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What is COBRA?
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act.
Under this Act, group health plans are required to provide temporary benefits and group health coverage to individuals who experience adverse events, such as job termination. In the United States, COBRA is a continuation of health coverage for workers for a certain period of time.
How Does COBRA Work?
COBRA regulations require employers with group health plans with 20 or more employees to provide employees and their families an extension of health coverage.
COBRA applies to individuals whose coverage ended through a qualifying life event that causes the individual to lose their health coverage.
Qualifying events include:
- Voluntary or involuntary job loss
- Reduced work hours
- Job transition
- A dependent is no longer a dependent
Only employees enrolled on the employer’s health plan are eligible for COBRA coverage. The employer must notify the health insurance plan in order to begin COBRA coverage when the qualifying event falls under the categories of: employee job loss, reduction of hours, or death.
However, the employee must notify the health plan when the qualifying event falls under the categories of: divorce or loss of dependent status. Employees have 60 days from the date coverage is terminated to elect COBRA coverage.
Coverage typically lasts from 18 to 36 months, depending on the qualifying event. In instances of job termination or reduction of employment hours, coverage spans about 18 months. It can only be extended if the beneficiary is disabled or another qualifying event occurs.
Other qualifying events and those who are beneficiaries of the qualifying events have been given 36 months of coverage.
COBRA benefits mirror the same coverage offered by the employee’s health benefits. The same rules and regulations of the health plan apply as before the qualifying event.
How Much Does COBRA Cost?
COBRA coverage can cost the covered individual no more than 102 percent of the cost of the original health plan. According to the U.S. Department of Labor, “In determining COBRA premiums, the plan can include the costs paid by employees and the employer, plus an additional 2 percent for administrative costs.”
The premium can cost on average $400-$700 a month per person. In order to calculate the cost of COBRA continuation coverage, add how much the employer contributes to the health plan, plus how much the employee contributes to the health plan, then multiply the sum by 2% for the service fee. Please see the formula below:
(Employer contribution to coverage + Your Contribution) x 0.02% = COBRA Premium)
For example, an employer who contributes $400 a month for an employee who contributes $200 a month would bring the total to $600 towards contributions. Multiplied by the 2% charge, the COBRA cost each month would cost $612 each month.
What is COBRA Takeover?
COBRA takeover occurs when companies switch their COBRA administrator. Typically, they are commonly used during mergers and acquisitions of businesses. Employers thinking about M&A plans should consider taking the advice of an attorney to include the right COBRA language in the M&A contract.
If one company acquires another, then the first company, let’s name it company A, can decide to take the responsibility of COBRA coverage for employees instead of the second company, company B. However, if company A sells their business or becomes bankrupt, then becomes bankrupt, company B would then be responsible for employee COBRA benefits.
How to Apply for COBRA Takeover?
Each health plan has a different procedure for applying for COBRA benefits and processing claims. Best practice is to contact your plan administrator. To download a COBRA Takeover application, and learn more about COBRA, click the link here.