The Consolidated Omnibus Budget Reconciliation Act, otherwise known as COBRA, was passed in 1986 and applies to companies with 20 or more employees. Prior to COBRA, employees and those covered under employer-provided plans lost their health insurance immediately after an employee left the company. If individuals became sick or developed preexisting conditions, they often were unable to obtain new health insurance coverage.

Under the law, you can temporarily continue your group health insurance coverage if you quit your job or your employer reduces your hours or terminates your employment for reasons other than gross misconduct. By law, retirees, spouses, former spouses, and dependent children covered under the plan also can continue their coverage, provided that there is a “qualifying event” (see the FAQs on the U.S. Department of Labor Web site). Qualifying events are different for employees and other individuals covered under group health insurance plans.

COBRA coverage is usually more expensive for an employee than when he or she worked for the company, but still less costly than purchasing individual health coverage. Premiums equal the combined employer-employee cost of the original group healthcare coverage, plus up to an additional 2 percent for administrative costs. Employers sometimes allow individuals to drop dental and vision coverage to lower the cost. In general, however, COBRA coverage is offered at the same benefit level as when the individual was employed by the company.