COBRA and Health Insurance

Congress passed the landmark Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions in 1986. The law amends the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code, and the Public Health Service Act to require most group health plans to provide a temporary continuation of group health coverage that otherwise might be terminated.
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. Those events include the death of a covered employee, termination or reduction in the hours of a covered employee"s employment for reasons other than gross misconduct, divorce, or legal separation from a covered employee, a covered employee"s becoming entitled to Medicare, and a child"s loss of dependent status (and therefore coverage) under the plan.
Employers may require individuals who elect continuation coverage to pay the full cost of the coverage, plus a 2 percent administrative charge. The required payment for continuation coverage is often more expensive than the amount that active employees are required to pay for group health coverage, since the employer usually pays part of the cost of employees" coverage and all of that cost can be charged to the individuals receiving continuation coverage.
While COBRA continuation coverage must be offered, it lasts only for a limited period of time. COBRA generally applies to all group health plans maintained by private-sector employers (with at least 20 employees) or by state and local governments. The law does not apply, however, to plans sponsored by the Federal government or by churches and certain church-related organizations.
Under COBRA, a group health plan is any arrangement that an employer establishes or maintains to provide employees or their families with medical care, whether it is provided through insurance, by a health maintenance organization, out of the employer"s assets on a pay-as-you-go basis, or otherwise. "Medical care" for this purpose includes: inpatient and outpatient hospital care, physician care, surgery and other major medical benefits, prescription drugs, dental and vision care.
Life insurance is not considered "medical care," nor are disability benefits; and COBRA does not cover plans that provide only life insurance or disability benefits. Group health plans covered by COBRA that are sponsored by private sector employers generally are governed by ERISA. ERISA does not require employers to establish plans or to provide any particular type or level of benefits, but it does require plans to comply with ERISA"s rules, and ERISA gives participants and beneficiaries rights that are enforceable in court.

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