The Consolidated Omnibus Budget Reconciliation Act of 1985 is a law passed by the U.S. Congress
on a reconciliation basis and signed by President Ronald Reagan that, among other things, mandates
an insurance program giving some employees the ability to continue health insurance coverage
after leaving employment.
COBRA includes amendments to the Employee Retirement Income Security Act of 1974.
The law deals with a great variety of subjects, such as tobacco price supports, railroads,
private pension plans, emergency room treatment, disability insurance, and the postal service,
but it is perhaps best known for Title X, which amends the Internal Revenue Code and
the Public Health Service Act to deny income tax deductions to employers for contributions
to a group health plan unless such plan meets certain continuing coverage requirements.
The violation for failing to meet those criteria was subsequently changed to an excise tax.
Although this statute became law on April 7, 1986, its official name is the Consolidated
Omnibus Budget Reconciliation Act of 1985.
Because of the discrepancy between the official name of the Act and the year in which it was
enacted, some government publications refer to the Act as the Consolidated Omnibus Budget
Reconciliation Act of 1986.
The Act is often referred to simply as "COBRA".
Provisions As originally enacted, Title X of the Act
provided that a qualifying employer will not be permitted to take a tax deduction for its
health insurance costs unless its health insurance plan allows employees of the employer and
the employee's immediate family members who had been covered by a health care plan to
maintain their coverage if a "qualifying event" causes them to lose coverage.
However, the legislation was subsequently amended to instead impose an excise tax upon
an employer whose health plan fails to satisfy the applicable rules.
A qualifying employer is generally an employer with 20 or more full-time-equivalent employees.
Among the "qualifying events" listed in the statute are loss of benefits coverage due
to the death of the covered employee; an employee loses eligibility for coverage due to voluntary
or involuntary termination or a reduction in hours as a result of resignation, discharge,
layoff, strike or lockout, medical leave, or slowdown in business operations; divorce
or legal separation that terminates the ex-spouse's eligibility for benefits; or a dependent child
reaching the age at which he or she is no longer covered.
COBRA imposes different notice requirements on participants and beneficiaries, depending
on the particular qualifying event that triggers COBRA rights.
See DOL.GOV's FAQs For Employers About COBRA Continuation Health Coverage
COBRA also allows for coverage for up to 18 months in most cases.
If the individual is deemed disabled by the Social Security Administration, coverage may
continue for up to 29 months.
In the case of divorce from the former employee, the former spouse's coverage may continue
for up to 36 months.
In the case of death of the former employee, the widow's coverage may continue for up to
36 months.
COBRA does not apply, on the other hand, if employees lose their benefits coverage because
the employer has terminated the plan altogether or if the employer has gone out of business.
In cases where COBRA does not apply, some states have stepped in with state health insurance
continuation laws, usually called "mini-COBRA" laws, which help employees continue their
health insurance when federal COBRA does not apply.
COBRA does not, unlike other federal statutes such as the Family and Medical Leave Act,
require the employer to pay for the cost of providing continuation coverage.
Instead it allows employees and their dependents to maintain coverage at their own expense
by paying the full cost of the premium the employer and the employee previously paid,
plus up to a 2% administrative charge.
According to the U.S. Department of Labor:
...the coverage you are given must be identical to the coverage that is currently available
under the plan to similarly situated active employees and their families.
You will also be entitled, while receiving continuation coverage, to the same benefits,
choices, and services that a similarly situated participant or beneficiary is currently receiving
under the plan, such as the right during an open enrollment season to choose among available
coverage options.
You will also be subject to the same rules and limits that would apply to a similarly
situated participant or beneficiary, such as co-payment requirements, deductibles, and
coverage limits.
Employees and dependents can also opt for a lesser form of coverage, e.g., to choose
continuation coverage under a plan that only covers the employee, but not his or her dependents,
or that only provides medical and hospitalization coverage and does not pay for dental work,
if those options are available to covered employees.
Employees and dependents lose coverage if they fail to make timely payments of these
premiums.
Employers are required to inform employees and dependents upon loss of coverage, in writing,
by at least fifteen days before the coverage ceases.
Coordination of coverage An individual covered under COBRA may also
be covered by another group health plan or Medicare as long as either of two conditions
is met: The other coverage was in force as of or prior
to the coverage under COBRA.
The other coverage is subject to pre-existing conditions exclusions or limitations.
Subsidy under federal stimulus Only 10% of Americans eligible for COBRA insurance
in 2006 used it, many because they were unable to afford to pay the full premium after their
job loss.
While some employers may voluntarily help subsidize or fully cover the cost of COBRA
insurance as part of a termination or exit package, it is more common for the ex-employee
to cover the entire cost.
The American Recovery and Reinvestment Act of 2009 as signed by President Barack Obama
includes a 65% subsidy to employees for COBRA-enabled insurance for up to 9 months after an involuntary
termination.
An employee is eligible for this subsidy if the termination of employment was involuntary,
the terminated employee has no other group sponsored health insurance option, and
the terminated employee is otherwise eligible to enroll in COBRA.
If the employee has an adjusted gross income in 2009 over $125,000 if filing as single,
then the subsidy will be recaptured in a phased manner from the employee through the tax system.
Termination of employment must have occurred between September 1, 2008 and December 31,
2009.
Specific provisions and responsibilities may differ in the state specific mini-COBRA plans
for employers with fewer than 20 employees throughout half of the previous calendar year.
Those employees who are eligible for the ultimate benefits of this subsidy are referred to as
Assistance Eligible Individuals.
Employers subject to Federal COBRA are required to:
Notify terminated employees of their potential rights under ARRA by sending a series of notices
Provide a method for qualified AEIs to enroll Pay the full amount of the premiums and seek
reimbursement of the 65% subsidy by including it in the Employer's Quarterly Federal Tax
Return This Act was signed into law by President
Barack Obama on February 17, 2009.
On December 19, 2009, President Obama signed into law the Department of Defense Appropriations
Act, 2010, which made several amendments to the COBRA provisions of the American Recovery
and Reinvestment Act of 2009.
The Act extends COBRA subsidy eligibility to employees who lost their jobs due to no
fault of their own between January 1 and February 28, 2010.
The nine-month subsidy period was also expanded to fifteen months.
On March 3, 2010, President Obama signed into law the Temporary Extension Act of 2010.
The Act extends COBRA subsidy eligibility to employees who lost their jobs due to no
fault of their own between March 1 and 31, 2010.
In addition, employees who lost group health insurance due to reduced work hours on or
after Sept. 1, 2008, followed by involuntary termination between March 2 and March 31,
2010, will now be eligible for the COBRA subsidy.
The Continuing Extension Act of 2010 extends premium assistance for COBRA benefits through
May 31, 2010.
As of June 2010, an extension of COBRA's premium assistance has not materialized, and attempts
by congressional members to include such provisions have been dropped.
As of June 1, 2010, all newly unemployed workers must pay full coverage costs as determined
by their respective plans.
This is due in part to conservative Democrats in Congress who have expressed concerns about
treating some unemployed workers differently from others, such as people priced out of
the private insurance market.
A number of Senate Democrats expressed concern about this situation and have introduced legislation
to expand COBRA coverage to people who become unemployed through November 2010, but such
legislation did not pass in 2010.
Similar state and local legislation Forty-one states have legislation similar
to federal COBRA requiring employers to allow employees and their dependents to continue
their group health insurance coverage following certain qualifying events.
California California's legislation only applies to non-government
employers with a group health insurance plan with fewer than twenty employees.
District of Columbia The District of Columbia's Continuation of
Health Coverage Act of 2001 applies to employers with a group health insurance plan with a
situs in the District of Columbia and with fewer than twenty employees.
Coverage must be offered to be extended for a period of three months following the date
that coverage would have ended.
Maryland Maryland's legislation only applies to employers
with a group health insurance plan with a situs in Maryland and with fewer than twenty
employees.
Maryland law requires that continuation coverage must be offered to an employee who lives in
Maryland, who had coverage from the employer for at least three months, and who either
resigns or loses employment due to no fault of their own.
Continuation coverage must also be offered to the former spouse and dependent children
of an employee after a divorce.
One exception to the eighteen-month rule is that coverage may end for the former spouse
upon the former spouse's remarriage.
Continuation coverage must also be offered to the surviving spouse and dependent children
of an employee who dies.
The employee must have resided in Maryland and had coverage with the employer for at
least three month prior to death.
In all cases, continuation coverage must be offered for eighteen months, with the exception
that a former spouse's continuation coverage ends upon remarriage.
Virginia Virginia's legislation applies to employers
with a group health insurance plan, other than an HMO plan, and with twenty or fewer
employees.
Employers must offer continuation coverage to employees for twelve months.
The legislation does not apply to employees who did not have coverage from the employer
for at least three months prior to the qualifying event.
Notes
References
External links US Department of Labor: COBRA FAQs for Employees
Employee Brochure, Department of Labor Other Resources, Department of Labor
COBRA Insurance Direct Learn more about COBRA Insurance
COBRA insurance guide Information about COBRA COBRA Insurance Information Center
Library of Congress THOMAS summary of the Act.
General information from the Centers for Medicare and Medicaid Services
COBRA insurance information