Starting a Business? Check COBRA Insurance to Cut Costs
You may want to look into COBRA continuation health coverage, generally known as COBRA insurance, if you are planning to start a business. As either a reluctant or enthusiastic entrepreneur, you may be leaving a job at which you currently have full medical insurance coverage. This coverage may be difficult or more expensive to get as an individual and you may not yet be ready to hire new employees and set up your own health insurance plan at work. In the meantime, you may need COBRA coverage. Health insurance is not provided by the government but rather the government mandates that your employer keep you on the coverage you have provided you pay for the benefits yourself.
You can check on the U.S. Department of Labor website for COBRA insurance information including: COBRA health insurance, COBRA benefits, COBRA medical insurance, COBRA law, COBRA and COBRA extension.
What Is COBRA Insurance?
COBRA, which stands for Consolidated Omnibus Budget Reconciliation Act, was passed in 1986. The COBRA insurance laws mandate continuation of group health coverage that otherwise might be terminated by former employers.
How does COBRA insurance work? According to the law, COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates.
COBRA premiums: COBRA insurance rates, group health coverage for COBRA participants, is usually more expensive than health coverage for active employees, since usually the employer pays a part of the premium for active employees while COBRA participants generally pay the entire premium themselves.
Thanks to COBRA regulations, it is ordinarily less expensive than individual health coverage. Health insurance after COBRA runs out could be quite expensive. Typically, under COBRA you can have health insurance at or near the group rate for 18 months. There are circumstances when COBRA insurance is extended. (You can also get COBRA coverage for less. See box on this page.)
COBRA rules: According to the Department of Labor website, there are three elements to qualifying for COBRA benefits. For COBRA eligibility there are specific criteria for plans, qualified beneficiaries, and qualifying events:
Plan Coverage: Group health plans for employers with 20 or more employees on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA. Both full and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee counts as a fraction of an employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.
Qualified beneficiaries: A qualified beneficiary generally is an individual covered by a group health plan on the day before a qualifying event who is either an employee, the employee's spouse, or an employee's dependent child. In certain cases, a retired employee, the retired employee's spouse, and the retired employee's dependent children may be qualified beneficiaries. In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary. Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.
Qualifying events: Qualifying events are certain events that would cause an individual to lose health coverage. The type of qualifying event will determine who the qualified beneficiaries are and the amount of time that a plan must offer the health coverage to them under COBRA. A plan, at its discretion, may provide longer periods of continuation coverage.
COBRA coverage: Health insurance coverage under COBRA must be identical to that available to similarly situated beneficiaries at the company. A change in the benefits under the plan for the active employees will also apply to qualified beneficiaries. Qualified beneficiaries must be allowed to make the same choices given to non-COBRA beneficiaries under the plan, such as during periods of open enrollment by the plan.