13.3 Group Health, COBRA, and HIPAA Portability
Key Takeaways
- Group health uses a master policy held by the employer; employees receive certificates and generally skip individual underwriting.
- COBRA applies to employers with 20+ employees and offers 18, 29, or 36 months of continuation depending on the qualifying event.
- COBRA premium is up to 102% of plan cost (150% during the 11-month disability extension), paid by the individual.
- HIPAA portability provides guaranteed issue/renewability in the group market and credits prior coverage, but a 63-day break can erase that credit.
- Conversion creates a new individual policy within 31 days with no proof of insurability; COBRA continues the same group plan and is elected within 60 days.
How Group Health Differs from Individual
Group health insurance covers a defined group — usually employees of an employer — under a single master policy held by the employer (the policyholder). Each covered employee receives a certificate of insurance, not a policy. Group coverage uses experience rating or community rating rather than full individual underwriting, so individual medical exams are usually waived if enrollment occurs during the eligibility window.
Key group features the exam tests:
- No individual ownership — the employer owns the master contract.
- Eligibility / probationary period before a new hire may enroll.
- Open enrollment windows; late enrollees may face evidence of insurability.
- Conversion privilege — a terminating employee may convert to an individual policy without proof of insurability, typically within 31 days, though usually at a higher individual rate.
COBRA: Continuing Group Coverage
The Consolidated Omnibus Budget Reconciliation Act (COBRA) lets qualified employees and dependents keep group health coverage temporarily after a qualifying event. COBRA applies to employers with 20 or more employees.
| Qualifying event | Who may continue | Maximum period |
|---|---|---|
| Termination (not gross misconduct) or reduced hours | Employee + dependents | 18 months |
| Disability (during first 60 days of COBRA) | Disabled person + family | 29 months |
| Divorce, death of employee, child loses dependent status, Medicare entitlement of employee | Spouse/dependents | 36 months |
The individual pays the full premium plus up to a 2% administrative load (102% of cost; 150% during the 11-month disability extension). The employer/plan must notify within set windows, and the qualified beneficiary generally has 60 days to elect COBRA.
Worked Scenario: COBRA Premium and Period
A full-time employee at a 40-employee firm is laid off (not for gross misconduct). The group plan costs $600/month total.
- Continuation period: termination is the qualifying event, so the employee and dependents may continue for 18 months.
- Premium owed: the employee pays 102% of cost = $600 × 1.02 = $612/month. The employer is not required to subsidize it.
If the same employee is determined disabled within the first 60 days of COBRA, the period extends to 29 months, and the premium for the extra 11 months may rise to 150% of cost = $900/month.
HIPAA Portability and Privacy
The Health Insurance Portability and Accountability Act (HIPAA) has two exam-relevant halves.
Portability (group market reforms):
- Guaranteed issue of group coverage to small employers and guaranteed renewability of group policies.
- Creditable coverage credits reduce any pre-existing exclusion (see 13.2); a break of 63 days or more in coverage can erase accumulated credit.
- Limits on pre-existing exclusions and a ban on health-status-based discrimination within a group.
Privacy and security:
- Protected Health Information (PHI) may not be disclosed without authorization except for treatment, payment, and health-care operations.
- The Privacy Rule and Security Rule govern paper and electronic PHI; violations carry federal penalties.
Group vs. Individual Conversion at Termination
When group coverage ends, the exam often asks which protection applies:
- Conversion privilege — convert the group certificate to an individual policy with no proof of insurability, generally within 31 days.
- COBRA — keep the same group coverage temporarily (18/29/36 months) by paying up to 102%/150% of cost.
- These can interact: an employee may elect COBRA first, then convert to an individual policy when COBRA runs out.
A common trap: COBRA is continuation of the existing group plan, while conversion is a new individual policy. Do not confuse the 31-day conversion window with COBRA's 60-day election window.
An employee voluntarily resigns from a firm with 50 employees. Under COBRA, what is the maximum continuation period and the maximum premium the plan may charge?
Under HIPAA portability, what happens to accumulated creditable coverage if an individual has a break in coverage of 63 or more days?
Worked Numeric: COBRA Qualifying Events and Coverage Periods
COBRA lets employees of employers with 20 or more workers continue group coverage after a qualifying event. The continuation period depends on the event:
| Qualifying event | COBRA period |
|---|---|
| Termination (not for gross misconduct) or reduced hours | 18 months |
| Disability extension (SSA-determined during first 60 days) | 29 months |
| Divorce, death of employee, employee Medicare entitlement, loss of dependent status | 36 months (for spouse/dependents) |
The beneficiary pays up to 102% of the full group premium (100% plus a 2% administrative load); during the 11-month disability extension the charge can rise to 150%.
Worked example: a worker is laid off where the full group premium is $700/month. Their COBRA premium is 102% x $700 = $714/month for up to 18 months. Compare HIPAA, which does not pay premiums but guarantees portability - prior creditable coverage reduces or eliminates a new plan's pre-existing exclusion, and HIPAA bars group plans from denying eligibility based on health status.
An employee with group coverage is laid off (not for misconduct). For how long may they continue coverage under COBRA, and at what maximum premium?