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Who Gets COBRA and for How Long?

Our marketing professionals tell us that readership tends to fall off slightly prior to three-day weekends. As a result, in observance of Veterans Day, we have reposted educational material below with edits and updates as appropriate. We’ll see you next week with a new topic.

A recent client experience motivated us to tape another video on COBRA, an acronym for the Consolidated Omnibus Reconciliation Act of 1986. COBRA is the temporary extension of group coverage at the expense of the former employee and/or family members. Today’s video addresses federal law which applies to groups of 20 or more employees. Smaller employers are subject to state law informally referred to as “mini-COBRA.”

Our client retired and should have gone on Medicare. Unfortunately, he mistakenly believed that he had to elect COBRA for his younger wife and children to be entitled to COBRA. That is not correct. Each member of the family has his or her own right to elect COBRA without regard to what the worker or any other member of the family chooses.

Another common misconception relates to the length of COBRA. Under the federal law, a worker and the worker’s dependents are allowed up to 18 months of COBRA due to separation from the employer. In case of divorce, death of a spouse, or the worker transitioning onto Medicare, dependents are allowed up to 36 months of COBRA. Although we haven’t carefully studied the legislative history of COBRA, we believe the assumption was that the dislodged worker would be seeking reemployment whereas a newly divorced individual, a new widow or much younger spouse who might not have been employed, would need a longer period to adjust to the loss of coverage.

It is always helpful to remember the original purpose of COBRA. Back in the 80’s, individual coverage was medically underwritten so job loss could result in members of a family not having access to coverage due to pre-existing conditions. The cost of COBRA varies because plans vary. Richer plans will have higher premiums than less generous plans. The COBRA premium consists of the full, unsubsidized cost of the plan plus a maximum administrative fee of 2%. For years, COBRA premiums were always at the former employee’s or dependent’s expense. Although this remains true today, COBRA is often also used as a “perk” in separation packages and premiums are subsidized by the former employer for some period of time.

Finally, those who are applying for Social Security Disability Income (SSDI) are eligible to remain on COBRA for up to 29 months. I didn’t mention this in the video but the purpose of the 29 months is to bridge the gap from the former employer’s coverage to Medicare eligibility which is associated with receiving SSDI.

Sadly, if our client had come to us just several months earlier, he wouldn’t have missed his Special Enrollment Period for Medicare Part B and be subject to lifetime premium penalties. The former employer intended the subsidized COBRA to be a benefit, but this misplaced generosity backfired.

Coverage in the U.S. is absurdly complex. It is best to understand that and plan ahead to keep yourself and your family properly protected.

Thanks for watching and spread the word.