COBRA: Continuing Health Care Coverage
Health care costs continue to rise. According to the Kaiser Family Foundation Health Research and Educational Trust’s annual survey for 2012, health insurance for single coverage went up by 3%, and by 4% for family coverage. In 2012, the average employer-provided health insurance benefit for single coverage cost $5,615 and $15,745 for family coverage. Since 2002, average premiums for family coverage have increased 97%—outpacing workers’ wages and inflation.
Group health insurance through an employer is typically less expensive than individual coverage. In the event your employment ceases, could you cover these costs out-of-pocket, and for how long? By law, you may be guaranteed continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA), but you will have to assume the cost of coverage.
COBRA applies to employers with more than 20 employees (except churches, the Federal government, and the District of Columbia). This legislation requires an employer who maintains a group health insurance plan to provide employees with an option to remain covered by the employer’s plan for a specified period of time, if the employees or their family members lose coverage upon the occurrence of certain events (such as reduced or terminated employment).
However, it’s important to note that COBRA provides for continued coverage under the employer’s existing plan, not a new form of coverage. Thus, employees who previously did not elect coverage either for themselves, their spouses, or their dependents may not elect continuation coverage that is broader in scope than the coverage they were provided during their employment.
Who Is Covered?
To qualify for continuation coverage as a “covered employee,” an employee must be a participant in his or her employer’s group health insurance plan. An employee’s spouse or dependent children will be covered as “qualified beneficiaries” if they were covered by the plan at the time of the COBRA qualifying event.
If continuation coverage is elected, the employer may charge the employee or beneficiary up to 102% of the employer’s health insurance premium during the continuation period. The extra 2% is intended to reimburse the employer for administrative costs associated with providing continuation coverage.
What Is the Coverage Period?
COBRA provides that the period of continuation coverage is based on two classes of qualifying beneficiaries. For widows/widowers, divorced spouses, spouses of Medicare-eligible employees, and dependent children who become ineligible for coverage (by virtue of age or dependent eligibility requirements), continuation coverage must be provided for at least 36 months.
Terminated employees and employees who lose coverage because of reduced hours are eligible for only 18 months of coverage. If a qualified person wants to receive continuation coverage, he or she must elect to do so within a 60-day election period. If elected, coverage must be provided during the 60-day period beginning on the date coverage would otherwise have lapsed. If a plan participant waives his or her right to elect continuation coverage during the 60-day period, the waiver may be revoked at any time up to the end of the 60-day period. The employer is not required, however, to provide retroactive coverage in this situation.
The continuation coverage under COBRA is a valuable component of an employee benefits package. With health care costs continuing to rise, having the option of continued coverage can be invaluable. As you take steps to build financial security, make sure you plan for the unexpected. Setting aside a cash reserve equal to three to six months of your income can help you prepare for sudden, significant expenses, such as the responsibility of paying for your own health insurance.
The information contained in this article is for general use and while we believe all in formation to be reliable and accurate, it is important to remember individual situations may be entirely different. Therefore, information should be relied upon only when coordinated with professional tax and financial advice. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any insurance or securities products and services. Written and published by Liberty Publishing, Inc. Copyright © 2013 Liberty Publishing, Inc. INHCOBRA-04
The information provided is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.