Health Insurance And The Role Of COBRA

COBRA (The Consolidated Omnibus Budget Reconciliation Act, 1985) is a federal law designed to ensure that people can continue to receive health insurance coverage for up to 18 months following the termination of their employment.

The vast majority of companies which provide group health insurance cover for their employees are subject to the provisions of COBRA which, in certain circumstances, can cover former employees beyond the normal period and for up to 36 months.

In general terms COBRA will protect individuals from losing their health insurance benefits along with their employment but it should be understood that it is designed purely as a temporary measure to help people through what might otherwise be a difficult period.  That said, the act does not provide cover in all circumstances and some employees will find that they do not qualify for cover when their employment ceases. People in an employer's scheme should therefore check with their employer, who should be conversant with the law and able to advise them accordingly.

In effect the law extends an employees right to purchase health cover for himself and his family (as long as they were previously covered) from his former employer at the same rate that applies to employees currently in the scheme. The employee will however have to meet any contribution previously made on his behalf by the employer and may also have to pay an administrative surcharge, which is typically two percent.

One important provision under COBRA is that it does not simply apply in cases where an employee loses his job, but can also come into play when an employee would otherwise lose his health cover because of a change in employment status. This might for example occur when an employee's hours are reduced or when an employee loses entitlement as the result of a divorce.

An employee opting for cover under COBRA will normally be eligible for cover for the period specified in the act, although entitlement will be lost if the holder chooses to purchase an individual health insurance policy or receives cover under another group scheme.

Coverage under COBRA is the same as that provided during employment and so the holder does not have to worry about a change in the level of cover which he or she is receiving. The only change as far as the holder is concerned lies in the responsibility for meeting monthly premium payments. However, it is important to note that there could be a change in the level of benefit if the holder's former employer changes group plans.

COBRA clearly provides extremely valuable protection for employees but it must be understood that this protection is purely temporary in nature and that cover will cease at the end of 18, or in some cases 36, months.

There is one final and very important thing which employees should bear in mind.

Because COBRA coverage is not simply temporary but is also non-renewable, problems may arise if you fall ill during the period of cover and are diagnosed with a serious or chronic condition. Such an event may make it difficult, or in some cases impossible, for you to arrange further cover when your COBRA cover expires. For this reason, it is wise to look on COBRA cover very much as an 'emergency' measure and to take steps to organize ongoing health insurance cover as soon as you are in a position to do so.