The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that requires most employers to offer temporary continuation of group health coverage to covered employees, their spouses, their former spouses, and their dependent children when such coverage would otherwise be lost due to certain specific events.
All employers who maintain a group health plan are subject to COBRA if the employer employed at least 20 employees (counting full time and part time) on at least 50% of its typical business days during the previous calendar year. Part time employees are counted as partial employees. Also, for purposes of the 20-employee threshold, employees of all companies that are in a controlled group with the employer must be counted.
Generally, employers that are a federal governmental entity or a religious organization are not subject to the COBRA requirements. State and local government employers, however, are subject to COBRA. COBRA applies to only group healthcare plans maintained by a covered employer that provides any of the following kinds of medical care for employees or their families:
Disability income plans and life insurance plans are not included. COBRA rights must be offered for each separate plan sponsored by the same employer. COBRA continuation coverage includes continuation coverage required under federal law or a state law that provides comparable continuation coverage for employers not covered by the federal law (for instance, so-called “mini-COBRA” laws).
Under Colorado’s continuation of coverage law (which generally applies to employers with two to 19 employees), upon termination of employment of an eligible employee, the death of such employee, or a change in the marital status of such employee, the employee or dependent has a limited right to continue coverage under the employer’s health insurance plan for up to 18 months, or until becoming eligible for other group coverage, whichever occurs first.
The employee must pay for such coverage (which may not exceed more than 100% of the group rate for a group member) and make an election within 30 days after the date of termination of employment (unless the employer fails to timely notify the employee of his/her continuation rights).
Colorado requires appropriate notice to the employee and/or his/her dependents. Generally, within 10 days of termination an employer must provide notification informing the individual of all of the following:
Any employee who is covered by a group health plan on the day before a qualifying event is known as a “qualified beneficiary” covered by COBRA, unless that employee was terminated for gross misconduct.
Qualified beneficiaries may also include the employee’s dependent children, spouse, and former spouse if they are covered under the plan on the day before a qualifying event, unless the covered employee was terminated for gross misconduct. Children born or adopted by the covered employee during a COBRA continuation period are also qualified beneficiaries.
Other dependents acquired during the COBRA continuation period may be added to the COBRA coverage, but do not gain the status of qualified beneficiaries. An individual who marries a qualified beneficiary on or after the date of the qualifying event, or a newborn or adopted child of a qualified beneficiary (other than the covered employee) are not qualified beneficiaries.
Qualifying events under COBRA are events that cause a loss of coverage under the health plan. A qualifying event occurs when a covered employee, his/her spouse, or dependent children lose coverage under the plan because:
If an employer offers retiree medical benefits under its group health plan, the employer’s filing for bankruptcy is also a qualifying event with respect to affected retiree participants if there is a substantial elimination of coverage that occurs within 12 months before or after the date the bankruptcy proceeding begins.
These are qualifying events only if the event causes a covered employee or his/her covered dependents to lose coverage under the health plan. A loss of coverage includes a change or decrease in benefits offered or an increase in the premiums or contributions required to be paid by the employee or his/her dependents.
Note: A plan with more than 20 participants cannot terminate an active employee’s coverage because he/she becomes entitled to Medicare, so for most plans an employee’s entitlement to Medicare is not a qualifying event.
The COBRA continuation coverage period generally starts the day after the date of the qualifying event, even if coverage is actually lost at a later date. Alternatively, a health plan may specifically provide that the continuation coverage period will begin as of the date of the loss of coverage. The qualifying event also triggers a duty on the part of both the employer and plan administrator to notify the qualified beneficiary that COBRA continuation coverage privileges are available. The qualified beneficiary has a 60-day election period (measured from either the date on which the plan administrator provides the COBRA election notice or the date on which coverage is actually lost, whichever is later) to elect COBRA continuation coverage (see page 343, COBRA notices for further details). Certain workers who lose their jobs due to the effects of international trade and who qualify for trade adjustment assistance under the Trade Act of 2002 may be entitled to a second chance to elect COBRA.
A leave approved under the Family and Medical Leave Act (FMLA) does not count as a qualifying event because the employer is required to allow the employee (and dependents) to continue health coverage during the leave. However, a qualifying event occurs on the last day of the FMLA leave if the employee:
The qualifying event (from which notice requirements and the length of the COBRA period are measured) occurs on the last day of the FMLA leave even if the employee allowed coverage to lapse or declined to continue coverage during the FMLA leave. Although the employer generally may require reimbursement of any health plan premiums paid by the employer on the employee’s behalf during the leave, the employer may not condition the right to COBRA coverage upon his/her reimbursement of these premiums. In addition, the date of the qualifying event is not affected by any state or local law that may require coverage for a longer period of time than that required under the FMLA.
The maximum coverage periods under COBRA
Note: If a second qualifying event, such as death or divorce, occurs during the time an 18-month or 29-month continuation period is in effect, the maximum coverage period generally is extended to a 36-month continuation period. However, a special rule applies to most healthcare flexible spending account plans (FSAs). These plans are generally required to offer COBRA coverage only until the end of the plan year in which the qualifying event occurs.
In addition, there are special continuation rules for certain members of the military (and their spouse and dependents) when they are called to active duty (generally 24 months).
Generally, qualified beneficiaries must pay the entire cost of COBRA coverage. The premium charged may not exceed 102% of the cost (including both the employee and employer paid portions) attributable to similarly situated active employees. For the additional 11 months of extended COBRA coverage due to a disability determined by the Social Security Administration, the premium charged may not exceed 150% of the total premium paid with respect to an active employee.
The qualified beneficiary must pay the initial COBRA premium within 45 days of making the COBRA election. The initial premium paid must include the amount necessary for coverage retroactive to the date of the qualifying event. From that point forward, each premium must be paid according to the payment schedule required by the health plan and within the grace period (which must be at least 30 days from the due date) allowed for receipt of premiums.
The period for COBRA coverage will end if:
Under COBRA, four written notices are required to be provided by the plan administrator:
In general, all required notices must be sent by first class, certified or registered U.S. mail addressed to the employee and spouse (if both are covered under the health plan) at the last known home address. Other methods of delivery, such as electronic delivery or hand delivery may be permissible in certain cases. Plans must keep complete and accurate records of all notices required by COBRA.
In addition to the notices that must be provided by the plan administrator, covered employees, covered dependents and qualified beneficiaries must also notify the plan administrator of certain events (generally, within 60 days), such as:
The plan must establish reasonable procedures to be followed by individuals when notifying the plan administrator of such events.
The U.S. Department of Labor (DOL), on behalf of participants, may assess a fine of up to $119 per day for a COBRA notice violation, accruing until the notice is issued. Each notice failure carries its own fine, so fines can become significant. Failure to comply with COBRA's requirements can result in other remedies for affected individuals. Additionally, an excise tax may be assessed by the Internal Revenue Service (IRS) against an employer for failure to comply with COBRA’s provisions. The excise tax generally is equal to $100 per day for each failure per covered beneficiary. The IRS is given the authority to increase the excise tax in certain circumstances or waive or lower the excise if the failure to comply is due to “reasonable” cause.
This chapter is intended as a brief overview of health insurance continuation requirements under federal law. It is by no means exhaustive. Additional information may be acquired through consulting with an attorney or by contacting:
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