What Is COBRA Insurance?

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COBRA allows workers to remain covered by their employer's health insurance for a period of time after leaving their jobs or having their hours cut so that they're no longer eligible for insurance. The federal law also allows an employee's dependents to remain covered in situations where they might otherwise lose coverage, such as after a divorce. However, while it offers continued insurance coverage, it often comes with a more expensive price tag.

Origins of COBRA

COBRA gets its name from the Consolidated Omnibus Budget Reconciliation Act of 1985, a federal law with provisions covering a wide variety of subjects. One of those provisions — the one now most closely identified with the law — dealt with continuing health insurance coverage when an employee leaves the job or in certain other situations. The COBRA insurance provision applies to any employer with at least 20 employees that offers health insurance to its workers.

Who Pays for Coverage

While the law requires employers to offer COBRA continuation coverage to former workers and dependents, it does not require those employers to pay for it. Employers typically pay some of the cost of covering their current employees and their families. However, the law allows an employer to make people pay the full cost of their COBRA coverage, plus up to 2 percent more to cover administrative costs. Employers can contribute to the costs of COBRA coverage if they choose to do so.

Leaving a Job

Employers must make COBRA coverage available to most workers who leave, regardless of the reason — whether they resign, are laid off or are fired for cause. The only exception is when workers are fired for "gross misconduct." Neither the law itself nor the regulations that implement the law define gross misconduct, and federal judges have applied different standards in cases that have reached the courts. However, the U.S. Department of Labor says that most "ordinary" reasons for firing people, such as poor attendance or simply being bad at the job, don't rise to the level of gross misconduct.

How Long It Lasts

When employees leave a job, they usually have 60 days to decide whether they want COBRA coverage. In general, the law requires workers to be able to continue coverage for at least 18 months. In some instances, such as a spouse keeping coverage after a divorce from an employee, coverage must be available for up to 36 months. Employers are free to make coverage available beyond the period required by law.

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