Under the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986, employees who lose medical and dental insurance for certain reasons can often buy group coverage for themselves and their dependents for a specified period of time at group rates. The law applies to group health plans maintained by private sector and state and local government employers with twenty or more full- and part-time employees in the prior year. It doesn't apply to plans maintained by the federal government or church organizations.

To be eligible, you must experience a “qualifying event.” These events as applied to the employees, as well as their spouses and dependents, are outlined in the COBRA Insurance Continuation chart.

COBRA Insurance Continuation

The Process of Electing COBRA

It's your responsibility to notify your employer or your spouse's employer within sixty days of a qualifying event that the plan administrator might not know about, such as legal separation, divorce, or a child reaching the maximum age to be a covered dependent. Your failure to do so can cause you to forfeit your COBRA rights.

Your plan administrator has 14 days after the qualifying event (or after being notified by you of a qualifying event) to provide you and any other covered person with written notice of your rights under COBRA. You have an election period of 60 days from the date of the qualifying event or the date the notice was sent to choose whether to continue your coverage under the employer's group health plan.

Once you elect coverage, you're required to pay premiums retroactive to the date of the qualifying event, which will provide you with continuous health insurance with no lapse in coverage. Your cost for COBRA coverage is the employer's actual cost plus a 2 percent administrative fee. You have the same grace period that the employer is given by the insurance company, usually 30 days.

If you don't pay the premium within the grace period, your coverage will be terminated. Each qualified beneficiary may elect COBRA coverage independently of any other qualified beneficiary. Coverage ends at the end of the maximum coverage period (18 or 36 months) or sooner, if one of the following occurs:

• You fail to pay your premium within the grace period.

• The employer no longer maintains any group health plan.

• You obtain coverage under another employer group plan that doesn't limit coverage for any pre-existing condition.

• You become entitled to Medicare benefits.

You may be eligible to convert your group health coverage into an individual policy at the end of the maximum COBRA continuation period. Check with your plan administrator.

Should You Elect COBRA?

Nobody should be without health insurance coverage. If you lose coverage and are eligible to elect COBRA, you should do so unless you have other options that provide at least basic coverage at a reasonable cost. Even if you pick up coverage with a new employer, you may want to elect COBRA during the period that you'd be subject to a pre-existing condition if you've had recent serious health problems.

Be aware, however, that under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), if you've been continuously covered by insurance for at least 12 months, a new plan can't limit coverage for a pre-existing condition that was covered under the previous plan. When you lose coverage, your employer or spouse's employer should give you a notice stating that you were continuously covered for 12 months so you can prove this to a new insurance company if necessary.

You may want to consider COBRA if your new employer doesn't offer a health plan or you've had recent health problems, are taking expensive prescriptions, have been declined for private health insurance, have had an accident within the election period, or are pregnant.