Consolidated Omnibus Budget Reconciliation Act (COBRA)

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) provides temporary health insurance coverage to employees (and their family members) when they leave their jobs or reduce their working hours and lose eligibility for employer-provided health insurance. Employees may elect to continue this coverage and must pay for the cost of the insurance, but they benefit from the employer’s group premium rate, which usually is less expensive than individual health insurance coverage. COBRA coverage typically lasts for 18 months.

COBRA applies to private, state, and local workers at companies with 20 or more employees in the prior year. To qualify for COBRA benefits, an individual must be covered by a group health plan on the day before a “qualifying event” occurs. A “qualifying event” for the employee includes termination (voluntary or not) for reasons other than “gross misconduct” or a reduction in the employee’s hours such that the employee is no longer eligible for employee benefits. For family members, a “qualifying event” includes such things as a divorce from or death of the employee, or a child reaching majority age and no longer being covered by an employer’s health plan.

COBRA provides one form of workplace flexibility by providing a health insurance benefit in some cases where an individual is not working or reduces his or her work hours below the minimum needed to obtain benefits from the employer. Issues under the law that may limit flexibility, however, include the short time frame of the benefit (only 18 months), limitations on who is covered by COBRA, the narrow range of benefits covered (currently only health care), the administrative requirements to obtain such coverage, and the cost of the benefit to the worker.