Paper Trails

What is COBRA?

Federal and state regulations present ongoing challenges for employers. Depending on the number of employees, businesses must adhere to various mandates. In this article, we will explore a specific challenge related to federal legislation that employers face. Let’s delve into what COBRA entails and discover how employers can navigate it.

What is COBRA?

COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act of 1985, is a federal law that provides the option for certain employees and covered dependents to continue their group health coverage at their own expense. This continuation is available when their coverage would otherwise be terminated due to a qualifying event. By offering the opportunity to maintain their health insurance, COBRA ensures that individuals and their families have access to vital medical care during challenging times.

Qualifying events can include:

  • termination or reduction in hours
  • death of a covered employee
  • divorce or legal separation
  • Medicare entitlement
  • loss of dependent status

Generally, COBRA can be used for up to 18 months, and in some circumstances, up to 36 months.

Which businesses must comply with COBRA?

COBRA applies to the majority of group health plans sponsored by employers with 20 or more employees present on over 50% of their typical business days in the previous calendar year. However, COBRA does not apply to plans sponsored by the federal government, churches, or church-related organizations.

In terms of COBRA, group health plans encompass various benefits such as medical coverage, dental and vision plans, health flexible spending arrangements, health reimbursement arrangements, and other programs related to health benefits. It’s important to note that plans that solely provide life insurance or disability benefits are not covered by COBRA as they are not considered medical care. Additionally, certain voluntary benefit plans may be exempt from COBRA.

Which employees are eligible?

Every eligible recipient who undergoes a qualifying circumstance, as listed above, is entitled to the chance of choosing COBRA. An eligible recipient refers to an individual who is covered by a group health plan on the day before a qualifying event takes place, and who is either an employee, the employee’s spouse or former spouse, or the employee’s dependent child. Furthermore, any child who is born to or placed for adoption with a COBRA participant is automatically considered an eligible recipient as well.

What are mini-COBRA laws?

Similar to federal COBRA, mini-COBRA laws oblige group health plans to provide ongoing health coverage to individuals who would otherwise lose their coverage due to a qualifying event. However, mini-COBRA laws have a notable distinction – they are more inclusive in terms of who is eligible for coverage.

Unlike federal COBRA, which solely applies to employers with 20 or more employees, mini-COBRA laws typically extend their coverage to employers with fewer than 20 employees. In a few states, the threshold is set at 2-19 employees. Moreover, certain states mandate nearly all employers, regardless of size, to comply with mini-COBRA regulations. The duration of coverage varies depending on the state, ranging from as brief as 2 months to as long as 39 weeks, or even indefinitely if specific conditions are met by the employee.

Currently, 41 states have some sort of state mini-COBRA law.  Be sure to check with your state for its’ requirements.

Additional employer requirements

Although employers have the option to offer COBRA continuation coverage at a reduced or zero cost to their employees, they are not obligated to contribute towards the premium. In fact, businesses can require former employees or their dependents to bear the entire premium expense. However, the amount they pay cannot exceed the total cost of coverage plus a two percent administrative fee. Additionally, plans must allow a 45-day grace period after an individual elects coverage before requiring them to make any premium payments.

Employers also need to be aware of several notices that explain COBRA rights. One such notice is the qualifying event notice.  This entails informing the health plan when an employee becomes eligible for COBRA. Employers are only required to notify the plan in cases where they have terminated or reduced an employee’s hours, in the event of the employee’s demise, or when they become eligible for Medicare. In other situations, such as divorce, it becomes the responsibility of the employee or qualified beneficiary to notify the plan.

Once a qualifying event is known, the health plan has 14 days to provide beneficiaries with an election notice detailing how they can opt for coverage. Additionally, health plans must furnish the employee or spouse covered under the plan with a COBRA general notice within the first 90 days of coverage. The Department of Labor offers a model notice for this purpose. This general notice can be included in the Summary Plan Description, as long as it is provided within the specified timeframe.