For over 30 years, the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 has been providing a lifeline for people who lose their employer sponsored health insurance coverage. Generally, if an employer offers group health coverage and has at least 20 employees, COBRA requires that employees be offered the option to continue their group coverage for up to 18 months, even 36 months in some situations, if they experience a qualifying event such as termination of employment, a reduction in hours, divorce or legal separation from a covered employee, eligibility for Medicare, or bankruptcy.
But along came the Affordable Care Act (ACA), radically shaking up the health insurance market and making coverage more comprehensive and available to everyone, regardless of medical history. Since all policies are required to cover 10 Essential Health Benefits (EHB), the individual market now offers coverage that’s as comprehensive as group coverage.
So does this mean COBRA is going the way of the dinosaur?
No. The passage of the ACA gave birth to rumors that COBRA would become extinct, but that’s not the case. COBRA can still be a crucial lifeline for many. For example, an employee who is in the middle of cancer treatment might prefer COBRA over an individual plan from the Marketplace to avoid the disruption of finding a new medical team. COBRA also allows people who are in the middle of treatment or a deductible cycle to keep their provider networks, keep their same deductibles, and in most cases, obtain coverage that’s retroactive to the original date of their loss of coverage. Those are perks you can’t always get on the exchanges.
Still, the Affordable Care Act has made COBRA less necessary than it used to be, especially when you consider the premium subsidies available under the ACA. But anyone facing the choice should be aware of the pros and cons, so let’s take a look at a few.
COBRA: The good and the not so good
- COBRA continuation coverage is available in most situations where an employee, spouse, or dependent would otherwise lose access to the plan, including resignation, involuntary termination (except for gross misconduct), or a reduction in hours.
- COBRA provides the same coverage as the employee sponsored group health plan, so an employee doesn’t have to shop for a new plan or a new doctor.
- COBRA allows employees to keep their provider networks, keep their same deductibles, and generally get coverage that’s retroactive to the original date of coverage loss.
- COBRA requires no medical underwriting, so premiums aren’t dependent on an employee’s medical history.
- COBRA premiums could be a shock for people used to having premiums significantly subsidized by their employer. Under COBRA, employees pay the full premiums plus an administration fee.
- COBRA offers no plan choice. Employees simply retain the same plan they had with their employer.
- COBRA doesn’t apply to employers with fewer than 20 employees (unless your state has “mini-COBRA” laws in place) or plans sponsored by the federal government, churches, or church-related organizations.
- COBRA may not be available if the group plan ceases to exist, such as if the employer stops offering coverage or closes the business.
While the ACA has widened the scope of options and affordability for people who are losing their employer-sponsored health insurance, COBRA is still around and it can be a viable choice for many. In addition, employers are still required to furnish employees with all the same COBRA notices, and employers will be fined if they don’t have proof of delivering proper COBRA notifications.
To learn more about COBRA, check out the Department of Labor’s An Employer's Guide to Group Health Continuation Coverage Under COBRA. For assistance with COBRA compliance, talk to the employee benefits experts at Heffernan Insurance Brokers.