State Continuation & COBRA Coverage
There are two common forms of extended insurance coverage for employees who are voluntarily leaving employment. Consolidated Omnibus Budget Reconciliation Act, also known as COBRA, is the more common term, which only affects employers who have more than 20 employees. While the other is called State Continuation, which varies by state. We’ll be including information relevant to the State of Texas.
Before we go into how they are different, let’s cover how they are the same. The first, they both are ways that employees can have access to medical insurance after they’ve left their employer. If the employee was fired or terminated for ’cause’, they may not have access to either of these extended coverages.
Both forms of extended coverage cost 102% of the total premium. This means that whatever the premium for enrollment cost not including any subsidy the employer has contributes. The extra 2% is added into help the insurance company to pay for administration costs associated with the coverage.
Both COBRA and State Continuation require that the employee has had coverage for at least 90 days before they qualify for these benefits. Which means, if an employer has recently set up medical insurance and an employee quits 72 days into the policy, they do not qualify for COBRA or State Continuation, not at least until they’ve been covered for a minimum of 90 days.
On COBRA coverage, the former employee is allowed to remain on COBRA for up to 18 months after separation from their employer.
While on State Continuation, the former employee is allowed to remain on State Continuation for up to 9 months after separation from their employer.
Termination of Benefits
Continuation of benefits may be terminated before the end of the maximum period of coverage for any person eligible for continuation due to loss of group coverage for reasons other than involuntary termination, for the following reasons:
- Failure to make timely premium payments;
- Group coverage terminates in its entirety;
- Insured’s eligibility or coverage under Medicare;
- Insured’s coverage for similar benefits by another plan or program;
- Insured’s eligibility for similar benefits under any insured or uninsured group policy; or
- Availability of similar benefits under any state or federal law (other than federal COBRA).
One reason a person may consider taking COBRA or State Continuation coverage is that their current plan may likely be a PPO, which offers in and out-of-network coverage. Most individual plans offered outside of a company are going to be only HMO plans. Health Maintenance Organizations only offer in-network coverage, except in the case of emergencies.
For More Information
Speaking to Former Employees: Depending on your circumstances you may be able to find more favorable coverage, depending on your household income. You can search on our customized portal for health insurance on the marketplace.
Speaking to Employers: You can visit the TDI website for more information: