United States
Hong KongGroup health insurance and COBRA continuation
Group health covers members under a master contract with certificates issued to them, underwritten as a group.
- COBRA lets a member who loses coverage through a qualifying event continue the same group plan at their own cost, for a period set in federal law, rather than convert to a different policy.
On this page5 sections
Group health is where most people get their coverage and it is worth three sub-items in section V. Two of them are structural. The third is COBRA, which is the one that generates questions, because candidates confuse continuing a plan with converting to a new one.
Group against individual
| Group | Individual | |
|---|---|---|
| The contract | A master policy held by the employer or association | A policy issued to the insured |
| What the member holds | A certificate | The policy |
| Underwriting | Of the group as a whole | Of the individual |
| Who negotiates the terms | The sponsor | Nobody, the terms are the insurer's |
| Cost | Lower per member | Higher |
| Ends when | Employment or membership ends | The insured stops paying |
Two things follow from group underwriting. Coverage can be issued to people who would struggle to buy it individually, and it disappears the moment the connection to the group does. Continuation and conversion rights exist because of that second consequence.
What COBRA does
COBRA requires employers above a size set in federal law to let a member who loses coverage through a qualifying event continue in the same group plan, paying the full cost themselves plus an administrative charge. It is continuation, not conversion: the same plan, the same network, the same benefits, at a price that is no longer subsidized by an employer.
- Qualifying events include termination of employment other than for gross misconduct, and a reduction in hours below the eligibility threshold.
- Other events reach dependents: divorce, the death of the covered employee, or a child ceasing to qualify as a dependent.
- The member elects within a period after notice and pays the whole premium.
- The continuation period is set in federal law and is longer for some qualifying events than others.
The federal COBRA premium generally may be set at up to 102% of the plan’s total cost: the employer and employee shares combined, plus a 2% administrative charge. During the 11-month disability extension, a plan may charge up to 150% of the total cost during the months when the extension applies. These are federal COBRA limits; eligibility, qualifying events, notice deadlines, and plan rules still determine whether a person can elect continuation.
What COBRA may cost
Because the employer contribution can end, the former employee may owe the entire plan premium. Federal law generally permits a charge of up to 102% of the plan’s total cost, including both employer and employee contributions plus a 2% administration allowance. For a qualifying disability extension, the charge may rise to 150% during the 11-month extension period. A family member who is not disabled generally remains subject to the 102% ceiling.
Continuation against conversion
| COBRA continuation | Conversion privilege | |
|---|---|---|
| What you end up with | The same group plan | An individual policy |
| Who pays | The former member, in full | The former member, in full |
| Evidence of insurability | Not required | Not required |
| Duration | A limited period | Ongoing, as a normal policy |
| Where it comes from | Federal law | Policy terms and state law |
Both protect somebody losing group coverage. Neither asks about health. What separates them is what you are left holding when the process is finished, and that single difference is the whole of the exam's interest in the pair.
An employee's hours are cut so that he no longer qualifies for the group health plan, and he elects COBRA. What coverage does he have?
- An individual policy issued by the same insurer
- The same group plan he had before, at the full unsubsidized cost
- A reduced version of the group plan
- Coverage only until he finds other employment, with no fixed period
Where it sits
- Section
- V, types of accident and health policies, 16 questions
- Listed as
- E. Group insurance, three sub-items including COBRA
- Life-side equivalent
- Group life conversion, section IV
- Texas portion
- Small group health insurance, in the accident and health section
Texas has its own small employer rules, which the outline lists separately with eligibility and coverage sub-items. Those are state requirements about who must be offered coverage, not continuation rights, and they are covered in small group health insurance in Texas.
Common questions
Is COBRA the same as converting a group plan?
No. COBRA continues the identical group plan with the former member paying the full cost. A conversion privilege produces a new individual policy on the insurer's individual terms. Both avoid evidence of insurability, and only one leaves you with the coverage you already knew.
What is a qualifying event?
An event that ends someone's group coverage and triggers continuation rights: termination of employment other than for gross misconduct, a reduction in hours below the eligibility threshold, and for dependents, divorce, the death of the covered employee or a child ceasing to qualify.
Who pays for COBRA coverage?
The former member usually pays the full premium. The plan may generally charge up to 102% of its total cost, including the employer and employee shares plus a 2% administration allowance. A qualifying disability extension can permit up to 150% during its 11-month extension period.
Why is group coverage cheaper than individual coverage?
Because the group is underwritten rather than each member, administration is spread across many people, and participation rules limit adverse selection. The price of that is portability: the coverage exists because of your connection to the group and ends when the connection does.
How much may a COBRA plan charge?
Generally up to 102% of the plan’s total cost, counting the employer and employee shares plus a 2% administration allowance. During a qualifying disability extension, the limit may be 150% for the 11-month extension period.