The Consolidated Omnibus Budget Reconciliation Act of 1985, also known as “COBRA,” became effective in April 1986. It was a catch-all piece of legislation set up to “reconcile” inconsistent budget legislation passed by the Senate and the House, and thus enact that year's federal budget. One of its components, for example, authorized the funding of AMTRAK, the government-owned railroad company, through 1988. The most far-reaching elements of the Consolidated Omnibus Budget Reconciliation Act of 1985concerned Americans' employer-provided health insurance and their continued access to that insurance after the termination of the employment relationship.
Briefly, the Consolidated Omnibus Budget Reconciliation Act of 1985 required employers to permit former employees, upon termination of employment, to continue the health insurance coverage they'd had while employed. This coverage generally was required to be extended for 18 months, but some exceptions permitted extensions of up to twice that time period. This coverage wasn't cost-free, however – employers were permitted to charge their former employees up to 102% of the premium cost of continued health insurance coverage. While some employers subsidized these costs or provided health coverage as part of a separation agreement, most charged the full premium. This high cost generally precluded the newly-unemployed from purchasing health insurance, and it's estimated that no more than 10% of all people eligible for continuation health coverage under COBRA actually purchased it. In fact, for some of those eligible for unemployment insurance benefits, it was possible for the COBRA insurance premium to exceed the monthly unemployment insurance benefits.
COBRA coverage, as it quickly became known, wasn't generally available to those who'd been discharged from employment for cause, who had voluntarily quit, or who'd retired; it was available to those whose employment ended for reasons beyond their control, such as layoff for whatever reason, or plant shutdowns. It also became a convenient way for some to maintain their health coverage without interruption – upon finding new employment, the new employer would pay the COBRA premiums for the new employee until their own carrier's waiting period requirements had been met, at which point the new employee would be covered under the new employer's plan.
In prosperous economic times, when periods of unemployment are relatively rare and relatively short, the burden of COBRA health insurance premiums is something for which most working families can plan and pay, even if most don't actually do so. It was during a period of prolonged recession, though, which began in 2007 in the United States, that it became evident that the long-term unemployed had no realistic ability to purchase health insurance independently, well-intentioned Consolidated Omnibus Budget Reconciliation Act legislation from 1985 notwithstanding. Thus, the American Recovery and Reinvestment Act of 2009 (ARRA), and its subsequent amendments, provided a subsidy of 65% for COBRA premiums, funded by the national treasury.
