Certified Financial Consultant (CFC) Practice Exam

What is the purpose of COBRA in health insurance?

1. To lower premiums for high-risk individuals

2. To provide continuation of coverage for terminated employees

3. To enhance coverage for dependents

4. To limit coverage options for part-time workers

The correct answer is: To provide continuation of coverage for terminated employees

The purpose of COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act, is to provide continuation of health insurance coverage for employees who have been terminated from their job, as well as for their dependents. This legislation ensures that individuals who might otherwise lose their health insurance due to job loss or reduction in hours can maintain their existing health plan for a limited time, typically up to 18 months, and in some cases for up to 36 months for other qualifying events. This protection is especially important as it allows individuals to transition to new employment or find alternative insurance without suffering a gap in coverage. The other options do not accurately reflect the purpose of COBRA. For example, while reducing premiums for high-risk individuals or enhancing coverage for dependents may be related goals within the broader scope of health insurance reform, they do not pertain specifically to COBRA. Furthermore, limiting coverage options for part-time workers does not relate to COBRA's intent, which focuses on preserving coverage for those who lose their jobs rather than altering coverage accessibility based on employment status.