Consolidated Omnibus Budget Reconciliation Act (COBRA)

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a landmark federal law, passed in 1985, that provides for continuing group health insurance coverage for some employees and their families after a job loss or other qualifying event.

COBRA continuation health coverage is meant to provide an element of financial security for workers who would otherwise lose their insurance. In addition to the employees themselves, it can also include their spouses, former spouses, and dependent children.

COBRA only applies to health plans offered by private-sector employers with more than 20 employees, as well as to state and local governments. It doesn't apply to the federal government, churches, or some church-related organizations.

The events that may qualify an employee or their family for COBRA coverage include voluntary or involuntary job loss, reduction in hours worked, the death of the employee, or the divorce or legal separation of the employee and their spouse. COBRA coverage generally lasts for a maximum of 18 months, but may be extended to 36 months under certain circumstances. Employers also have the option of extending coverage for a longer period than COBRA requires.

COBRA isn't free. Participants may be required to pay the full premium for their coverage—that is, both their share and the share that their employer might have previously paid—plus an administrative fee, for a total of up to 102% of the plan cost. While COBRA participants will generally pay more for their insurance than active employees who are still covered under the employer's usual plan, COBRA may still be less expensive than buying an individual (non-group) health plan, especially if the participant doesn't qualify for an Affordable Care Act subsidy.

The coverage itself shouldn't change. The U.S. Employee Benefits Security Administration notes that, "If you elect continuation coverage, the coverage you are given must be identical to the coverage currently available under the plan to similarly situated active employees and their families (generally, this is the same coverage that you had immediately before the qualifying event)."

Group health plans are required to make employees aware of their eligibility for COBRA coverage after a layoff or other qualifying event. COBRA coverage is typically available to full-time, and some part-time, employees if their companies' group health plan was in effect in the prior year.

Eligibility for COBRA coverage generally begins the day after an employee is terminated or experiences another qualifying event. Employees must be given at least 60 days to decide whether to accept or decline the coverage. If the employee elects to take COBRA coverage, the employer will generally make the first payment. After that, it's the participant's responsibility to pay the premiums to keep the coverage in effect.

Companies that do not offer group health benefits to their employees are exempt from offering COBRA coverage. Similarly, companies that are going out of business typically do not have to adhere to COBRA’s requirements. COBRA coverage can also be denied certain circumstances, such as when employees were fired for misconduct that was related to their jobs.

In addition to the federal regulations, many states have their own laws that govern the continuation of health coverage after a qualifying event.