In general, COBRA allows employees (and their dependents) who would otherwise lose their group health coverage due to certain life events to continue their same group health coverage. These events include termination or reduction in hours, death of a covered employee, divorce or legal separation, Medicare entitlement and loss of dependent status. COBRA generally lasts for 18 months but, in some cases, can last up to 36 months.1 https://www.dol.gov/newsroom/releases/ebsa/ebsa20200501
Health coverage is one of the most important benefits that employers can provide, with advantages for employees, their families, employers, and society as a whole. Employers that sponsor group health plans enable their employees and their families to take care of their essential medical needs, ensuring that they can devote their energies to productive work.
Most employer-sponsored group health plans must comply with the Employee Retirement Income Security Act (ERISA), which sets standards to protect employee benefits. One of the protections contained in ERISA is the right to COBRA continuation coverage, a temporary continuation of group health coverage that would otherwise be lost due to certain life events.
What Is COBRA Continuation Coverage?
COBRA – the Consolidated Omnibus Budget Reconciliation Act – requires group health plans to offer continuation coverage to covered employees, former employees, spouses, former spouses, and dependent children when group health coverage would otherwise be lost due to certain events. Those events include:
- A covered employee’s death,
- A covered employee’s job loss or reduction in hours for reasons other than gross misconduct,
- A covered employee’s becoming entitled to Medicare,
- A covered employee’s divorce or legal separation, and
- A child’s loss of dependent status (and therefore coverage) under the plan.
COBRA sets rules for how and when plan sponsors must offer and provide continuation coverage, how employees and their families may elect continuation coverage, and what circumstances justify terminating continuation coverage.
Employers may require individuals to pay for COBRA continuation coverage. Premiums cannot exceed the full cost of the coverage, plus a 2 percent administration charge. (continues below)
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Group Health Plans Subject to COBRA
COBRA generally applies to all private-sector group health plans maintained by employers that had at least 20 employees on more than 50 percent of its typical business days in the previous calendar year. 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 a full-time employee, with the fraction equal to the number of hours worked divided by the hours an employee must work to be considered full time. For example, if full-time employees at Company A work 40 hours per week, a part-time employee who works 20 hours per week counts as half of a full-time employee, and a part-time worker who works 16 hours per week counts as four-tenths of a full-time employee.
COBRA also applies to plans sponsored by state and local governments. The law does not apply, however, to plans sponsored by the federal government or by churches and certain church-related organizations.
COBRA-covered group health plans that are sponsored by private-sector employers are generally considered welfare plans under ERISA and therefore subject to ERISA’s other requirements. Under ERISA, group health plans must be administered by a plan administrator, who is usually named in the plan documents. Many group health plans are administered by the employer that sponsors the plan, but group health plans are also frequently administered, in whole or in part, by a separate individual or organization, such as a professional benefits administration firm. Carrying out the requirements of COBRA is the direct responsibility of the plan administrator, who is many instances is the employer.
Alternatives to COBRA Continuation Coverage
Those entitled to elect COBRA continuation coverage may have more affordable or generous alternatives for coverage. One option may be “special enrollment” in other group health coverage. Under the Health Insurance Portability and Accountability Act (HIPAA), upon certain events, group health plans and health insurance issuers are required to provide a special enrollment period. During that period, individuals who previously declined coverage for themselves and their dependents, and who are otherwise eligible, may enroll without waiting until the next open season for enrollment. One event that triggers special enrollment is an employee or dependent losing eligibility for other health coverage. For example, an employee who loses group health coverage may be able to special enroll in a spouse’s health plan. The employee or dependent must request special enrollment within 30 days of losing other coverage.
Losing employment-based health coverage also gives the employee an opportunity to enroll in the Health Insurance Marketplace in their state of residence. The Marketplace allows individuals and small businesses to find and compare private health insurance options. Through the Marketplace, individuals may qualify for cost-sharing reductions and a tax credit that lowers monthly premiums. Being offered COBRA continuation coverage does not limit eligibility for coverage or for a tax credit through the Marketplace. The employee or dependent must select Marketplace coverage within 60 days before or after the loss of other coverage or they will have to wait until the next open enrollment period.
Through the Marketplace, individuals also can determine whether they or their dependents qualify for free or low-cost coverage from Medicaid or the Children’s Health Insurance Program (CHIP). Eligible individuals can apply for and enroll in Medicaid and CHIP at any time. For more information about the Marketplace, including information about Medicaid or CHIP eligibility, visit HealthCare.gov (https://www.healthcare.gov).
If an employee or dependent chooses to elect COBRA, the employee or dependent can request special enrollment in another group health plan or the Marketplace once COBRA is exhausted. In order to exhaust COBRA coverage, the individual must receive the maximum period of COBRA coverage available without early termination. An individual must request special enrollment:
- Within 30 days of losing COBRA coverage, for coverage through another group health plan, or
- Within 60 days before or after losing COBRA coverage, for coverage through a Marketplace plan.
If an employee or dependent chooses to terminate COBRA coverage early with no special enrollment opportunity at that time, they will have to wait until the next open enrollment period to enroll in other coverage through another group health plan or the Marketplace.
Who Is Entitled to Continuation Coverage?
A group health plan must offer COBRA continuation coverage only to qualified beneficiaries and only after a qualifying event has occurred.
A "qualified beneficiary" is an employee who was covered by a group health plan on the day before a qualifying event occurred or that employee’s spouse, former spouse, or dependent child.
“Qualifying events” are events that cause an individual to lose group health coverage. The type of qualifying event determines who the qualified beneficiaries are and the length of time that a plan must offer continuation coverage. COBRA establishes only the minimum requirements for continuation coverage. A plan may always choose to provide longer periods of continuation coverage and/or to contribute toward the cost.
The following are qualifying events for a covered employee if they cause the covered employee to lose coverage:
- Termination of the covered employee’s employment for any reason other than “gross misconduct,” or
- Reduction in the covered employee’s hours of employment.
The following are qualifying events for a spouse and dependent child of a covered employee if they cause the spouse or dependent child to lose coverage:
- 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 from the covered employee, or
- Death of the covered employee.
In addition to the above, the following is a qualifying event for a dependent child of a covered employee if it causes the child to lose coverage:
- Loss of “dependent child” status under the plan rules. Under the Affordable Care Act, plans that offer coverage to children on their parents’ plan must make coverage available until the child reaches the age of 26.
COBRA Notice and Election Procedures
Under COBRA, group health plans must provide covered employees and their families with specific notices explaining their COBRA rights. Plans must also have rules for how COBRA continuation coverage is offered, how qualified beneficiaries may elect continuation coverage, and when it can be terminated.
Summary Plan Description
The COBRA rights provided under the plan, like other important plan information, must be described in the plan’s Summary Plan Description. The Summary Plan Description is a written document that gives important information about the plan, including what benefits are available under the plan, the rights of participants and beneficiaries under the plan, and how the plan works.
COBRA General Notice
Group health plans must give each employee and spouse a general notice describing COBRA rights within the first 90 days of coverage. Group health plans can satisfy this requirement by including the general notice in the plan’s summary plan description and giving it to the employee and spouse within this time limit. The general notice must include:
- The name of the plan and the name, address, and telephone number of someone the employee and spouse can contact for more information on COBRA and the plan;
- A general description of the continuation coverage provided under the plan;
- An explanation of what qualified beneficiaries must do to notify the plan of qualifying events or disabilities;
- An explanation of the importance of keeping the plan administrator informed of addresses of the participants and beneficiaries; and
- A statement that the general notice does not fully describe COBRA or the plan and that more complete information is available from the plan administrator and in the summary plan description.
COBRA Qualifying Event Notice
A group health plan must offer continuation coverage if a qualifying event occurs. The employer, employee or beneficiary must notify the group health plan of the qualifying event, and the plan is not required to act until it receives an appropriate notice. Who must give notice depends on the type of qualifying event.
The employer must notify the plan if the qualifying event is:
- Termination or reduction in hours of employment of the covered employee,
- Death of the covered employee,
- Covered employee becoming entitled to Medicare, or
- Employer bankruptcy.
The employer must notify the plan within 30 days after the event occurs. The covered employee or one of the qualified beneficiaries must notify the plan if the qualifying event is:
- Legal separation, or
- A child’s loss of dependent status under the plan.
Group health plans must have procedures for how the covered employee or qualified beneficiaries can provide notice of these types of qualifying events. The plan can set a time limit for providing this notice, but the time limit cannot be shorter than 60 days, starting from the latest of:
- The date the qualifying event occurs,
- The date the qualified beneficiary loses (or would lose) coverage under the plan as a result of the qualifying event, or
- The date the qualified beneficiary is informed, through the furnishing of either the summary plan description or the COBRA general notice, of the responsibility to notify the plan and the procedures for doing so.
The procedures must describe how, and to whom, notice should be given, and what information must be included in the qualifying event notice. If one person gives notice of a qualifying event, the notice covers all qualified beneficiaries affected by that event.
COBRA Election Notice
After receiving a notice of a qualifying event, the plan must provide the qualified beneficiaries with an election notice within 14 days. The election notice describes their rights to continuation coverage and how to make an election.
COBRA Notice of Unavailability of Continuation Coverage
Group health plans may sometimes deny a request for continuation coverage or for an extension of continuation coverage, when the plan determines the requester is not entitled to receive it.
COBRA Notice of Early Termination of Continuation Coverage
Continuation coverage must generally be available for a maximum period (18, 29, or 36 months).
COBRA requires group health plans to give qualified beneficiaries an election period to decide whether to elect continuation coverage, and COBRA also gives qualified beneficiaries specific election rights. Plans must give each qualified beneficiary a 60-day enrollment period to decide on COBRA coverage. Each qualified beneficiary has an independent right to elect continuation coverage. If qualified beneficiaries waive continuation coverage during the election period, they must be permitted to later revoke the waiver of coverage and elect continuation coverage, if they do so before the election period ends.
Benefits under Continuation Coverage
COBRA also sets standards for the continuation coverage that plans must provide. The continuation coverage must be identical to the coverage currently available under the plan to similarly situated individuals who are not receiving continuation coverage. Generally, this is the same coverage that the qualified beneficiary had immediately before the qualifying event.
Duration of Continuation Coverage
COBRA requires that continuation coverage extend from the date of the qualifying event for a limited period of 18 or 36 months. The length of time for which continuation coverage must be made available (the “maximum period” of continuation coverage) depends on the type of qualifying event. A plan, however, may provide longer periods of coverage beyond the maximum period required by law.
A group health plan may terminate continuation coverage earlier than the end of the maximum period for any of the following reasons:
- Premiums are not paid in full on a timely basis,
- The employer ceases to maintain any group health plan,
- A qualified beneficiary begins coverage under another group health plan after electing continuation coverage,
- A qualified beneficiary becomes entitled to Medicare benefits after electing continuation coverage, or
- A qualified beneficiary engages in fraud or other conduct that would justify terminating coverage of a similarly situated participant or beneficiary not receiving continuation coverage.
Extension of an 18-month Period of Continuation Coverage
There are two circumstances under which individuals entitled to an 18-month maximum period of continuation coverage can become entitled to an extension of that maximum. The first is when one of the qualified beneficiaries is disabled; the second is when a second qualifying event occurs.
Summary of Qualifying Events, Qualified Beneficiaries, and Maximum Periods of Continuation Coverage
Note that an event is a qualifying event only if it causes the qualified beneficiary to lose coverage under the plan.
Paying for Continuation Coverage
Group health plans can require qualified beneficiaries to pay for COBRA continuation coverage, although plans can choose to provide continuation coverage at reduced or no cost. The maximum amount charged to qualified beneficiaries cannot exceed 102 percent of the cost to the plan for similarly situated individuals covered under the plan who have not incurred a qualifying event.
Health Coverage Tax Credit
Certain individuals may be eligible for a Federal income tax credit that can help with qualified monthly premium payments. The Health Coverage Tax Credit (HCTC), a Federal tax credit administered by the IRS, while available, is a refundable tax credit to pay for specified types of health insurance coverage (including COBRA continuation coverage). The HCTC has been extended for all coverage for months beginning in 2021 through December 31, 2021. This means eligible individuals can receive a tax credit to offset the cost of their monthly health insurance premiums for 2021 if they have qualified health coverage for the HCTC. A health plan offered through the Health Insurance Marketplace is not qualified coverage for the HCTC. Individuals with questions about the health coverage tax credit should visit IRS.gov/credits-deductions/individuals/hctc. (https://www.irs.gov/credits-deductions/individuals/hctc)
Coordination with Other Federal Benefit Laws
The Family and Medical Leave Act (FMLA) requires employers to maintain coverage under any “group health plan” for employees on Family and Medical Leave Act leave under the same conditions coverage would have been provided if the employee had continued working. Group health coverage that is provided under the Family and Medical Leave Act during a family or medical leave is not COBRA continuation coverage and taking leave under the Act is not a qualifying event under COBRA. A COBRA qualifying event may occur, however, when an employer’s obligation to maintain health benefits under the Family and Medical Leave Act ceases, such as when an employee taking Family and Medical Leave Act leave decides not to return to work and notifies an employer of his or her intent.
The Affordable Care Act provides additional protections for coverage under an employment-based group health plan, including COBRA continuation coverage. These protections include:
- Extending dependent child coverage to age 26,
- Prohibiting limits or exclusions from coverage for preexisting conditions,
- Banning lifetime or annual dollar limits on coverage for essential health benefits, and
- Requiring group health plans and insurers to provide an easy-to-understand summary of a health plan’s benefits and coverage.
If you need further information about COBRA, the Affordable Care Act, HIPAA, or ERISA, visit dol. gov/agencies/ebsa. Or contact the Employee Benefits Security Administration at askebsa.dol.gov or call toll free 1-866-444-3272.
The Centers for Medicare and Medicaid Services offer information about COBRA provisions for public-sector employees. To find out more, visit cms.gov or contact the agency via email at email@example.com or by calling toll free at 1-877-267-2323, ext. 6-1565.
Federal employees are covered by a federal law similar to COBRA. Those employees should contact the personnel office serving their agency for more information on temporary extensions of health benefits.
For more information on the Affordable Care Act, visit HealthCare.gov. Further information on the Family and Medical Leave Act is available at dol.gov/whd or by calling toll free 1-866-487-9243.
1 U.S Dept of Labor - https://www.dol.gov/newsroom/releases/ebsa/ebsa20200501
- U.S. Department of Labor Employee Benefits Security Administration
-United States Department of Labor
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