DEFINITION of Consolidated Omnibus Budget Reconciliation Act (COBRA)

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a landmark federal law that provides continuing coverage of group health benefits to employees and their families upon. COBRA maintains health benefits upon the occurrence of certain qualifying events where such coverage would otherwise be terminated.

The qualifying events under which COBRA continuation health coverage can be extended include voluntary or involuntary job loss, reduction in hours worked, job transition, death, divorce and other life events. Group coverage under COBRA may be extended for a maximum of 18 months due to employment termination or reduction of hours worked, though coverage may be extended to 36 months under certain circumstances. COBRA covers health plans maintained by employers with more than 20 employees.

BREAKING DOWN Consolidated Omnibus Budget Reconciliation Act (COBRA)

COBRA continuing coverage is meant to provide an element of financial security to workers who would otherwise lose coverage because of a layoff, divorce or other event. COBRA participants may be required to pay the full premium for health coverage up to 102% of the plan cost. While COBRA coverage is therefore more expensive than coverage for active employees, for whom the employer generally pays a portion of the premiums, it can still be more economical than individual health plans.

How COBRA Is Used to Provide Continuing Coverage

COBRA typically requires employers to make the opportunity known to employees and their families about receiving a temporary extension on their health coverage. COBRA coverage is available for full-time and some part-time employees at companies that offer a group health plan that had been in effect in the prior year. Employers and plan providers must also provide notice to the employees and their families that they have this option.

The law also outlines how employees and their families can go about electing to receive continuation coverage. COBRA coverage commences the day after an employee is terminated. If the former employee elects to take COBRA insurance coverage, the first payment for this insurance typically falls to the employer to make. The ongoing costs for this coverage after that payment will solely be the former employee’s responsibility.

Companies that do not offer group health benefits to employees are exempt from offering COBRA coverage. Likewise companies that are going out of business typically do not have to adhere to COBRA’s requirements. COBRA coverage can be denied certain circumstances, such as in instances where employees are fired for misconduct that is related to their jobs.

In addition to the federal regulations, many states have their own laws that govern the continuation of health coverage after a qualifying event.