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Consumer Guide To Continuation of Coverage

What is continuation coverage?

Millions of people each year lose access to the health insurance they were offered through an employer (group health insurance coverage) due to a job change, divorce, job loss or other reason. Fortunately, many people are able to continue their group coverage, at least temporarily, through a continuation of coverage program.

Most people who are able to continue their group health insurance benefits are eligible to do so according to federal law called the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). However, COBRA does not apply to all employers, so many states have developed other continuation-of-coverage options for people who are not covered by COBRA. Also, many people leaving group insurance to buy individual health insurance privately have portability benefits required by another federal law.

Most Americans with employer-sponsored health insurance have the option of continuing that coverage for 18-36 months, at their own cost, if they lose access to their coverage. If your employer is required to abide by COBRA, and if you are qualified to receive benefits under it, you also have to experience what is known as a qualifying event to be eligible for coverage. For each type of person receiving COBRA benefits, the various qualifying events are:

How long an individual can receive COBRA benefits depends on who is receiving the benefit and what qualifying event is involved. Employees, dependent children and dependent spouses can continue coverage for 18 months when the qualifying event is job termination or a reduction of work hours. Children and spouses can continue coverage for up to 36 months if a covered employee becomes eligible for Medicare or dies, if there is a divorce or legal separation, or if the child loses dependent status.

Does COBRA coverage cost anything?

Yes. When you receive COBRA benefits, the cost involved for coverage may increase from what you were paying previously. Employers that paid for all or part of your health insurance premiums before COBRA may continue to do so, but they are not legally required to and that is not the norm. Under COBRA, most beneficiaries are required by their employer to pay the entire amount it costs to insure them. In addition, there may be a two-percent administrative fee charged to them, but overall costs charged to the COBRA recipients cannot exceed 102% of their premium. If an individual or family on COBRA does not make timely premium payments to the group plan, they may be terminated by the group plan and lose their coverage and COBRA rights.

To whom does COBRA apply?

In terms of which types of group health plans are subject to COBRA, plans for employers with 20 or more employees on more than 50% of its typical business days in the previous calendar year are subject to its requirements. Both full- and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee is counted as a fraction of an employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full-time.

COBRA applies to private employers and state and local government health plans, but it does not apply to federal government plans and those sponsored by certain church organizations. (The federal government offers its own continuation-of-coverage benefits to eligible individuals.) COBRA also does not apply if a company goes out of business or if it ceases to offer group health insurance to its employees.

Within group health plans that are subject to COBRA, individuals must be what are known as qualified beneficiaries in order to receive benefits. A qualified beneficiary generally is an individual covered by the group health plan on the day before a qualifying event who is an employee, the employee's spouse, or an employee's dependent child. In certain cases, a retired employee, the retired employee's spouse, and the retired employee's dependent children may be qualified beneficiaries. In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary. Agents, independent contractors and directors who participate in the group health plan may also be qualified beneficiaries.

Where can I get more information about COBRA?

The U.S. Department of Labor regulates COBRA, and it has published a list of frequently asked questions for consumers. You can also call (866) 444-3272 for additional information or assistance.

If I am not eligible for COBRA coverage, how do I find out if I have other options?

Many states have enacted legislation requiring smaller employers and others not bound by COBRA to offer some type of continuation-of-coverage benefits to their employees. In addition, many states have requirements that allow individuals who are transitioning out of group coverage to convert their group policy into an individual health insurance policy that they pay for privately. NAHU's Health Care Coverage Options Database contains information about each state's laws concerning continuation of coverage and individual policy conversion options.

Do I have any rights after I finish COBRA or state continuation coverage? What if neither of those two options was available to me?

In addition to COBRA and any state laws concerning continuation of coverage, a different federal law requires every state develop at least one option for people who are transitioning out of group coverage in order to let them purchase an individual health insurance policy without the possibility of rejection due to a pre-existing medical condition. The federal law that requires this is known as the Health Insurance Portability and Accountability Act of 1996 (HIPAA)

People who are eligible to purchase these health insurance policies are known as having group-to-individual portability rights under HIPAA and are often called HIPAA-eligibles or federally eligible individuals. The various states have developed a wide range of mechanisms to provide coverage to their HIPAA-eligible populations, the most common of which is allowing them to purchase coverage thorough a state individual market high-risk health insurance pool . To find out what your rights are in your state, please check NAHU's Health Care Coverage Options Database.