12.3 COBRA, HIPAA, and Continuation

When group coverage would otherwise end, federal law provides continuation rights. The exam loves the COBRA durations, the 102%/150% premium rule, and the HIPAA protections.

COBRA (Consolidated Omnibus Budget Reconciliation Act)

COBRA applies to employers with 20 or more employees. It lets a qualified beneficiary (covered employee, spouse, or dependent child) continue the same group coverage after a qualifying event.

Qualifying Events and Durations

Mnemonic: employment-related events (quit, fired, hours cut) give 18 months; family-status events (death, divorce, child aging out) give 36 months.

COBRA Premium

The beneficiary pays the full group premium plus up to a 2% administrative charge = 102%. During the 11-month disability extension, the plan may charge up to 150%.

COBRA Election and Payment Timeline

Worked example: an employee fired (not for misconduct) elects COBRA. Coverage continues 18 months at 102% of the $700 monthly group rate = $714/month.

HIPAA (Health Insurance Portability and Accountability Act)

HIPAA protects people moving between group plans and bars discrimination by health status.

• Portability - prior creditable coverage reduces or eliminates any pre-existing-condition exclusion at the new plan.
• Guaranteed renewability - group coverage cannot be canceled because someone got sick.
• No health-status discrimination - eligibility and premiums cannot be set based on an individual's health, claims, or genetic information.
• Guaranteed issue for small employers in the group market.

Note: the ACA later eliminated pre-existing-condition exclusions in most plans entirely, but HIPAA's portability and nondiscrimination framework still appears on the exam.

Who Is a Qualified Beneficiary

A qualified beneficiary is anyone covered under the group plan the day before the qualifying event: the employee, the spouse, and dependent children. A child born to or adopted by the covered employee during the COBRA continuation period also becomes a qualified beneficiary. Each qualified beneficiary has an independent election right, so a spouse may elect COBRA even if the employee declines it.

Gross Misconduct Exclusion

COBRA is denied when employment ends because of the employee's gross misconduct. Ordinary termination, layoff, or quitting still qualifies; only gross misconduct removes the right. The exam often tests this by describing a fired employee and asking whether COBRA applies. Unless the facts say gross misconduct, the answer is that continuation is available for 18 months.

Early Termination of COBRA

COBRA coverage can end before the 18/29/36-month period runs out if:

• the qualified beneficiary fails to pay the premium on time,
• the employer stops offering any group health plan,
• the beneficiary becomes covered under another group plan with no applicable exclusion, or
• the beneficiary becomes entitled to Medicare.

Conversion Rights

When group coverage or COBRA ends, many plans offer a conversion privilege, letting the individual switch to an individual policy without evidence of insurability, though usually at a higher individual rate and sometimes with narrower benefits. Conversion must generally be exercised within 31 days of losing group coverage. Conversion differs from COBRA: COBRA continues the same group plan temporarily, while conversion moves the person to a new individual contract.

State Mini-COBRA

Because federal COBRA applies only to employers with 20 or more employees, many states enact mini-COBRA laws extending similar continuation rights to employees of small employers below that threshold. Durations and premium caps under mini-COBRA vary by state, so on a national question default to the federal 20-employee threshold and the 18/36-month durations.

COBRA Qualifying Events and Durations

COBRA requires employers with 20 or more employees to offer continued group coverage after a qualifying event, with the duration set by the event:

The qualified beneficiary pays up to 102% of the full premium (the extra 2% covers administration). Election must be made within 60 days of the qualifying event or notice.

Worked example: An employee is laid off (not for misconduct). The employee and covered dependents may continue group coverage for 18 months at up to 102% of the group premium. If the former employee is later deemed disabled by Social Security within the first 60 days, the period extends to 29 months at up to 150% for the extension.

HIPAA Portability and Privacy

HIPAA guarantees portability — limiting pre-existing exclusions and granting special enrollment when other coverage is lost — and bars group plans from discriminating based on health status. Its privacy and security rules protect protected health information (PHI). The exam pairs COBRA (continuation of the same group coverage) with HIPAA (portability between plans plus privacy).