What is COBRA and How Does It Work?

If an individual has group health insurance through his or her employer, the individual, his or her spouse and dependents can continue that coverage for eighteen months if a “qualifying event” (causing the employee to lose insurance coverage) takes place. This right to obtain continued coverage under COBRA only applies with regard to group health plans for private employers which have had 20 or more employees in the previous calendar year, and to state and local government employees. The most common qualifying events are the employee’s termination (including the employee voluntarily quitting), or a cut in the employee’s hours which results in the employee no longer satisfying applicable minimum work hour requirements for insurance coverage. However, COBRA coverage is not an option if the employee is terminated for “gross misconduct.” Also, qualifying events triggering the right of a spouse or dependent of an employee to obtain extended coverage include the death of the employee. 


The employer must notify the health plan within 30 days of a qualifying event (an employee’s termination, reduction in hours, or death). Within 14 days afterwards, the health plan must notify the employee (or beneficiary) of his or her right to continue coverage. The employee or beneficiary must respond within 60 days if they wish to continue on the group health insurance plan, and then has 45 days after electing coverage to pay the initial premium.

The individual who chooses continued coverage will have to pay both the employee and employer portions of the premium plus a 2% service charge. The individual’s continuing premium cost may not exceed 102% of the premium cost for the full employee rate. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer pays a part of the premium for active employees, while COBRA participants generally pay the entire premium themselves. It is ordinarily considerably less expensive, though, than individual health insurance coverage.

This coverage may continue for eighteen months, as long as the premiums are paid. If the individual should join a new employer’s group health plan, the COBRA coverage is not automatically terminated. The individual has the option of either continuing the COBRA coverage for the full eighteen months or terminating it. Continuing COBRA coverage when joining a new plan may be helpful if plan participants are subject to exclusions or waiting period requirements under the policy. However, the individual may need to carry the premiums of both policies during this time.

If an individual was determined to be disabled under the Social Security Act within the first sixty days of COBRA coverage, the individual may choose to buy an additional eleven months of COBRA coverage, extending the COBRA coverage to twenty-nine months. If the individual chooses this option, any beneficiaries also receiving the COBRA coverage will be eligible for this extended period.

When the COBRA coverage ends, an offer will be made for an option to convert to an individual health plan if this option is generally available to active employees under the plan. Assuming the employee wishes to convert, he or she will want to determine if the conversion plan is affordable (it is likely to be more expensive than group coverage) and extensive enough, or if an individual needs to seek coverage elsewhere.

COBRA coverage may also be terminated early if after electing COBRA the individual joins another health plan (including Medicare) that covers all existing conditions. If the new plan does not cover a certain condition that COBRA is currently covering, or if you are still subject to a twelve-month pre-existing condition clause, you can maintain the double coverage.