Health Benefits

Employer-provided health benefits and coverage generally become obsolete once the employment relationship ends. However, a federal law—Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA)—has certain provisions that enable an ex-employee to keep health benefits coverage even after losing his/her job. In the case of terminated employment, COBRA requires the employer maintaining the health insurance plan to provide the ex-employee with an option to remain covered by the employer’s plan for a specified period of time.

COBRA is applicable to employers with more than 20 employees (except churches, the federal government, and the District of Columbia).

• Within 30 days of firing an employee, the employer has to notify the individual about his/her COBRA rights. This must be done in writing.
• Under federal law, private employers who employ more than 15 workers on a typical business day must continue to provide group health insurance coverage (for a specified time period) to an ex-employee once the employment ends.
• Employers should notify the employee regarding the rights available under COBRA at the time of termination.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Congress passed the landmark Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions in 1986. The law amends the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code, and the Public Health Service Act to provide continuation of group health coverage that otherwise would be terminated.

COBRA contains provisions giving certain former employees, retirees, spouses, and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available in specific instances. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer formerly paid a part of the premium. It is ordinarily less expensive, though, than individual health coverage.

The law generally covers group health plans maintained by employers with 20 or more employees in the prior year. It applies to plans in the private sector and those sponsored by state and local governments. The law does not, however, apply to plans sponsored by the federal government and certain church-related organizations.

Group health plans sponsored by private sector employers generally are welfare benefit plans governed by ERISA and subject to its requirements for reporting and disclosure, fiduciary standards, and enforcement. ERISA neither establishes minimum standards or benefit eligibility for welfare plans, nor mandates the type or level of benefits offered to plan participants. It does, though, require that these plans have rules outlining how workers become entitled to benefits.

Under COBRA, a group health plan ordinarily is defined as a plan that provides medical benefits for the employer's own employees and their dependents through insurance or otherwise (such as a trust, health maintenance organization, self-funded pay-as-you-go basis, reimbursement, or a combination of these). Medical benefits provided under the terms of the plan and available to COBRA beneficiaries may include:

• Inpatient and outpatient hospital care
• Physician care
• Surgery and other major medical benefits
• Prescription drugs
• Any other medical benefits, such as dental and vision care