you will have to contact them for clarification.