Continuation coverage: Overview, definition, and example
What is continuation coverage?
Continuation coverage refers to the provision of extended health insurance benefits to individuals after they have lost their coverage due to certain qualifying events, such as job loss, reduction in work hours, or divorce. This type of coverage is typically provided under laws like the Consolidated Omnibus Budget Reconciliation Act (COBRA) in the United States, which requires employers to offer the option for employees and their families to continue health insurance coverage for a limited period after they become ineligible for the employer’s health plan. Continuation coverage allows individuals to maintain access to healthcare benefits during transitional periods.
Why is continuation coverage important?
Continuation coverage is important because it helps individuals maintain access to essential health insurance during times of change. Without this option, individuals may face a gap in coverage, which could lead to higher out-of-pocket healthcare costs or the inability to access necessary medical care. For employees and their families, continuation coverage provides a sense of stability and ensures that they are not left without healthcare coverage when they need it most, such as after losing a job or undergoing a life event like divorce. For employers, offering continuation coverage ensures compliance with legal requirements and helps support the well-being of former employees.
Understanding continuation coverage through an example
Imagine an employee works for a company and receives health insurance benefits as part of their employment. The employee then loses their job due to downsizing. Under COBRA, the company is required to offer the employee continuation coverage for a specific period (usually up to 18 months). The employee can continue using the same health insurance plan, but they will need to pay the full premium, which could be more expensive than when they were employed.
In another example, a person goes through a divorce and loses coverage under their spouse’s employer-sponsored health insurance plan. The former spouse may be eligible for continuation coverage, allowing them to keep the same health insurance for a limited period, while they search for new coverage or transition to a new insurance plan.
An example of a continuation coverage clause
Here’s how a continuation coverage clause might appear in an employee benefits agreement:
“In the event that an employee’s employment is terminated or their work hours are reduced, the Company will offer continuation coverage under the Company’s health insurance plan in accordance with COBRA, allowing the employee to continue coverage for up to 18 months at their own expense.”
Conclusion
Continuation coverage provides vital health insurance protection for individuals who lose their employer-sponsored coverage due to qualifying events. It ensures that employees and their families can maintain healthcare access during times of change, reducing the risk of medical gaps and financial hardship. By understanding and utilizing continuation coverage, individuals can safeguard their health benefits until they are able to obtain new coverage or navigate other insurance options.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.