COBRA: Overview and Importance

COBRA: Overview and Importance
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  • 0:03 Cobra Defined
  • 1:05 Who's Eligible?
  • 3:07 Election
  • 3:41 Benefits, Cost & Duration
  • 4:50 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
Health insurance is one of the most important benefits an employee receives. In this lesson, you'll learn how COBRA allows an employee to keep his insurance coverage after he has left employment. A short quiz follows.

COBRA Defined

Meet Nancy. She worked as a public relations specialist for a consulting firm. She's been a victim of downsizing and recently lost her job. Nancy's husband suffers from a chronic illness that requires constant and expensive medical care and drugs. Her company's group health plan picked up nearly all the expenses, but now she doesn't know what she will do. Upon reviewing materials provided by her company's human resources department, she sees that COBRA benefits may be the answer.

The Consolidated Omnibus Budget Reconciliation Act (COBRA) was formally enacted in 1986 and was a wide-ranging law dealing with many different issues. One of the most important issues was reform of employer-sponsored health care. According to the Department of Labor, 'COBRA requires continuation coverage to be offered to covered employees, their spouses, their former spouses and their dependent children when group health coverage would otherwise be lost due to certain specific events.'

Who's Eligible?

Nancy and her family must meet certain requirements under COBRA to be covered by it.

1. Nancy's employer health plan must be covered under COBRA.

An employee health plan falls under COBRA if the employer is a private sector employer, a state government or local government employer and the employer employs at least 20 employees. There are special rules to calculate this number, but needless to say, Nancy's employer's plan falls under COBRA.

2. A qualifying event must occur for Nancy and her family to be entitled to continuation of the group health care coverage under COBRA.

Qualifying events for an employee include termination of employment - unless it is a result of gross misconduct - and a reduction in work hours that leads to loss of coverage. A reduction in hours, for example, from full time to part time could lead to a loss of insurance coverage because the employer doesn't provide coverage for part-time employees. Nancy's layoff is a covered event.

When an employee loses coverage and it affects their spouse and children, then the spouse and children are also entitled to COBRA coverage. Other qualifying events for spouses and children include an employee becoming eligible for Medicare, a divorce or legal separation from the covered employee or the death of a covered employee. If a child loses her dependent status resulting in a loss of insurance coverage under the plan, the child is entitled to COBRA coverage.

3. Nancy and her husband must be qualified beneficiaries for the qualifying event.

A qualified beneficiary is simply someone who was covered by the employer-sponsored health plan on the day before the qualifying event occurred causing the loss of coverage. A qualified beneficiary can be an employee, a spouse, former spouse or dependent child of the beneficiary. Nancy and her husband are qualified beneficiaries because they both lost their coverage due to Nancy's layoff.

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