Employers who maintain group health insurance plan(s) for their employees are subject to comply with the provisions of the law. Exempt are employers who employed less than 20 full or part time employees in 50% of the previous calendar year. (Each part time employee counts as a fraction of an employee, with the fraction equal to the number of hours that a part time employee worked divided by the hours an employee must work to be considered full time.)
What is COBRA Coverage?
COBRA continuation of coverage is continuation of the employer's health plan(s) by a Qualified Beneficiary. If COBRA continuation of coverage is elected, the coverage provided, during a period of COBRA coverage, is identical to the coverage provided to similarly situated beneficiaries to whom the Qualifying Event has not occurred. Qualified Beneficiaries can change coverage or add dependents in the same manner and under the same rules as active employees. They can change coverage at open enrollment or as the result of special events defined by Health Insurance Portability and Accountability Act.
What is a Group Health Plan?
Under COBRA, a group health plan ordinarily is defined as a plan that provides medical benefits for the employer's own employees and their dependents through insurance or another mechanism such as a trust, health maintenance organization, self-funded pay-as-you-go basis, reimbursement or some combination of these. Medical benefits provided under the terms of the plan and available through COBRA may include:
- Medical Insurance
- Prescription Drugs
- Medical Flexible Spending Accounts
- Any other Medical Benefits such as Dental and Vision
Life Insurance, Disability and Workers Compensation are not covered under COBRA.
Who is a Qualified Beneficiary?
A COBRA Qualified Beneficiary is a person who is covered under the group health plan on the day before the Qualifying Event who is either an employee, spouse of an employee, or dependent child of an employee. Retirees, spouses of retirees, or a dependent child of a retiree can in certain circumstances be a Qualified Beneficiary. In addition, a child born to or placed in the home for adoption of the former employee during a period of COBRA continuation coverage, is also a Qualified Beneficiary.
COBRA and Cafeteria Plans
A cafeteria plan (as defined in Section 125) or other flexible benefit arrangements constitute a group health plan subject to COBRA. However, except in cases where the plan is subject to HIPAA, COBRA continuation need only be offered in cases where there is a positive account balance at the time of termination and only to the end of the current flex plan year.
What is a Qualifying Event?
A COBRA Qualifying Event is the event that causes a loss in coverage under the group health plan. The type of Qualifying Event determines the length of continuation coverage for which the Qualified Beneficiary is eligible.
Event Length of COBRA
|Termination of employment (except for term of gross misconduct)|
|Death of the Employee||36 months|
|Medicare Entitlement of the Employee||36 months|
|Divorce or Legal Separation||36 months|
|Dependent Child losing eligibility under the Plan||36 months|
* Disability Extension - The 18 months may be extended to 29 months if a Qualified Beneficiary is Certified Disabled by the Social Security Administration (SSA) and the date of disability is prior to or within the first 60 days of COBRA coverage. The administrator must be notified of the disability during a period of COBRA coverage and within 60 days from the date of SSA's disability certification letter.
* Multiple Qualifying Event - The 18 months may be extended to 36 months for a Qualified Beneficiary who encounters, during a period of COBRA coverage, a second COBRA Qualifying Event (such as divorce, legal separation, death of the employee, Medicare entitlement of the employee, and dependent loosing dependent status under the plan).
If COBRA continuation of coverage is elected, the coverage provided, during a period of COBRA coverage, is identical to the coverage provided to similarly situated beneficiaries to whom the Qualifying Event has not occurred.
How long is the COBRA Election Period?
Qualified Beneficiaries have 60 days from either: the date of the Qualifying Event Notification letter or from the Loss of Coverage date, whichever is later, to elect COBRA. Each Qualified Beneficiary has individual election rights. They can elect coverage that is similar to or lesser than the coverage that was in effect at the time of the Qualifying Event.
COBRA Premium Payments
The amount of the COBRA premium payment can be up to 102% of the monthly cost to the employer by the health insurance carrier. For the 11-month disability extension period, the COBRA premium can be up to 150% of the monthly cost to the employer by the health insurance carrier.
Once COBRA continuation is elected, there is a 45-day grace period to pay the initial premium payment. The initial premium payment covers a period beginning the date coverage was originally lost to the end of the current coverage month. Subsequent monthly premium payments are due on the first day of each month of coverage and must be sent within 30 days from the due date.
Some of the Employer's responsibilities are:
- Notify employees and covered spouses of their COBRA Rights when they first become covered under the employer's health plan(s).
- Notify employees and/or covered dependents, within 14 days of the COBRA Qualifying Event date, of their ability to elect COBRA continuation of coverage and provide election forms.
- Maintain records to prove notifications were sent within their specified timeframes.
- Track COBRA election periods and length of coverage.
- Invoice COBRA premium payments and balance bill short payments.
- Maintain payment records and correspondence.
- Notify COBRA continuants of benefit changes and any open enrollment periods.
- Allow COBRA continuants the ability to add dependents, increase coverage, or change plans as "similarly situated" active employees are allowed to do.
- Notify active COBRA continuants of their conversion rights, if any, within 180 days of their projected COBRA coverage termination date.
- Notify COBRA continuants when their COBRA coverage has terminated.
- Maintain written procedures for COBRA administration.
What are the Penalties?
Penalties for non-compliance with COBRA can result in:
- IRS excise tax penalty of $100 per day for each violation. This fine can be increased to $200 for each day in which there was more than one Qualified Beneficiary per family.
- An ERISA penalty of $110 per day payable to each Qualified Beneficiary for each day the employer was not in compliance.
- The employer can be held liable for payment of legal fees, court costs and even for medical claims incurred by a Qualified Beneficiary.
Outsourcing COBRA administration relieves companies of the burdensome tracking, notification and billing processes. We provide COBRA expertise, tracking, record keeping, and reporting of all COBRA activity. We follow court cases and changes in the interpretation of COBRA law to modify our procedures and letters accordingly. Our COBRA administration system will:
- Prove that notifications were sent within their specified time frames.
- Invoice monthly premium payments.
- Maintain a record keeping system to track length of COBRA coverage, elections, and the payment history for each COBRA continuant.
- Report all COBRA activity.
Our COBRA administration procedures and practices allow fair and equal treatment for all COBRA Qualified Beneficiaries and continuants. We provide a buffer between the former employee and the employer for difficult COBRA determinations. Our COBRA administration system allows the employer to request COBRA Rights and Qualifying Event letters via electronic forms and e-mail. We can interface with your health carriers, and provide other plan functions in a timely and accurate manner to ensure your COBRA responsibilities are satisfied.
Tags: COBRA law
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