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Consolidated Omnibus Budget Reconciliation Act ( COBRA )

10. What is the Consolidated Omnibus Budget Reconciliation Act?

Consolidated Omnibus Budget Reconciliation Act (COBRA) was passed to protect employees from the loss of healthcare coverage in certain situations. Specifically, it allows an employee or an employee’s dependent who is a beneficiary under an employee’s healthcare plan to maintain health coverage when a qualifying event causes a loss of coverage. COBRA applies to employers with 20 or more employees.

•    Note: Some states have passed “mini-COBRA” statutes to help an employee maintain coverage when the federal law does not apply.

Qualifying Events – A qualifying event is defined as:

•    Death of a covered employee;

•    Voluntary or involuntary termination, layoff, strike, reduction of hours, etc.;

•    Divorce from a defendant beneficiary; or

•    Dependent minor reaches an age of non-coverage under the employee’s plan.

Situations where an employee remains employed but voluntarily cancels healthcare coverage or when an employee loses coverage for not paying are not qualifying events.

Period of Employee Protection – COBRA allows the employee to purchase continuation coverage for the following periods:

•    Up to 18 months under no extenuating circumstances,

•    29 months if a person is disabled, and

•    36 months in case of divorce or widow(er).

The continued coverage can be equal to the terminated plan or any form of lesser coverage. COBRA, however, does not allow for an increase in coverage.

•    Discussion: Why do you think the Federal Government is interested in protecting employee health coverage? How do you feel about additional state regulations in this area? Do you think the list of “qualifying events” is sufficiently broad to achieve these objectives? Why or why not? Is the time period for benefit protection sufficient? Why or why not?

•    Practice Question: Marco works for ABC Corp., a large employer in New York state. Marco pays for health coverage for himself and his wife, Julie, under a plan that is sponsored by ABC Corp. After several years of marriage, Marco and Julie decide to divorce. After the divorce, Julie will no longer be an eligible beneficiary on Marco’s health plan. What benefits does COBRA offer to Julie?

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