COBRA Conformity

By Renee Hotte

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers to offer continued access to their health care plans and in certain circumstances, to employees and their families who lose health care coverage because of a qualifying event. COBRA was passed in 1985 and since its enactment, COBRA has been expanded several times, creating layer upon layer of administrative complexity.

All employers who had twenty or more employees “on a typical business day,” (on fifty percent or more of the business days) during the preceding calendar year must comply with COBRA. For the purposes of determining employee count, include all full-time and part-time employees, owners, and officers regardless of the eligibility for the group health plan. Each part-time employee counts as a fraction of a full-time employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full-time.

Terminated employees or their families who may lose coverage because of termination of employment, death, divorce, or other life events may be able to continue the coverage under the employer’s group health plan for themselves or their families for limited periods of time.

Under COBRA, a group health plan ordinarily is defined as a plan that provides medical benefits for the employer’s own employees and the employees dependents though insurance or health maintenance organization on self-funded pay-as-you-go basis, through reimbursement, or combination of these. Medical benefits provided under the terms of the plan and available to COBRA beneficiaries may include:

  • Inpatient and outpatient hospital care
  • Physician Care
  • Surgery and other major medical benefits
  • Prescription drugs
  • Any other medical benefits, such as dental and vision care. Life Insurance, however, is not covered under COBRA except in two states, Minnesota and California.

The qualifying events for employees are:

  • Voluntary or involuntary termination of employment for reasons other than “gross misconduct”
  • Reduction in the number of hours of employment

The qualifying events for spouses are:

  • Voluntary or involuntary termination of the covered employee’s employment for any reason other than “gross misconduct”
  • Reduction in the hours worked by the covered employee
  • Covered employee’s becoming entitled to Medicare
  • Divorce or legal separation of the covered employee
  • Death of the covered employee

The qualifying events for dependent children are the same as for the spouse with one addition:

  • Loss of “dependent child” status under the plan rules.

Notice and election procedures are outlined in COBRA for employers and plans to notify qualified beneficiaries. Qualified beneficiaries have the right to elect to continue coverage that is identical to the coverage provided under the plan. Employers and plan administrators have an obligation to determine the specific rights of beneficiaries with respect to election, notification, and type of coverage options.

Initial notices describing COBRA rights must be furnished to covered employees and their spouses at the time coverage under the plan commences.

Other notice requirements are triggered for employers, qualified beneficiaries, and plan administrators when a qualifying event occurs. Employers must notify plan administrators of a qualifying event within thirty days after an employee’s death, termination, reduced hours of employment, or entitlement to Medicare.

A qualified beneficiary must notify the plan administrator of a qualifying event within sixty days after divorce or legal separation or a child’s ceasing to be covered as a dependent under plan rules. Multi-employer plans may provide for a longer period of time. The employee, retiree or family member should notify the plan administrator within sixty days of events consisting of 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 the right to elect COBRA coverage. The notice must be provided in person or by first class mail within fourteen days after the plan administrator receives notice that a qualifying event has occurred.

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 sixty days for election. 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.

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.

Qualified beneficiaries must be offered coverage identical to that available to similarly situated beneficiaries who are not receiving COBRA coverage under the plan. 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.

COBRA coverage begins on the date that coverage would otherwise have been lost because of a qualifying event and will end 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.

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.

Beneficiaries may be required to pay for COBRA coverage. The premium cannot exceed 102 percent of the cost of the plan for similarly situated individuals who have not incurred a qualifying event, including both the portion paid by employees and any portion paid by the employer before the qualifying event, plus two percent for administrative costs.

The initial premium payment must be made within forty-five days from the date of the COBRA election by the qualified beneficiary. 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. The coverage will be terminated until the premium payment has been received, once payment is received, the coverage will be retroactively reinstated.

Coordination with the Family and Medical Leave act (FMLA), effective August 5, 1993, requires an employer to maintain coverage under any “group health plan” for an employee on FMLA leave under the same conditions coverage would have been provided had the employee continued working. Coverage provided under the FMLA is not COBRA coverage and FMLA leave is not a qualifying event under COBRA. A COBRA qualifying event may occur, however, when an employer’s obligation to maintain health benefits under FMLA ceases, such as when an employee notifies an employer of his or her intent not to return to work.

Although COBRA specifies certain periods of time that continued health coverage must be offered to qualified beneficiaries, COBRA does not prohibit plans from offering continuation health coverage that goes beyond the COBRA periods.

It is imperative that in putting together a comprehensive COBRA administration program, the employer has in place procedures that assist in successfully notifying, tracking and managing all aspects of COBRA requirements. If a review occurs, the employer has to show a “good faith” compliance with COBRA. The key, as in all Human Resource issues, will be in the documentation the employer produces. By having a solid foundation of procedures in place, the employer maintains a sound administration program that provides the benefits where appropriate and reduces the risk of error or financial liability.

PERIODS OF COVERAGE
Qualifying Events Beneficiary Coverage
Reduced Hours orTermination of Employment EmployeeSpouse

Dependent Child

18 months
Employee enrolled in Medicare,Divorce or legal separation, or

Death of covered employee

SpouseDependent Child 36 months
Loss of “dependent child” status Dependent Child 36 months 
SSA disabled SpouseEmployee

Dependent Child

Additional 11 months

[Note: This column is for general information only. It is not intended to be legal advice and should not be relied upon as legal advice.]

Renee Hotte was the FMLA Manager of BASIC. For more information about BASIC products and services, call 800-444-1922.

[From Connection Magazine – May/June 2002]

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