The Consolidated Omnibus Budget Reconciliation Act of 1986--otherwise known as COBRA--is a federal law that mandates that medium and large-sized employers (typically companies with 20 or more employees in the prior year) provide the opportunity for employees and their families to continue their health care coverage when certain life changing events occur such as termination, loss of hours, a job change, death or divorce occurs. Recent changes to federal law under the American Recovery and Reinvestment Act of 2009--known as ARRA--may significantly reduce the amount you would owe to continue receiving health care coverage under COBRA should you be involuntarily terminated from your job before December 31, 2009.

Traditional COBRA: Who Qualifies?

Any person who is currently enrolled in their company's group health plan and experiences what the IRS considers a "qualifying event"--termination, loss of workable hours, a job change, death or divorce--that would cause them to lose their health care benefits is eligible for COBRA. What that means is that any person fitting this description has the right to continue to buy into the company's group health plan without undergoing any pre-screenings or pre-qualification examinations. Once you become eligible, you have 60 days to let your company's health plan administrator know you want to enroll in COBRA coverage. You can continue to receive COBRA coverage for 18 months in most circumstances.

Traditional COBRA; Who Pays?

In short, you pay the entire cost--and maybe a little more. Companies are authorized by the federal government to charge COBRA recipients up to 102 percent of the real cost of the medical coverage, and that amount is typically much higher than what you paid while you were employed. That's because most companies typically pay a large chunk of their employees' health care costs and only bill employees for a small percentage of that cost in their paychecks. That's why COBRA coverage can be so expensive, often $1,000 a month or more for a family of four.

COBRA Premium Reduction Under ARRA: Who Qualifies?

The COBRA Premium Reduction plan, authorized by ARRA, applies to anyone who was involuntarily terminated from their job between September 1, 2008 and December 31, 2009. Upon termination, eligible parties have 60 days to notify their former employer's health-plan administrator than they intend to elect COBRA coverage

COBRA Premium Reduction Under ARRA: Who Pays?

Those who qualify for the Premium Reduction plan pay only 35 percent of the total cost of their COBRA coverage for up to 9 months. The remaining 65 percent is initially paid by the former employer. The employer will later be reimbursed for those payments by the federal government in the form of tax credits. If the amount paid by the employer exceeds the amount that employer owes in taxes, the federal government will issue a direct reimbursement to the company.

What Happens if Your COBRA Coverage Runs Out?

If you've exhausted all your COBRA benefits and stayed enrolled in them for the complete 18 month period, a separate law known as the Health Insurance Portability and Accountability Act--or HIPAA--requires that health insurance companies make available to you so-called "HIPAA plans". These plans have their own series of rules and requirements and vary state-to-state. Research HIPAA plans and rules in your state to see what is available to you.

Source:

US Department of Labor: COBRA

US Department of Labor: COBRA Premium Reduction

What Happens When COBRA Ends?