Broker Check

Is COBRA Worth It?

May 27, 2022

No, this is not about dangerous or poisonous snakes.  Unlike its African namesake, this COBRA is not to be feared or avoided.  Quite the contrary, it may offer you protection.  COBRA is the acronym for a law, the Consolidated Omnibus Budget Reconciliation Act, which became effective in 1986.  The law provides ongoing temporary group health insurance coverage for former employees and their families who might otherwise risk losing their coverage.


The federal law requires that businesses who offer group health plans and employ 20 or more workers provide COBRA coverage.  In some states the minimum is fewer than 20 employees.1 COBRA pertains to private sector employers or state and local governments.  The law may not apply to the Federal government or to churches and certain church-related organizations.


The health benefit provisions of COBRA require continuation of coverage for employees, their spouses, their divorced spouses, and their dependent children when group health insurance might otherwise end due to certain qualifying events.  To be eligible for COBRA coverage, the employee or family member must have been enrolled in the group plan when the qualifying event occurred.  


What Are the Qualifying Events?


Qualifying events are not always the same for the covered worker and for other family members. There are more qualifying events for family members than for the worker.


Qualifying events for the worker include:

  • Termination of employment for any reason other than “gross misconduct”
  • Reduction in the number of hours of employment


Thus, a worker who might normally lose health insurance coverage due to his being fired or being laid off, may choose to continue coverage under the COBRA provisions.  Coverage may be denied if the reason for firing is “gross misconduct” (not just your everyday run-of-the-mill misconduct).  “Gross misconduct” is not defined in the Act, but “it can be assumed that being fired for most ordinary reasons, such as excesses absences or generally poor performance, does not amount to gross misconduct.2


Qualifying events for the spouse or dependent child of the worker include:

  • Termination of the covered worker’s employment for any reason other than “gross misconduct”
  • Reduction in the hours worked by the covered worker
  • The covered worker becomes entitled to Medicare
  • Divorce or legal separation of the spouse from the worker
  • Death of the worker


In addition, the dependent child of the worker may also qualify if

  • The child loses “dependent” status under the plan.”


Thus, a worker’s family who might normally lose health insurance due to the death of the worker, may choose to continue their coverage under the COBRA provisions.  A child who reaches the maximum age allowed under the plan may choose to continue coverage under the plan.3

What Coverage Is Offered?


A covered worker or family member who elects continuing coverage must be offered the same coverage that is currently offered to similarly situated employees.  This is usually the same coverage provided to the worker just before the qualifying event.  The participant is also entitled to the same benefits and choices that current participants have, such as the right to choose among available options during an open enrollment period.


How Much Does It Cost?


The cost of continuing coverage can be expensive.  This is because affected employees are often required to pay the full cost of the coverage plus a 2 percent administrative charge.  Employers are not required to pay part of the cost of group health insurance, which they normally do for active employees.  Since the employee bears the entire cost of the insurance, he/she usually pays more than active employees pay.


The individual is responsible for paying the premium and the administrative charge to the plan provider.  Some employers may subsidize coverage, although they are not required to do so.


How Long Does It Last?


Continuing coverage under COBRA is temporary.   It is not indefinite.  The length of the coverage period depends upon the qualifying event.  The length of coverage is 18 months, if the qualifying event is termination or reduced hours of employment.  The 18-month period applies to the employee and family members.  This period may be extended to 29 months if the employee or any covered family member is disabled according to the Social Security Administration.  The plan may charge up to 150% of the premium amount for disability extension period.


For all other qualifying events, that is, events specific to other family members, the coverage period is 36 months.  Thus, a spouse or dependent child is eligible for 36 months of extended coverage in the event of divorce or legal separation, death of the worker, or the worker’s entitlement to Medicare.  The dependent child is eligible for 36 months of extended coverage due to the loss of “dependent” status under the plan.


Many states have extended COBRA coverage under state law. Some states have not only extended the length of coverage under state law, but have extended coverage to employers with fewer than 20 employees.4 Under New York state law COBRA coverage has been extended from 18 months to 36 months for former employees and qualifying family members regardless if they worked for small employer or larger employer.5


COBRA Alternatives


Given that COBRA can be expensive, you may want to compare various alternatives before making a decision.  One option might be to ‘special enroll’ in another group health plan.  Special enrollment means that you may enroll immediately and do not have to wait for an open enrollment period.  For example, you might be able to enroll in your spouse’s plan.  If your dependent loses coverage under your plan, he/she might be able to enroll in another parent’s health plan.  


The special-enrollment option is guaranteed by the Health Insurance Portability and Accountability Act (HIPAA).  According to this law, if you or your dependents are no longer eligible for coverage under your health plan, you or your dependents have the right to ‘special enroll’ in another group plan.  To be eligible for special enrollment, your reason for initially declining to enroll in the plan in which you now wish to enroll is that you had coverage through another health plan.  Thus, if you (and/or your child) lose coverage because you are laid off from your job, you (and/or your child) may special enroll in your spouse’s group health plan.  You should special enroll within 30 days of your loss of coverage.6


Another option for continuing health insurance coverage may be the Health Insurance Marketplace in your state of residence.  The Marketplace allows individuals and small businesses to find and compare private health insurance options.  Through the Marketplace, individuals may qualify for cost-sharing reductions and a tax credit that lowers monthly premiums.  Being offered COBRA continuation coverage does not limit eligibility for coverage or for a tax credit through the Marketplace.  The employee or dependent must select Marketplace coverage within 60 days before or after the loss of other coverage or will have to wait until the next open enrollment period.7


If you would like to know more about COBRA, or whether COBRA may be worth it to you, please feel free to contact us.  Remember, we are here to help.


Doug Lemons, CFP®