COBRA and Health Insurance

Congress passed the landmark Consolidatedreceiving continuation coverage.
Omnibus Budget Reconciliation Act (COBRA)While COBRA continuation coverage must be
health benefit provisions in 1986. The law amendsoffered, it lasts only for a limited period of time.
the Employee Retirement Income Security ActCOBRA generally applies to all group health plans
(ERISA), the Internal Revenue Code, and themaintained by private-sector employers (with at
Public Health Service Act to require most groupleast 20 employees) or by state and local
health plans to provide a temporary continuationgovernments. The law does not apply, however,
of group health coverage that otherwise might beto plans sponsored by the Federal government or
terminated.by churches and certain church-related
COBRA requires continuation coverage to beorganizations.
offered to covered employees, their spouses,Under COBRA, a group health plan is any
their former spouses, and their dependent childrenarrangement that an employer establishes or
when group health coverage would otherwise bemaintains to provide employees or their families
lost due to certain specific events.with medical care, whether it is provided through
Those events include the death of a coveredinsurance, by a health maintenance organization,
employee, termination or reduction in the hours ofout of the employer's assets on a pay-as-you-go
a covered employee's employment for reasonsbasis, or otherwise. "Medical care" for this purpose
other than gross misconduct, divorce, or legalincludes: inpatient and outpatient hospital care,
separation from a covered employee, a coveredphysician care, surgery and other major medical
employee's becoming entitled to Medicare, and abenefits, prescription drugs, dental and vision care.
child's loss of dependent status (and thereforeLife insurance is not considered "medical care," nor
coverage) under the plan.are disability benefits; and COBRA does not cover
Employers may require individuals who electplans that provide only life insurance or disability
continuation coverage to pay the full cost of thebenefits. Group health plans covered by COBRA
coverage, plus a 2 percent administrative charge.that are sponsored by private sector employers
The required payment for continuation coveragegenerally are governed by ERISA. ERISA does
is often more expensive than the amount thatnot require employers to establish plans or to
active employees are required to pay for groupprovide any particular type or level of benefits,
health coverage, since the employer usually paysbut it does require plans to comply with ERISA's
part of the cost of employees' coverage and allrules, and ERISA gives participants and
of that cost can be charged to the individualsbeneficiaries rights that are enforceable in court.