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Employment Practices Toolkit

COBRA Overview

Cobra coverage

The Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions require group health plans to provide a temporary continuation of group health coverage that otherwise might be terminated.

COBRA requires continuation coverage to be offered to covered employees, their spouses, former spouses, and dependent children when group health coverage would otherwise be lost due to certain specific events. COBRA continuation coverage is often more expensive than the amount that active employees are required to pay for group health coverage, since the employer usually pays part of the cost of employees' coverage and all of that cost can be charged to individuals receiving continuation coverage.

COBRA Coverage

Plan Coverage - COBRA covers group health plans sponsored by an employer that employed at least 20 employees on more than 50 percent of its typical business days in the previous calendar year.  Both full- and part-time employees are counted to determine whether a plan is subject to COBRA.  Each part-time employee counts as a fraction of a full-time employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.

Qualifying Events - Qualifying events are events that cause an individual to lose his or her group health coverage.  The type of qualifying event determines who the qualified beneficiaries are for that event and the period of time that a plan must offer continuation coverage.  COBRA establishes only the minimum requirements for continuation coverage.  A plan may always choose to provide longer periods of continuation coverage.

The following are qualifying events for covered employees if they cause the covered employee to lose coverage:

  • Termination of the employee's employment for any reason other than gross misconduct; or
  • Reduction in the number of hours of employment.

The following are qualifying events for the spouse and dependent child of a covered employee if they cause the spouse or dependent child to lose coverage:

  • Termination of the covered employee's employment for any reason other than gross misconduct;
  • Reduction in the hours worked by the covered employee;
  • Covered employee becomes entitled to Medicare;
  • Divorce or legal separation of the spouse from the covered employee; or
  • Death of the covered employee.

In addition to the above, the following is a qualifying event for a dependent child of a covered employee if it causes the child to lose coverage:

  • Loss of dependent child status under the plan rules.  Under the Patient Protection and Affordable Care Act, plans that offer coverage to children on their parents' plan must make the coverage available until the adult child reaches the age of 26.

Qualified Beneficiaries - A qualified beneficiary is an individual covered by a group health plan on the day before a qualifying event occurred that caused him or her to lose coverage.  Only certain individuals can become qualified beneficiaries due to a qualifying event, and the type of qualifying event determines who can become a qualified beneficiary when it happens.  A qualified beneficiary must be a covered employee, the employee's spouse or former spouse, or the employee's dependent child.  In certain cases involving the bankruptcy of the employer sponsoring the plan, a retired employee, the retired employee's spouse or former spouse, and the retired employee's dependent children may be qualified beneficiaries.  In addition, any child born to or placed for adoption with a covered employee during a period of continuation coverage is automatically considered a qualified beneficiary.  An employer's agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.

Employee eligibility

To be eligible for COBRA coverage, an employee must have been enrolled in an employer’s health plan when you worked and the health plan must continue to be in effect for active employees.  COBRA continuation coverage is available upon the occurrence of a qualifying event that would, except for the COBRA continuation coverage, cause an individual to lose his or her health care coverage.

Group health plans must provide covered employees and their families with certain notices explaining their COBRA rights.  Employee’s COBRA rights must be described in the plan's Summary Plan Description (SPD), which employees should receive within 90 days after he/she first becomes a participant in the plan.  In addition, group health plans must give each employee and spouse who becomes covered under the plan a general notice describing COBRA rights, also provided within the first 90 days of coverage.

Before a group health plan must offer continuation coverage, a qualifying event must occur, and the plan must be notified of the qualifying event.  Who must give notice of the qualifying event depends on the type of qualifying event.

The employer must notify the plan if the qualifying event is the covered employee's termination or reduction of hours of employment, death, entitlement to Medicare, or bankruptcy of a private-sector employer.  The employer must notify the plan within 30 days of the event.

Covered benefits and timing

If an employee elects continuation coverage, the coverage must be identical to the coverage currently available under the plan to similarly situated active employees and their families (generally, this is the same coverage that you had immediately before the qualifying event).  Employees are also entitled, while receiving continuation coverage, to the same benefits, choices, and services that a similarly situated participant or beneficiary is currently receiving under the plan, such as the right during open enrollment season to choose among available coverage options.  Employees will also be subject to the same rules and limits that would apply to a similarly situated participant or beneficiary, such as co-payment requirements, deductibles, and coverage limits. The plan's rules for filing benefit claims and appealing any claims denials also apply.

Any change made to the plan's terms that apply to similarly situated active employees and their families will also apply to qualified beneficiaries receiving COBRA continuation coverage.  If a child is born to or adopted by a covered employee during a period of continuation coverage, the child is automatically considered to be a qualified beneficiary receiving continuation coverage.

Timing

COBRA requires that continuation coverage extend from the date of the qualifying event for a limited period of 18 or 36 months.  The length of time depends on the type of qualifying event that gave rise to the COBRA rights.  A plan, however, may provide longer periods of coverage beyond the maximum period required by law.

When the qualifying event is the covered employee's termination of employment or reduction in hours of employment, qualified beneficiaries are entitled to 18 months of continuation coverage.

When the qualifying event is the end of employment or reduction of the employee's hours, and the employee became entitled to Medicare less than 18 months before the qualifying event, COBRA coverage for the employee's spouse and dependents can last until 36 months after the date the employee becomes entitled to Medicare.  For example, if a covered employee becomes entitled to Medicare 8 months before the date his/her employment ends (termination of employment is the COBRA qualifying event), COBRA coverage for his/her spouse and children would last 28 months (36 months minus 8 months).

For other qualifying events, qualified beneficiaries must be provided 36 months of continuation coverage.

State Law

For states that provide COBRA-type benefits, employers must also follow those rules.

Article created by Jackson Lewis and republished here with permission.

Disclaimer

The information provided in this resource does not constitute legal, medical or any other professional advice, nor does it establish a standard of care. This resource has been created as an aid to you in your practice. The ultimate decision on how to use the information provided rests solely with you, the PolicyOwner.