How Does COBRA Insurance Work?

COBRA (Consolidated Omnibus Budget Reconciliation Act) Insurance temporarily continues employer-sponsored health plans for covered employees, their dependent children and spouses or former spouses. People who qualify for COBRA have the option to continue their employer-sponsored plan for a limited period of time.

COBRA is not a form of health insurance plan. It is a law passed by Congress in 1986 to extend coverage to those who lose their employer-sponsored plans. The law outlines how employees and their families may elect to receive continued coverage.

To qualify for extended coverage, the underlying employer must be obligated to provide COBRA insurance, the individual must be a Qualified Beneficiary and the former benefits must be dissolved as a result of a qualifying event.

Employers are only required to extend coverage if they offer employer-sponsored health plans and possess a workforce of at least 20 employees. Qualifying events are defined as leaving a job voluntarily, enrolling in the Medicare program, divorce or death. As a general rule, qualifying events affect the individual’s employment status, while situations that affect only the type of plan offered by the employer are not regarded as qualifying events. As a result, if the individual remains employed, but his employer changes, reduces or eliminates its sponsored plan, he is ruled ineligible for COBRA insurance.

COBRA provides crucial coverage for individuals who have pre-existing conditions that would impede them from procuring coverage on their own. That said, COBRA policies are typically more expensive than other health insurance plans, so they are not seen as a prudent option for relatively healthy individuals and their families.