COBRA Administration Guide: What Employers Need to Know

Reduced hours, a lay off or reduction in force are scary enough but add a potential loss of health coverage and your employees might panic. That is exactly why the Employee Income Security Act of 1974 (ERISA) added a protection to provide insurance for employees and their families during times when they are no longer covered on a company-provided health plan. COBRA helps your employees maintain their group health coverage if it is lost due to certain life events and it is your responsibility to make sure they know that.

What is COBRA Continuation Coverage?

If you provide a group health insurance plan for your employees and their families, more than likely you must also offer COBRA continuation coverage. COBRA protects employees, former employees, spouses, former spouses and dependent children from losing their health coverage due to a death, termination or reduction in hours (gross misconduct excluded), becoming eligible for Medicare, divorce or legal separation and a child’s loss of dependent status, as per the U.S. Department of Labor’s Employer’s Guide to Group Health Continuation Coverage Under COBRA.

For example, if you lay off or terminate an employee that is under your company’s health plan, COBRA provides health coverage until the employee goes under another plan. It bridges or covers that gap between losing coverage under one plan and gaining it back on another, whether that coverage is from a new job, being reinstated at a current job or going under a spouse’s plan. COBRA ensures workers and their families never have to go without health insurance.

What does COBRA stand for?

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act (COBRA). It is part of the Employee Retirement Income Security Act of 1974 (ERISA), a federal law that sets standards to protect employee benefits.

Who is eligible to receive COBRA Continuation Coverage?

The Department of Labor states that are three basic requirements for an employee to be entitled to elect COBRA continuation coverage:

  1. The group health plan must be covered by COBRA. Usually, this includes private-sector group plans from employers that have at least 20 employees working at least 50% of its typical business days the previous year. COBRA also applies to state and local government health plans but does not apply to plans sponsored by the federal government, churches and certain church-related organizations. Life insurance does not count as group health coverage.
  2. A qualifying event must occur. This is the event that causes the employee to lose his or her health coverage. More about this below.
  3. The employee must be a qualified beneficiary for that event. A qualified beneficiary includes both the employee and members of his or her family. More details below.

What constitutes a Qualifying Event?

Qualifying events are instances that occur which force an employee to lose his or her health insurance benefits. For COBRA eligibility, those instances include:

  • Termination of the covered employee’s employment for any reason other than “gross misconduct.”
  • Reduction in the covered employee’s hours of employment.

For a covered employee’s spouse or dependent, qualifying events include:

  • Termination of the covered employee’s employment for any reason other than “gross misconduct.”
  • Reduction in hours worked by the covered employee.
  • Covered employee becomes entitled to Medicare.
  • Divorce or legal separation of the spouse from the covered employee.
  • Death of the covered employee.

Who are Qualified Beneficiaries?

Any employee who was covered by your group health plan the day before a qualifying event is a qualified beneficiary. This also includes the employee’s spouse, former spouse or dependent children. The DOL also adds there are certain cases, including bankruptcy, where a retired employee, their spouse, former spouse and dependent children may be qualified beneficiaries. Any agents you work with, independent contractors and directors on your group health plan may also be beneficiaries.

What are COBRA Notices and Election Procedures?

If your group plan includes COBRA continuation coverage, you must provide your employees and their families notices explaining their COBRA rights. These notices should lay out the rules for COBRA continuation coverage, how your qualified employees can get on the plan and when it can be terminated. The DOL says you need to provide:

  • Summary Plan Description (SPD) that details, in writing, information about benefits, the rights of participants and beneficiaries and how the plan works.
  • COBRA General Notice provided within the first 90 days, which can be included in the SPD.
  • COBRA Qualifying Event Notice is given to your group health plan within 30 days of the qualifying event.
  • COBRA Election Notice needs to be given to qualified beneficiaries within 14 days of the plan administrator receiving notice that describes their rights to continuation coverage and how to make an election.

As far as election procedures go, your qualified employees have, at a minimum, 60 days to elect to have COBRA continuation coverage. Even if they do initially waive coverage, they can still change their mind and elect to have coverage as long as its still the election period, according to the DOL.

What benefits will employees receive?

According to the DOL, an employees’ COBRA benefits must be identical to what your current employee health plan offers for similar situations. So if you have a single employee that elects to have COBRA continuation coverage, that employee must receive the same benefits as a single employee under your current health plan, including the right to choose coverage options. COBRA coverage is also subject to the same rules and limits as your health care plan, like co-pays and deductibles.

How long does COBRA Continuation Coverage last?

COBRA coverage can last anywhere from 18 to 36 months beginning from the date of the qualifying event. The actual length of time varies on the type of qualifying event that occurred. For example, if an employee’s position is terminated or hours reduced, qualified beneficiaries must receive 18 months of coverage. In another instance, if the same employee became entitled to Medicare less than 18 months for being terminated, COBRA coverage can last until 36 months after the date the employee becomes entitled to Medicare.

Are there other circumstances for the maximum period of coverage?

Yes, according to the DOL, there are two circumstances which warrant an 18-month maximum extension of cobra administration.

  1. If one of the qualified beneficiaries is disabled. If a family member is disabled and meets requirements, all qualified beneficiaries are entitled to an 11-month extension.
  2. If a second qualifying event occurs. An 18-month extension is available if the second qualifying event includes the death of the covered employee, divorce or legal separation of the covered employee and spouse, Medicare entitlement or loss of dependent child status.

 

Who pays for COBRA continuation coverage?

Similar to your group health plan, your qualified employee pays for COBRA continuation coverage. Although, you as an employer can provide COBRA coverage at a reduced or no cost. If employees pay for COBRA, the amount cannot exceed 102% of what similar coverage costs under your current health plan. The DOL states, in calculating premiums for continuation coverage, a plan can include the costs paid by both the employee and the employer, plus an additional 2% for administrative costs.

Are there other federal benefit laws that coordinate with COBRA?

Yes. The Family Medical Leave Act (FMLA), the Affordable Care Act (ACA) and Trade Adjustment Assistance (TAA) programs all work with COBRA.

  • Employees taking leave under the FMLA can still be affected by a qualifying event and be eligible for COBRA continuation coverage. For example, if the employee decides not to return to work they can elect to have COBRA coverage.
  • The ACA additional protections extend to COBRA coverage including covering dependents up to age 26, prohibiting exclusions for pre-existing conditions and banning lifetime or annual dollar limits.
  • Certain TAA participants have a second opportunity to elect COBRA continuation coverage. For example, if an individual’s general election period runs out and he or she is eligible for TAA program allowances 61 days after separating from employment, at the beginning of the month, he or she would have 60 days or more to elect COBRA.

Which departments regulate COBRA?

Along with the DOL, COBRA continuation coverage laws fall under several agencies including the Department of the Treasury, the Department of Health and Human Services (HHS) and the Internal Revenue Service. According to the DOL, it and the Treasury have jurisdiction over private-sector group health plans. HHS administers the continuation coverage law as it applies to state and local government health plans. The Treasury Department defines the required continuation coverage and it, along with the IRS, has issued regulations on COBRA provisions relating to eligibility, coverage and payment. Both the DOL and Treasury share jurisdiction for enforcement of these provisions.

BirdDogHR, an Acoro company, offers benefit management solutions to help companies streamline benefit administration for all employees, including those on the way out. Our software makes it easy for employees to see when open enrollment is and what benefits they’re eligible for, including COBRA. Contact one of our customer success managers to learn how to optimize your benefits management system and open enrollment processes.