Keeping Health Insurance When Leaving Work


The 1985 Consolidated Omnibus Budget Reconciliation Act (COBRA) contained a federal law that permits terminating employees and dependents to continue their group health coverage. The law applies to employers who have 20 or more employees on the payroll (full-time and part-time) in the last calendar year. Religious organizations such as churches and church affiliated hospitals are exempt from the COBRA law, although many offer a COBRA-like extension. Federal employees are not covered under COBRA, but there is a similar law that applies to them.

COBRA applies to health insurance offered by an employer and any accompanying coverages such as dental, vision and prescription drug coverage. It does NOT include life insurance or long term disability insurance.

For people with HIV, there are several provisions of the law of which to be aware:

NOTIFICATION: The law requires that the employer notify the employee in writing of his/her right to continue coverage within 30 days of termination of coverage. The employee then has 60 days to say he/she accepts COBRA Continuation Coverage.

COST: The law permits employers to charge terminating employees the entire cost of the premium but it cannot exceed the cost of the coverage to the employer plus 2 percent. Also, any rate increases that the employer receives may be passed along. The first premium payment is not due until 45 days after accepting continuation coverage. Note that the premium must be paid, however, all the way back to the effective date of the COBRA continuation.

BENEFITS: The benefits must be identical to the benefits active employees are receiving. If the employer has an open enrollment each year to make changes, the COBRA Continuee must be allowed to participate in the health choices. This means, also, that if the employer changes plans or benefits, the COBRA Continuation Coverage will change also.

LENGTH OF COVERAGE: Coverage for terminating employees lasts 18 months. For dependents losing coverage by divorce or age, it lasts for 36 months. Persons who are disabled when their continuation coverage starts may extend their coverage. See OBRA Disability Coverage below.

TERMINATION OF COVERAGE: Coverage may end before the normal expiration date. It will end earlier when:

  1. The premium is not received on time. Note that while there may be a grace period, there is no reinstatement if coverage is lost for nonpayment of premium.
  2. The insured person becomes eligible for Medicare.
  3. The employer terminates all health plans for all active employees. If an employer goes out of business, terminating all employee benefit plans, COBRA Continuation Coverage will be terminated also.


In 1997, California enacted Cal-COBRA. Similar to the federal COBRA statute, it is aimed at employer groups with less that 20 employees who are not subject to the federal law.

The law is very similar to the federal COBRA law, although there are a few important differences:

  • Churches and religious organizations with fewer than 20 employees are not exempt from the state law.
  • The administrative fee applied to the premium is 10 percent of the premium rather that 2percent.
  • The insurance carrier is the primary administrator of Cal-COBRA rather than the employer.

Because this law impacts small employers who do not have full-time personnel staff, the law requires the insurance company to take a more active role in transitioning beneficiaries to Cal-COBRA and maintaining them. The employer is obligated to notify the insurance company in writing in a timely manner of COBRA qualifying events, and the carrier is obligated to send the necessary notices and accept the premium payments. Also, the employee must notify their acceptance of COBRA Continuation Coverage in writing.

The regulatory authority for Cal-COBRA are the state offices, Department of Insurance for insurance plans and the Department of Managed Health Care for Health Maintenance Organizations and Blue Cross and Blue Shield.

OBRA Disability Extension

In 1989, the Omnibus Budget Reconciliation Act (OBRA) modified COBRA to extend the period of coverage for persons who left their employment due to disability. Since it was designed to fill the gap between the original 18 months of coverage and eligibility for Medicare, the extension lasts only 11 months. (Generally, Medicare begins after 29 months of disability.)

The OBRA Disability Extension is not automatic. It must be applied for. To qualify for the extension, the employee must:

  1. Apply for and receive an award of Social Security Disability (SSDI) benefits prior to the end of the 18-month COBRA period. (If not eligible for SSDI, Social Security will still review the claim for OBRA extension purposes, although it may require the intervention of a supervisor.)
  2. The disability onset date as determined by Social Security and stated in the Notice of Award Letter must be within 60 days of the COBRA Qualifying Event, generally the date of stopping work.
  3. A copy of the Notice of Award Letter must be sent to the COBRA administrator (usually the employer, or whomever is collecting the COBRA premiums) within 60 days of receiving the Award letter. Otherwise, they can legally refuse to continue the COBRA Continuation.

It is recommended that the award letter be sent with a cover letter requesting written confirmation of eligibility for the extension.

Due to the complexities surrounding these requirements, many employers do not understand OBRA. Therefore, if your client does not qualify by the above rules, the client may still want to contact the employer. In fact, their interpretation of the law may be more permissive.

HIPPAA - Federal Eligibility for Individual Health Coeverage

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) created a method for people to retain good quality health insurance even after leaving group coverage and after the expiration of coverage. To become federally eligibility, a person must have been covered under a group health plan at least eighteen months and used up any available COBRA extension. The carrier will provide a Certificate of Creditability confirming the time covered upon a person's termination of coverage.

The individual will then have 63 days from loss of coverage to apply for individual coverage with any carrier offering individual health insurance in that area. Upon being presented with the Certificate, the carrier is required to offer one of their top two individual plans, based on premium volume, to the person regardless of their health condition or health history.

Note that persons covered under any other form of health coverage including Medicare and Medi-Cal are not eligible for HIPAA plans.

The most important part of this law is that these plans are very broad compared to the old Conversion plans. They offer broad in-patient benefits as well as prescription coverage and other benefits found in broad health plans, although the premium is not necessarily reasonable.