How Much Does COBRA Cost for a Family?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law allowing individuals and their families to continue health coverage after certain life changes. COBRA allows eligible individuals to maintain their employer-sponsored group health plan for a limited period. This continuation of coverage ensures access to medical care during transitions, such as job loss or changes in family status. Understanding the financial implications of COBRA, particularly for families, is important given that the cost structure differs significantly from active employee coverage.

Determining COBRA Premiums

COBRA premiums are calculated differently than active employee contributions, as the former employer is no longer obligated to subsidize the cost. Federal law permits the plan administrator to charge qualified beneficiaries up to 102% of the full cost of the coverage. This amount includes both the portion previously paid by the employer and the employee’s share, along with a 2% administrative fee.

The total cost for a family under COBRA is influenced by several factors, mirroring the structure of the original group health plan. The specific health plan chosen, such as a Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), or High Deductible Health Plan (HDHP), directly impacts the premium. The level of coverage elected, whether single, two-person, or family coverage, also dictates the overall expense.

The specific benefits included within the former employer’s group health plan, such as prescription drug coverage, dental, or vision benefits, will factor into the total COBRA premium. The actual cost of the employer’s group health plan varies widely based on the plan type, geographic location, and the demographics of the group. Consequently, the COBRA premium will reflect these underlying costs.

For families, the COBRA premium is an aggregated cost covering all enrolled members. A family electing coverage pays a single premium that encompasses the employee, spouse, and dependent children.

Since employers are not required to subsidize COBRA premiums, the full cost becomes the responsibility of the qualified beneficiary. This can result in a substantially higher monthly payment compared to what employees paid while actively employed. Consequently, the financial burden of COBRA often represents a significant consideration for families facing a qualifying event.

Qualifying for COBRA Coverage

COBRA eligibility hinges on specific criteria for both the health plan itself and the individuals seeking coverage. The employer’s group health plan must be subject to COBRA, meaning it is maintained by a private-sector employer or state/local government with 20 or more employees on more than half of its business days in the preceding calendar year.

Eligibility for individuals is triggered by a “qualifying event” that would otherwise lead to a loss of health coverage. Common qualifying events for an employee include voluntary or involuntary termination of employment for reasons other than gross misconduct, or a reduction in work hours. For spouses and dependent children, qualifying events can include the covered employee’s death, divorce or legal separation from the covered employee, or the covered employee becoming entitled to Medicare.

A “qualified beneficiary” is any individual covered under the employer’s group health plan on the day before a qualifying event occurs. This includes the covered employee, their spouse, and dependent children.

The notification process is important in initiating COBRA rights. The employer must notify the plan administrator of qualifying events. The plan administrator then provides an election notice to qualified beneficiaries, informing them of their rights and how to elect coverage.

COBRA continuation coverage extends for limited periods, 18 or 36 months, depending on the qualifying event. For termination of employment or reduction in hours, coverage lasts 18 months. Certain events, like divorce, death of the covered employee, or a dependent child ceasing to be a dependent, allow for up to 36 months of coverage for spouses and dependent children.

Managing COBRA Payments

Once determined eligible for COBRA, qualified beneficiaries have a specific election period to choose coverage. This period must be at least 60 days, beginning from the later of the date the qualifying event occurs or the date the COBRA election notice is provided. Each qualified beneficiary, including spouses and dependent children, has an independent right to elect COBRA coverage.

To elect COBRA, individuals must complete and return the election form provided by the plan administrator within this 60-day window. Select the specific coverage options desired, such as medical, dental, or vision benefits, and ensure the form is signed and submitted by the deadline. Missing this deadline can result in the loss of the opportunity to enroll in COBRA.

The initial payment for COBRA coverage is due within 45 days after the qualified beneficiary elects coverage. This payment is retroactive, covering the period from the date coverage would have otherwise been lost due to the qualifying event. COBRA coverage begins once the election is made and the first premium payment is processed, with coverage retroactively applied to prevent any lapse.

Maintaining timely payments is important, as failure to pay the full premium before the end of the grace period can lead to the termination of coverage. Qualified beneficiaries should keep records of all payments and communications with the plan administrator to ensure continuous coverage.