The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that requires the majority of employers to extend group health plan privileges to employees who would otherwise lose coverage.
All employers who maintain a group health plan are subject to COBRA rules unless either:
COBRA applies only to group healthcare plans, and includes continuation of the following services:
The employer must offer COBRA rights for each of its separate healthcare plans. Also note, COBRA does not include disability income plans and life insurance plans.
However, COBRA may include individual health insurance policies (such as voluntary cancer policies) if any of the following are true:
The qualifying event triggers a duty for the employer and the plan administrator to notify the qualified beneficiary of the availability of COBRA continuation coverage privileges. Qualifying events under COBRA are events that cause loss of coverage under a health plan. A covered employee experiences a qualifying event when at least one of the following are true:
These events are qualifying events only if the event causes a covered employee or his or 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.
If an employer offers retiree medical benefits to an employee under its group health plan, the employee may experience a qualifying event if the employer files for bankruptcy. This situation occurs when the employee substantially loses coverage within 12 months before or after the date the bankruptcy proceeding begins.
A leave approved under the Family and Medical Leave Act (FMLA) does not count as a qualifying event because the employer must allow the employee (and any dependents) to continue health coverage during the leave.
However, a qualifying event occurs on the last day of the FMLA leave if the employee:
Any employee who is covered by a group health plan on the day before a qualifying event (explained herein) is known as a “qualified beneficiary” covered by COBRA, unless the employer terminated the employee as a result of gross misconduct.
Qualified beneficiaries also include the employee’s dependent children and 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.
An individual may acquire other dependents during the COBRA continuation period, but the dependents do not have the status of qualified beneficiaries. Because these individuals are not qualified beneficiaries, they may not elect coverage for themselves, and they may not continue coverage when the employee ceases to be covered.
The COBRA continuation coverage period generally starts on 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 state that the continuation coverage period will begin on the date of the loss of coverage.
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, Notice requirements 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.
The maximum coverage periods under COBRA are:
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 extends to a 36-month continuation period.
However, a special rule applies to most healthcare flexible spending account plans. These plans are generally required to offer COBRA coverage only until the end of the plan year in which the qualifying event occurs.
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. When the Social Security Administration determines that an individual has a disability so that they obtain an additional 11 months of COBRA coverage, the premium may not exceed 150% of the total premium paid by an active employee.
The qualified beneficiary must pay the initial COBRA premium within 45 days of making the COBRA election. In the initial premium, the individual should pay 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 American Rescue Plan Act of 2021 (ARPA), signed by President Biden on March 11, 2021, includes a number of provisions designed to assist workers impacted by the COVID-19 pandemic. Among them is a new COBRA premium subsidy that pays for 100% of the applicable COBRA premium for eligible individuals with respect to coverage periods beginning April 1, 2021, and ending September 30, 2021. In order to comply with the law, employers face a number of challenges and additional administrative responsibilities, including:
The premium subsidy generally applies with respect to group health plans that are subject to the Employee Retirement Income Security Act (ERISA), Internal Revenue Code (Code) or the Public Health Service Act (PHSA), but does not apply to coverage under a health flexible spending arrangement (FSA) provided pursuant to a cafeteria plan. In addition, plans not subject to ERISA, the Code or the PHSA, but subject to state law that provides comparable continuation coverage (e.g., New York’s mini-COBRA law) are also covered by ARPA.
Individuals entitled to the premium subsidy are referred to as assistance eligible individuals (AEIs). In order to be an AEI, an individual must have been eligible for COBRA due to the covered employee’s involuntary termination of employment or reduction of hours, and the individual must elect COBRA. Qualified beneficiaries who are eligible for COBRA due to a voluntary termination of employment are not eligible for the premium subsidy (nor are individuals terminated for gross misconduct or whose qualifying event is anything other than involuntary termination of employment or a reduction in hours, such as children entitled to COBRA due to aging off coverage). An AEI must have been eligible for COBRA coverage during the period beginning on April 1, 2021, and ending September 30, 2021.
If an individual whose COBRA qualifying event was either an involuntary termination of employment or reduction of hours either has not elected COBRA, or previously elected COBRA and discontinued COBRA coverage before April 1, 2021, the individual may elect COBRA continuation coverage pursuant to a special “second-chance” election right. If elected, the subsidized coverage will commence April 1, 2021.
This rule differs from the normal COBRA rules that require the coverage to be effective as of the date of the original qualifying event.
This special election period begins on April 1, 2021, and ends 60 days after notice of the election period is provided. Plan administrators must provide this notice within 60 days of April 1, 2021.
Importantly, if COBRA is elected pursuant to this special election period, it does not extend the duration of the applicable COBRA period. That period continues to run from the date that would have applied if the individual had initially elected COBRA or, in the case of an individual who discontinued coverage, from the original COBRA commencement date.
A qualified beneficiary whose COBRA period would have normally run during the 18-month period commencing July 1, 2020, and ending December 31, 2021, does not have his or her maximum period extended to 18 months following the April 1, 2021, effective date applicable under the special election rules – the end date for the COBRA period would continue to be December 31, 2021.
The premium subsidy is available with respect to any premium owed for a period of COBRA coverage beginning on April 1, 2021, and ending on September 30, 2021. If an AEI has already paid the applicable premium for the month of April 2021, the AEI is entitled to a refund of the premium paid. The refund is due within 60 days of the date of payment.
Premium subsidies do not apply with respect to an AEI for months of coverage beginning on or after the first date an AEI is eligible for coverage under another group health plan (other than coverage for excepted benefits, a health care flexible spending account, or a qualified small employer health plan) or Medicare. Premium subsidies are also not available for any period following the maximum period of continuation coverage required under COBRA for the AEI.
An AEI is required to notify the plan administrator of the group health plan if he or she is eligible for other disqualifying coverage and is subject to monetary penalties for failing to do so.
A group health plan, may, but is not required to, permit an AEI to elect a different coverage option than the one the qualified beneficiary is enrolled in at the time of the qualifying event. Under normally applicable COBRA rules, a qualified beneficiary may only elect the coverage that is in effect immediately preceding the qualifying event, subject to the right to change coverage during open enrollment or in connection with a HIPAA special enrollment right. Under ARPA, the employer can permit an AEI to change his or her coverage option if:
The election to change to an alternate coverage option must be made within 90 days of the date the AEI is notified of the alternative plan coverage enrollment option.
For individuals who first become entitled to elect COBRA coverage between April 1, 2021, and September 30, 2021, the plan administrator must provide a written notification regarding the availability of the COBRA premium subsidy and the option to enroll in an alternative plan coverage option, if permitted by the employer.
This notice requirement may be satisfied by amending the employer’s current COBRA notice or by supplementing the current notice with a separate notice. It is important to note that this notice requirement applies with respect to all COBRA election notices provided to qualified beneficiaries who become entitled to elect COBRA between April 1, 2021, and September 30, 2021, and not just for those individuals whose COBRA qualifying event is an involuntary termination of employment or reduction in hours.
Notice of the premium subsidy also must be provided to AEIs who became entitled to elect COBRA before April 1, 2021, and to individuals who did not have a COBRA election in effect on April 1, 2021, but who would be an AEI if they had elected COBRA, or who previously elected COBRA and discontinued coverage before April 1, 2021.
This notice must be provided within 60 days of April 1, 2021, and must include the same information as specified in the question above that applies to individuals who become entitled to elect COBRA between April 1, 2021, and September 30, 2021.
Plan administrators must inform AEIs when the premium subsidy will end. This notice must be provided no more than 45 days, and no less than 15 days, prior to the premium subsidy expiration date. The notice must include, in prominent language, a statement that premium assistance will end soon and the exact expiration date. It also must include a statement that the individual may be eligible for unsubsidized COBRA or coverage through another group health plan. This notice is not required if the premium subsidy is ending because of an individual’s eligibility for coverage under another group health plan or Medicare.
Most employers will be reimbursed for the premium subsidy by a new tax credit that applies against the employer’s share of the Medicare hospital insurance tax. The credit is a dollar-for-dollar reimbursement of the COBRA premiums for AEIs that were waived pursuant to the ARPA subsidy. To the extent that the credit amount exceeds the employer’s Medicare hospital insurance payroll tax, the excess amount may be claimed as a tax credit. ARPA also includes a provision indicating the credit may be advanced, pursuant to forms and instructions to be developed by the IRS.
The tax credit is available only to the person to whom premiums are payable. For most large plans, this means the employer. For fully insured small plans subject to state continuation laws and not federal COBRA, the tax credit is available to the insurer of the group health plan. For multiemployer plans, the person to whom the premium is payable is the plan. Employers requesting the credit may not also claim a credit on the same amount that is taken into account as qualified wages under the CARES Act or as a qualified health expense under the Families First Coronavirus Response Act or paid family leave acts under Sections 3131 and 3132 of the Internal Revenue Code.
Tax impact on assistance eligible individuals
A premium subsidy provided to an AEI is not considered taxable income.
The premium subsidy requirements require plan administrators to develop a compliance plan for satisfying its requirements. That compliance plan should involve identifying potential AEIs whose qualifying event date occurred in the past, but whose COBRA coverage period could include the April 1, 2021, through September 30, 2021, premium subsidy period (i.e., individuals who previously were eligible for COBRA by virtue of an involuntary termination of employment or reduction of hours and who either didn’t elect COBRA coverage initially or who dropped COBRA coverage prior to April 1, 2021).
The period for COBRA coverage will end if any of the following instances are true:
Under COBRA, the plan administrator must provide four written notices:
In general, the plan administrator must send all required notices 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.
The law also requires that covered employees, dependents, and qualified beneficiaries notify the plan administrator of certain events (generally within 60 days), such as:
The Department of Labor, 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. Fines may be substantial because each notice failure carries its own fine. Failure to comply with the requirements of COBRA may also result in other remedies for affected qualified beneficiaries. Additionally, an excise tax may be assessed by the Internal Revenue Service (IRS) against an employer for failure to comply with any of COBRA’s provisions. The excise tax generally is equal to $100 per day for each failure per covered beneficiary. The Internal Revenue Service is given the authority to increase the excise tax in certain circumstances or waive or lower it if the failure to comply is due to “reasonable” cause.
Massachusetts has enacted a Mini-COBRA law that increases the number of employers liable for continuation of health insurance coverage.
The Massachusetts mini-COBRA is similar to the federal COBRA, however, the laws include some differences:
Massachusetts law requires small group carriers to provide for the continuation of health benefits to employees of small businesses with two to 19 employees. As described earlier, this law does not apply to self-funded plans.
The law requires that benefits be provided to individuals who are covered under a small group health benefit plan on the day before a qualified event. The nature of the qualified event determines the length of time coverage must be offered to the individual:
When the Social Security Administration determines that an individual is disabled at the time of a qualifying event involving termination or reduction in work hours, healthcare coverage may be extended from 18 months to 29 months if notice of the determination is given to the small group carrier both:
A disabled individual may have to pay 150% of the premium for coverage after the initial 18-month period expires. If the Social Security Administration determines that the individual is no longer disabled, the individual must notify the small group carrier within 30 days of the date of the final determination.
Small group carriers must provide qualified beneficiaries with certain notices of the right to continue coverage:
In some cases, small group carriers may require the small employer/intermediary to issue notices to the qualified beneficiary. If it does impose this requirement, it must notify the small employer and provide the employer with the name and telephone number of a contact person who is familiar with the procedures. The small group carrier also must provide the employer with the form and content of the language required to be provided in any notice.
Small group carriers and small employers should work together to make certain that the small group carrier is fully informed of any qualifying events. Carriers may require employers to provide them with notices of these events under the terms of their contracts. If the contract terms include such a provision, the carrier should provide written instructions that clearly define the carrier’s procedures concerning continued coverage the employer’s responsibilities concerning notification.
The election period is the time in which a qualified beneficiary may choose to continue his or her coverage by making a written request. A qualified beneficiary has 60 days in which to make an election. The election period runs 60 days from the later of the date on which coverage terminates by reason of a qualifying event or the date the notice to elect coverage is sent.
The premium to be paid by the individual for continuation coverage may not exceed 102% of the cost of the small group health benefit plan for individuals who have not had a qualifying event. However, disabled individuals may be required to pay 150% of the premium after the initial 18-month period expires.
The coverage provided under Massachusetts law ends when at least one of the following are true:
Small group carriers may require small employers to assist with the administration of these rules by providing notices and/or by collecting premiums.
The employee and his or her eligible dependents are entitled to continue their coverage under the group health plan for the portion of the month remaining after regular coverage terminates as well as for an additional three months.
Upon the termination of coverage after the additional three months, the employee and his or her eligible dependents are eligible to convert their coverage under the group health plan into individual health policies.
The Uniformed Services Employment and Reemployment Rights Act (USERRA) requires a group health plan to continue health insurance coverage under the plan for employees serving in the uniformed services who will lose coverage as a result of active military service to the extent required by USERRA.
USERRA also permits an employee to elect coverage for his/her dependents if the employee’s dependents would lose coverage under a plan because of the employee’s active duty service. If an employee is serving in the uniformed services for no more than 31 days, coverage must continue as if the individual were actively working for the employer.
If the absence is for a period longer than 31 days, the employee has the right to continue coverage for either:
As a plan design feature, many plans provide that continuation coverage under USERRA and COBRA run at the same time.
This chapter includes a brief overview of the healthcare continuation requirements under federal and Massachusetts law. It is by no means exhaustive.
If additional information is needed, an attorney should be contacted and the sources listed herein should be consulted:
Massachusetts Office of Consumer Affairs and Business Regulation
Policies and Forms
Health insurance continuation coverage — Massachusetts
About the Firm
About the Editor
Features of the HR Library
Snapshot – An HR audit
Compliance thresholds — Massachusetts
Recruiting and hiring — Massachusetts
Background checks — Massachusetts
Immigration — Massachusetts
Temporary and leased employees, interns and volunteers — Massachusetts
Independent contractors — Massachusetts
Restrictive covenants and trade secrets — Massachusetts
Policies and procedures manuals — Massachusetts
Wages and hours — Massachusetts
Child labor — Massachusetts
Discrimination — Massachusetts
Disabilities and reasonable accommodation — Massachusetts
Workplace harassment — Massachusetts
Benefits — Massachusetts
Health insurance reform — Massachusetts
Family and medical leave — Massachusetts
Military leave — Massachusetts
Other types of leave — Massachusetts
Performance evaluations — Massachusetts
Personnel Files — Massachusetts
Workplace investigations — Massachusetts
Discipline — Massachusetts
Termination — Massachusetts
Plant closings and mass layoffs — Massachusetts
Health insurance continuation coverage — Massachusetts
Unemployment insurance — Massachusetts
Whistleblower protections — Massachusetts
Privacy rights — Massachusetts
Health insurance portability and privacy — Massachusetts
Protecting electronic information — Massachusetts
The Internet and social media — Massachusetts
Safety and Health — Massachusetts
Workplace violence — Massachusetts
Workers' compensation — Massachusetts
Politics in the workplace — Massachusetts
Celebrating in the workplace — Massachusetts
Federal contractors and affirmative action — Massachusetts
Public employers — Massachusetts
Unions — Massachusetts
Telecommuting — Massachusetts
Drugs alcohol and tobacco — Massachusetts
Diversity in the workplace — Massachusetts
Disaster planning — Massachusetts
Pandemic outbreaks — Massachusetts
Appendix A: Recordkeeping requirements
Appendix B: Posting requirements