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Health insurance programs allow workers and their families to take care of essential medical needs. These programs can be one of the most important benefits provided by an employer. There was a time when group health coverage was at risk when a worker lost his job, changed employment, or got divorced. That changed in 1986 with the passage of health benefit provisions in the Consolidated Omnibus Budget Reconciliation Act (COBRA).
The Act amended the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code, and the Public Health Service Act to provide continuation of group health coverage that otherwise might be terminated.
COBRA generally requires that group health plans sponsored by employers with 20 or more employees in the prior year offer employees and their families the opportunity for a temporary extension of health coverage (called continuation coverage) in certain instances where coverage under the plan would otherwise end.
Qualifying events
COBRA gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events.
The qualifying events and coverage are as follow:
| Qualifying events | Who is entitled to coverage | Length of coverage |
|---|---|---|
| Voluntary termination of employee | Employee, spouse, dependent child | 18 month 29 months for disabled individual |
| Involuntary termination of employee (except for gross misconduct) | Employee, spouse, dependent child | 18 month 29 months for disabled individual |
| Reduction of hours of employee causing loss of coverage | Employee, spouse, dependent child | 18 month 29 months for disabled individual |
| Employee enrollment in Medicare | Spouse, dependents | 36 months |
| Employee divorce or legal separation | Former spouse, dependents | 36 months |
| Employee death | Surviving spouse, dependents | 36 months |
| Dependent loss of coverage (marriage or age) | Dependent | 36 months |
Coverage begins on the date that coverage would otherwise have been lost by reason of a qualifying event and terminates at the end of the maximum period. It may end earlier if:
- Premiums are not paid on a timely basis
- The employer ceases to maintain any group health plan
- After the COBRA election, coverage is obtained with another employer group health plan that does not contain any exclusion or limitation with respect to any pre-existing condition of such beneficiary. However, if other group health coverage is obtained prior to the COBRA election, COBRA coverage may not be discontinued, even if the other coverage continues after the COBRA election.
- After the COBRA election, a beneficiary becomes entitled to Medicare benefits. However, if Medicare is obtained prior to COBRA election, COBRA coverage may not be discontinued, even if the other coverage continues after the COBRA election.
Notices
General COBRA rights must be described in the summary plan description (SPD) that all plan participants receive. ERISA requires employers to furnish modified and updated SPDs containing certain plan information and summaries of material changes in plan requirements.
Plan administrators must automatically furnish the SPD within 90 days after a person becomes a participant or a beneficiary begins receiving benefits, or within 120 days after the plan is first subject to the reporting and disclosure provisions of ERISA.
General notice
A general notice describing COBRA rights must be furnished to covered employees and their spouses at the time coverage under the plan commences. This notice must be furnished no later than the earlier of:
- Ninety (90) days after covered employees or spouses first become covered under the plan (or 90 days after the plan becomes subject to COBRA), or
- The date on which the plan administrator must furnish an election notice to the employee, spouse, or dependent.
The general notice must contain the following information:
- Name of the plan under which continuation coverage is available, along with the name, address, and telephone number of someone from whom additional information can be obtained;
- A general description of the continuation coverage under the plan, including:
- Identification of the classes of individuals who may become qualified beneficiaries,
- The types of qualifying events that may give rise to the right to continuation coverage,
- The obligation of the employer to notify the plan administrator of the occurrence of certain qualifying events,
- The maximum period for which continuation coverage may be available,
- When and under what circumstances continuation coverage may be extended beyond the applicable maximum period, and
- The plan’s requirements applicable to the payment of premiums for continuation coverage;
- An explanation of the plan’s requirements regarding the responsibility of a qualified beneficiary to notify the administrator of a qualifying event that is a divorce, legal separation, or a child’s ceasing to be a dependent under the terms of the plan, and a description of the plan’s procedures for providing such notice;
- An explanation of the plan’s requirements regarding the responsibility of qualified beneficiaries who are receiving continuation coverage to provide notice to the administrator of a determination by the Social Security Administration that a qualified beneficiary is disabled, and a description of the plan’s procedures for providing such notice
- An explanation of the importance of keeping the administrator informed of the current addresses of all participants or beneficiaries under the plan who are or may become qualified beneficiaries; and
- A statement that the notice does not fully describe continuation coverage or other rights under the plan and that more complete information regarding such rights is available from the plan administrator and in the plan’s SPD.
If a covered employee is married, employers may furnish a single notice addressed to both the covered employee and the covered employee’s spouse, if, on the basis of the most recent information available to the plan, the covered employee’s spouse resides at the same location as the covered employee. There is no need to send a separate notice to covered children.
Other notices
Employers must notify plan administrators of a qualifying event within 30 days after an employee’s death, termination, reduced hours of employment, or entitlement to Medicare. These notice requirements are triggered for employers, qualified beneficiaries, and plan administrators when a qualifying event occurs.
A qualified beneficiary must notify the plan administrator of a qualifying event within 60 days after divorce or legal separation or a child’s ceasing to be covered as a dependent under plan rules.
Plan administrators, upon receiving notice of a qualifying event, must provide an election notice to the qualified beneficiaries of their right to elect COBRA coverage. The notice must be provided in person or by first class mail within 14 days after the plan administrator receives notice that a qualifying event has occurred.
Multi-employer plans
There are two special exceptions to the notice requirements for multi-employer plans:
- First, the time frame for providing notices may be extended beyond the 14- and 30-day requirements if allowed by plan rules.
- Second, if the plan rules allow, employers may be relieved of the obligation to notify plan administrators when employees terminate or reduce their work hours.
Plan administrators would then be responsible for determining whether these qualifying events have occurred.
Qualified beneficiaries who wish to take advantage of the 11-month disability extension must notify plan administrators of the disabled qualified beneficiary’s Social Security disability determinations. A notice must be provided within 60 days of a disability determination and prior to expiration of the initial 18-month period of COBRA coverage. These beneficiaries also must notify the plan if the qualified beneficiary is determined by Social Security to be no longer disabled.
Election
Qualified beneficiaries must be given an election period during which each qualified beneficiary may choose whether to elect COBRA coverage. Qualified beneficiaries must be given at least 60 days for the election. This period is measured from the later of the coverage loss date or the date the COBRA election notice is provided. COBRA coverage is retroactive if elected and paid for by the qualified beneficiary.
Each qualified beneficiary may independently elect COBRA coverage. A covered employee or the covered employee’s spouse, however, may elect COBRA coverage on behalf of all other qualified beneficiaries. A parent or legal guardian may elect on behalf of a minor child.
If a qualified beneficiary waives COBRA coverage during the election period, he or she may revoke the waiver of coverage before the end of the election period. A beneficiary may then elect COBRA coverage. Then, the plan need only provide continuation coverage beginning on the date the waiver is revoked.
Coverage
Qualified beneficiaries must be offered coverage identical to that available to similarly situated beneficiaries who are not receiving COBRA coverage under the plan (generally, the same coverage that the qualified beneficiary had immediately before qualifying for continuation coverage).
A change in the benefits under the plan for active employees will also apply to qualified beneficiaries. Qualified beneficiaries must be allowed to make the same choices given to non-COBRA beneficiaries under the plan, such as during periods of open enrollment by the plan.
Paying for coverage
Qualified individuals may be required to pay the entire premium for coverage up to 102 percent of the cost to the plan. The qualified beneficiary must make the initial premium payment within 45 days after the date of the COBRA election. Payment generally must cover the period of coverage from the date of COBRA election retroactive to the date of the loss of coverage due to the qualifying event. Premiums for successive periods of coverage are due on the date stated in the plan with a minimum 30-day grace period for payments. Payment is considered to be made on the date it is sent to the plan.
If premiums are not paid by the first day of the period of coverage, the plan has the option to cancel coverage until payment is received and then reinstate the coverage retroactively to the beginning of the period of coverage.