COBRA de-mystified: What businesses need to know

Even though COBRA coverage has nothing to do with a venomous snake, it can still seem mysterious and even a bit daunting — but we’re here to make it all more approachable and easier to understand. Let’s take a look at COBRA, what it is, who it covers, and the businesses that are required to offer it.

COBRA (Consolidated Omnibus Budget Reconciliation Act) is a federal law that gives workers and their families who lose their health benefits the right to choose to continue benefits provided by their group health plan. This extension of benefits is offered for limited periods of time under certain circumstances, most commonly following a termination of employment or reduction in hours worked. We’ll highlight those circumstances and more in a bit.

COBRA-eligible benefits include health insurance, dental and vision care, prescription drug plans, and more. 

Which businesses are required to provide COBRA benefits?

From the standpoint of the federal law (individual states may also have laws around this coverage), businesses that employ 20 or more people and offer group healthcare benefits are subject to COBRA and are therefore required to provide COBRA benefits to qualified beneficiaries.

Who qualifies as a beneficiary for COBRA coverage?

The term “qualified beneficiaries” refers to anyone covered by your group health plan on the day before an event that causes loss of coverage, including:

• Employees 
• The covered employee’s spouse
• The covered employee’s dependents, if any

When is COBRA coverage not required?

Your business is not mandated to offer COBRA coverage to individuals in these scenarios:

• Employees who are not eligible for your group health plan
• Eligible employees who chose not to participate in your health plan
• Individuals who are enrolled for benefits through Medicare

Which life events trigger COBRA coverage?

There are many events, referred to as “qualifying events,” that trigger coverage — we’ve highlighted them below:

• Covered employee’s voluntary or involuntary termination of employment, unless it is for gross misconduct as defined by the employer.
• Reduction in the number of hours of employment below plan eligibility requirements.
• Covered employee’s reduction in the number of hours of employment, such as being moved from full-time to part-time status.
• Divorce or legal separation of a spouse from the covered employee.
• Death of a covered employee.
• Covered employee becomes entitled to Medicare benefits.
• Loss of dependent child status under the plan rules. Example: Under the Affordable Care Act, plans that offer coverage to children on their parents’ plan must make the coverage available until the adult child reaches the age of 26.
• Your business declares bankruptcy.

How long does COBRA coverage last?

Several factors work together in determining the length of an individual’s COBRA coverage — most importantly, the type of qualifying event that triggers coverage and who the beneficiary is. Looking at the qualifying life events above, if an employee is terminated or is subject to a reduction in hours, their coverage would go on for 18 months. In the other scenarios, coverage most likely could extend for up to 36 months.

If you’d like to take a deeper dive into the ins and outs of COBRA coverage, the Department of Labor’s website is a great resource, as is our Omnify benefits team. We’re here to help!