COBRA provides a continuation of health coverage to qualified employees whose insurance would otherwise be discontinued due to a particular event. It is crucial that group health plan administrators understand what COBRA is and how it affects themselves and their employees. Read on for a detailed guide to COBRA including what it entails, who it affects, and other important details necessary to remain compliant
Refresher: What is COBRA?
The Consolidated Omnibus Budget Reconciliation Act (COBRA), is a set of laws put into place by the Department of Labor (DOL) in order to protect covered employees from the possibility of losing health insurance coverage. It requires employers to provide employees, previous employees, spouses, former spouses, and dependent children with continuing coverage should their previous coverage end due to a qualifying event.
These events can include:
- The death of a covered employee
- The termination of employment
- A reduction of work hours for reasons outside of misconduct
- A covered employee becoming eligible for Medicare
- The divorce of a covered employee
- A child’s loss of dependent status
Who Is Eligible for COBRA?
Qualified beneficiaries are individuals entitled to extended group health insurance coverage under COBRA laws. So long as an individual was covered under a group health plan the day prior to a qualifying event, then they will be considered a qualified beneficiary. This is also under the assumption that the individual is a qualified employee, spouse of an employee, or is considered an employee’s dependent. If a child is born to a qualified employee who is currently covered under the continuing coverage, then that child will be considered an eligible beneficiary as well.
Generally, COBRA will apply to all group health plans of private-sector employers who maintain at least 20 employees for more than 50 percent of all workdays in the calendar year prior.
When calculating whether a plan will be subject to COBRA, both full and part-time employees are included. Part-time employees count for a fraction of a full-time employee equal to the total hours worked divided by the hours that employees are required to work in order to be considered full-time.
Eligible employees must also undergo a qualifying event in order to receive continuing coverage. If an employee is either terminated for any reason other than misconduct or experiencing a reduction in hours unrelated to misconduct, then the employee will be eligible for COBRA.
If a qualifying event causes the loss of coverage for a spouse or dependent, then they too will be considered covered and eligible for COBRA. These qualifying events can include, an employee becoming eligible for medicare, termination, reduction in hours, divorce, or death of the said employee. The loss of a dependent child can also mean eligibility for the dependent.
How Long Does Continuation Coverage Last?
COBRA continuation coverage can extend between 18 to 36 months depending on the qualifying event that triggered the continuation of coverage.
If a reduction in hours or termination unrelated to misconduct is the qualifying event, then COBRA will last for 18 months. All beneficiaries will also be eligible and covered for this amount of time.
If in addition to the above, the employee became eligible for Medicare less than 18 months before the qualifying event, then the coverage for the employee’s spouse and dependents can last up to 36 months after the employee qualified for Medicare.
For all other circumstances, all qualified beneficiaries will be eligible for up to 36 months of continuation coverage.
This continuing coverage may also be terminated prematurely should any of the following occur:
- Employer group health plan is terminated
- Negligence toward timely premium payments
- Qualified beneficiary voids coverage by engaging in conduct that would call for such action, such as fraud
- Qualified beneficiary gains Medicare coverage
- Qualified beneficiary gains coverage under a new group health plan
How Do You Pay for COBRA?
When it comes to payment for a continuing coverage plan, employers have the option to either pass the full cost of COBRA onto the employee or pay for a percentage of the premium. The cost of this premium is equal to 102% of the premium that current employees are paying for that same group health plan.
The amount charged to the beneficiary may only increase if the cost of the plan is increased. Aside from this, the plan must be fixed for a 12-month period. The initial payment period must allow at least 45 days after the election before requiring payment from the qualified beneficiary. Should they fail to make their first payment within this 45-day window, the COBRA coverage may be terminated.
How Do Other Regulations Affect COBRA?
If an employee is on leave and covered under FMLA, then they are not eligible for COBRA. FMLA is not a qualifying event for COBRA and would only qualify the individual for their normal group health coverage. Should the employer’s obligation to cover an employee under FMLA cease, then it is possible for an employee to become qualified for COBRA coverage.
COBRA is also subject to additional terms and protections under the Affordable Care Act (ACA). These can include:
- Maintaining coverage for children under a parent’s plan until they reach the age of 26
- Forbidding exclusions from coverage for any pre-existing conditions
- Banning annual dollar limits on essential healthcare dollar limits
- Maintaining that group health plans MUST provide easily understood summaries of all health plan benefits.
Source: Bernie Portal