The Federal Consolidated Omnibus Reconciliation Act (COBRA) has been in effect since 1985. It ensures that companies of a certain size will continue to provide health benefits to ex-employees, retirees, and their families. This extension period is typically 18 months, but can be longer in some circumstances, including extended benefits for ex-spouses and widows or widowers.

COBRA Eligibility

COBRA eligibility is based on several factors that are referred to as qualifying events. These will include the following: reduced work hours; termination, excluding serious misconduct; voluntary resignation; retirement; disability; and death. Even if the employee chooses not to take advantage of COBRA, his or her children, spouses, and ex-spouses may participate.

By law, a company must have at least 20 employees, including those who are part-time, on the payroll for 50 percent of the year and have a health coverage plan already in place for which the employee is a participant.

Electing COBRA

When severance with a company is made, you will be notified of your rights under COBRA. You will then have 60 days to determine whether to remain with existing coverage or seek a new provider. If you sign a release from your COBRA rights, and then change your mind, it must be done within the grace period of 60 days. In this case, you will be fully responsible for all interim medical bills.

Existing insurance is not automatically converted. You must formally accept, and will be responsible for, providing the signed forms. Once the paperwork has been approved, coverage is retroactive to the day the current policy while employed was terminated. You will then have 45 days to make the first payment.

The former company will be responsible for financials and paperwork. It is also the responsibility of the ex-employer to provide the necessary information regarding premiums, benefits, and how to file claims. The company is allowed to charge 2 percent of the premium to cover administrative costs. Your payment will be routed through the ex-employer.

COBRA Benefits

Benefits under COBRA remain the same as the existing health insurance policy. However, you are responsible for the entire premium; the company is not obligated to pay any portion of it. Rates and benefits will, however, remain the same and will only change if they do so for the rest of the company. The employer is also allowed to change providers and plans, as long as it is a company-wide decision.

Terminating COBRA

There are caveats to coverage under COBRA. If you relocate out of the provider's area, the company will terminate your policy. Find out first if the provider has an affiliate network at the new location - you may remain eligible for benefits if that is the case. In addition, if a company ceases to provide a health plan, it will be under no obligation to continue coverage of any type for you.

You may elect not to remain on COBRA for the entire 18 month period. For instance, if you are approved by another provider, you may drop from the plan, even as your spouse or children continue to be covered through the end of the term.

There are additional laws in place to ensure proper coverage at the end of the COBRA period. The Health Insurance Portability and Accountability Act (HIPAA) guarantees that no insurance company can refuse anyone who has received benefits under COBRA. This also applies to probationary periods for pre-existing conditions. The law does not guarantee that your existing COBRA premiums will be honored.

Learning About COBRA

The U.S. Department of Labor oversees COBRA laws and provides an informative and easy-to-understand section at http://www.dol.gov/ebsa/faqs/faq_consumer_cobra.HTMl.