Know your COBRA rights

Separate vs. 'bundled' health plans

If your former employer offers separate health insurance plans (dental, medical and vision, for example), you and each of your qualified family members may choose to continue any combination under COBRA. However, if your employer sponsors one plan with multiple health insurance benefits, you must each elect all the benefits or nothing.

Health plans subject to COBRA are:

• Medical plans.
• Dental, vision and prescription drug plans.
• Drug and alcohol treatment programs.
• Fully insured and self-insured group health plans, including HMOs.
• Employee Assistance Plans, known as EAPs, that provide medical care such as counseling or psychological treatment.
• On-site health care, including discounted or free medical services.
• Section 125 flexible spending accounts, also known as cafeteria plans, under certain circumstances.

Benefits not subject to COBRA are:

• Wellness programs.
• Some church plans.
• Federal government health plans.
• Disability-income policies.
• Accidental death and dismemberment (AD&D) policies.
• Life, disability and long-term-care insurance plans, and medical savings accounts (MSAs).
• EAPs that do not provide medical care.

The rules for beginning COBRA

Both you and your former employer must follow proper procedure to initiate COBRA, or else you could forfeit your rights to coverage.

The employer must notify the health plan administrator within 30 to 60 days after an employee's "qualifying event." In cases of divorce, marital separation or a child's loss of dependent status, it is your or your family's responsibility to notify the health plan administrator within 60 days of the event. Once notified, the plan administrator then has 14 days to alert you and your family members -- in person or by first-class mail -- about your right to elect COBRA.

The IRS gets tough here: If the plan administrator fails to act, he or she can be held liable for a breach of duties. If you move, it is your (or your family's) responsibility to tell the health plan administrator.

You, your spouse and/or your children have 60 days to decide whether to purchase COBRA. This "election period" is counted from the date your eligibility notification is sent to you, or the date that you lost your health insurance coverage.

Changing your mind

Your COBRA coverage will be retroactive to the date that you lost your benefits (as long as you pay the premium). During the election period, you might initially decide not to take COBRA, which means you waive your right to coverage. However, as long as the election period hasn't expired, you can change your mind and revoke your waiver.

Even if you enroll in COBRA on the last day you are eligible, your coverage is retroactive to the date you lost your job, provided you pay all the retroactive premiums.

If you waive your right to COBRA but then incur medical bills during the election period, you can change your mind and elect COBRA, and your plan will cover those bills.

Conversely, if you elect COBRA, you can cancel it at any time. You're not required to keep it for the full eligibility period.

Other COBRA details

Premium payments. After you elect COBRA, you have to pay the first premium within 45 days. That first premium is likely to be high because it covers the period retroactive to the date coverage ended through your employer. Successive payments are due according to health plan requirements, but COBRA rules allow for a 30-day grace period after each due date for payment.

Short-payment rule. If your COBRA payment is short by an "insignificant amount" -- 10% or $50, whichever is less -- an employer must accept the short payment as payment in full, or notify you of the deficiency and allow you another 30 days from the date that you receive the notification to pay the remainder.

Extensions. Although COBRA sets specific time limits on coverage, there is nothing stopping the employer from extending your benefits beyond the mandated coverage period.

Notification rights. Because COBRA is a federal law, the U.S. Department of Labor has jurisdiction over issues involving notification of COBRA coverage. Employers that fail to comply with the notification rules face fines of up to $110 for every day that no notice is sent after the deadline. In addition, the IRS can assess an excise tax against any company that does not comply with COBRA regulations.

New workers. Newly hired employees must be given an initial general notice about their COBRA rights.

Plan description. COBRA information must be contained in the summary of the health plan description employees must receive when they are new to the plan.

Switching plans. If your former employer offers an open enrollment period to active employees and you're on COBRA, you must also be given the option to switch plans during that time. You may also add new dependents (a newborn, newly adopted child or new spouse) if your former employer offers this option to active employees.

Conversion plans. If the health plan offers the option of converting from a group plan to an individual policy under COBRA, you must be given that option and allowed to convert within 180 days before COBRA ends. But you'll pay individual, not group, rates, and switching to individual coverage could weaken any protections you have under the Health Insurance Portability and Accountability Act.

Moving. If you relocate out of your COBRA health plan's coverage area, your former employer is not required to offer you a plan in your new area.

Video: What to do when your unemployment coverage ends

Premium costs. Your premiums can be increased if the costs of the health plan increase for everyone at the workplace, but generally they must be fixed in advance of each 12-month cycle. The plan also must allow you to pay premiums on a monthly basis if you want. To offset the extra administrative costs of servicing a COBRA participant, the plan may charge up to an additional 2% of the normal group premium.

Premium notices. Neither the health plan nor the employer is required to send you monthly premium notices, so make sure you pay attention to due dates.

Disability. People eligible for Social Security disability benefits may receive COBRA coverage for 29 months.

Foreign competition. People who lost their jobs due to foreign competition or people age 55 to 64 who are enrolled in pension plans taken over by the Pension Benefit Guaranty Corp. (PBGC) are eligible for a tax credit to pay 65% of their COBRA premiums. For additional information, go to the PBGC Web site.

For more information regarding COBRA, visit the U.S. Department of Labor's frequently asked questions site about COBRA.

Continued: State-specific COBRA laws

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