What is COBRA?
What does COBRA
do?
What employer plans are subject to COBRA?
Who
is eligible to elect COBRA?
What are the consequences for failing to comply
with COBRA?
How long can COBRA coverage be continued?
What specific Qualifying Events trigger
eligibility for COBRA?
How much
does COBRA cost?
More about COBRA?
What
is COBRA?
Congress passed the landmark Consolidated
Omnibus Budget Reconciliation Act (COBRA) health
benefit provisions in 1986. The law amends the
Employee Retirement Income Security Act, the
Internal Revenue Code and the Public Health
Service Act to provide continuation of group
health coverage that otherwise might be
terminated. It is a federal law, not a state
law.
What does COBRA do?
COBRA provides
certain former employees, retirees, spouses,
former spouses, and dependent children the right
to temporary continuation of health coverage at
group rates. This coverage, however, is only
available when coverage is lost due to certain
specific events.
What employer plans are subject to COBRA?
Generally speaking, group
health plans for employers with 20 or more
employees on more than 50 percent of its typical
business days in the previous calendar year are
subject to COBRA. Both full and part-time
employees are counted to determine whether a
plan is subject to COBRA. Each part-time
employee counts as a fraction of an 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.
Who is
eligible to elect COBRA?
Only Qualified Beneficiaries are eligible to
elect COBRA. A Qualified Beneficiary is
generally an individual covered by a group
health plan on the day before a qualifying event
who is either an employee, the employee's
spouse, or an employee's dependent child. In
certain cases, a retired employee, the retired
employee's spouse, and the retired employee's
dependent children may be qualified
beneficiaries. In addition, any child born to
or placed for adoption with a covered employee
during the period of COBRA coverage is
considered a qualified beneficiary. Agents,
independent contractors, and directors who
participate in the group health plan may also be
qualified beneficiaries.
What are the consequences for failing to comply
with COBRA?
Failure to comply
with COBRA can lead to significant financial
consequences. Different consequences flow from
different compliance failures, and, of course,
the amount of possible damages awarded in any
particular case will depend on the circumstances
of the qualified beneficiary (or beneficiaries).
But all of the following consequences can
arise from a COBRA compliance failure:
ü
Excise tax penalties may be assessed by the IRS
(up to $200 per day) for each day on which a
plan fails to comply with COBRA.
ü
Statutory penalties of $110 per day may be
recovered (by qualified beneficiaries) for
failure to provide initial and election notices
under COBRA.
ü
Qualified beneficiaries may sue to recover COBRA
coverage (such suits carry the potential for
large damages, which, in the case of an insured
plan, may not be covered by the plan’s
insurance).
ü
Failure to provide adequate initial and election
notices can create exposure to “other relief,”
which might include damages for such things as a
worsening of a qualified beneficiary’s medical
condition due to failure to provide an adequate
COBRA notice.
ü
In
COBRA lawsuits, the court is permitted to award
attorneys’ fees and interest to the prevailing
party.
How long can COBRA coverage be continued?
The maximum time
COBRA coverage is available is determined by the
Qualifying Event. When the Qualifying
event is termination of employment (for any
reason other than gross misconduct) or reduction
of hours the maximum continuation period is 18
months. When the Qualifying Event is the
death of a covered employee, a divorce or legal
separation, a child ceasing to be a dependent
under the terms of the plan, or the covered
employee's becoming entitled to Medicare, the
maximum continuation period is 36 months.
There are special rules which apply to retiree
plans when the employer enters bankruptcy, new
born or adopted children, and for under spent
accounts in Qualifying Health FSAs.
What specific Qualifying Events trigger
eligibility for COBRA?
There are seven specific COBRA Qualifying Event
triggers. They are...
ü
Termination of a covered employee’s employment*
ü
A reduction of a covered employee’s hours of employment.
ü
The death of a covered employee.
ü
A divorce or legal separation from the covered employee.
ü
A child ceasing to be a dependent child under the terms of the
plan.
ü
The covered employee’s becoming entitled to Medicare.
ü
Employer bankruptcy in relation to retiree plans.
* Except for "gross
misconduct."
How much
does COBRA cost?
Group health coverage for
COBRA participants is usually more expensive
than health coverage for active employees, since
usually the employer pays a portion of the premium
for active employees while COBRA participants
generally pay the entire premium themselves.
Qualified individuals are
usually required to pay the entire premium
charged to the employer plan plus 2%.
An exception to the 102 percent rule applies to
the Disability Extension. Premium during a
Disability Extension is usually 150 percent of
the cost to the employer plan.
COBRA premium may or may
not be less expensive than individual health
coverage. You are urged to contact your
local insurance broker to determine which is
best for you.
