Consolidated Omnibus Budget Reconciliation Act of 1985

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Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) is a United States federal law, passed by the United States Congress and signed by President Ronald Reagan on April 7, 1986. COBRA gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events.

Overview

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires most group health plans to provide a temporary continuation of group health coverage that otherwise might be terminated. COBRA contains provisions giving certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available when coverage is lost due to specific qualifying events. Group health coverage under COBRA may be more expensive than health coverage for active employees, since usually the employer pays a part of the premium for active employees while COBRA participants often pay the entire premium themselves.

Qualifying Events

Qualifying events under COBRA include:

• Termination of the employee's employment for any reason other than gross misconduct
• Reduction in the number of hours of employment
• Divorce or legal separation of the employee
• Death of the employee
• Loss of dependent child status under the plan rules
• Entitlement of the employee to Medicare

Eligibility

To be eligible for COBRA coverage, you must have been enrolled in your employer's health plan when you worked and the health plan must continue to be in effect for active employees. COBRA continuation coverage is often more expensive than the amount that active employees are required to pay for health coverage, as the employer usually pays part of the cost of employees' coverage and all of that cost can be charged to individuals receiving continuation coverage.

Duration of Coverage

COBRA coverage can last for 18 or 36 months, depending on the type of qualifying event. In the case of job loss or reduction in hours, coverage can last for 18 months. In cases of divorce, death, or loss of dependent status, coverage can extend for 36 months.

Cost of Coverage

Under COBRA, the individual may be required to pay up to 102% of the plan's total cost of coverage. This includes the portion that the employee paid when they were employed and the portion the employer paid, plus a 2% administrative fee.

Legislation and Administration

The administration of COBRA is regulated by several federal agencies including the Department of Labor (DOL), the Department of Health and Human Services (HHS), and the Internal Revenue Service (IRS). These agencies have issued regulations and guidance to help employers, health plans, and individuals understand their rights and obligations under the law.

Impact

COBRA has been a critical safety net for many American workers and their families during times of transition and uncertainty. However, it has also been criticized for being too expensive for many people to afford without the subsidy of employer contributions.