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Congress passed the landmark Consolidated
Omnibus Budget Reconciliation Act 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.
COBRA contains provisions giving 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.
Group health coverage for COBRA participants is usually more
expensive than health coverage for active employees, since
usually the employer pays a part of the premium for active
employees while COBRA participants generally pay the entire
premium themselves. It is ordinarily less expensive,
though, than individual health coverage.
Employers with 20 or more employees are
usually required to offer Federal COBRA coverage and to notify their
employees of the availability of such coverage. COBRA
applies to plans maintained by private-sector employers and
sponsored by most state and local governments. Some states, such
as Minnesota, have applied similar COBRA requirements on groups
smaller than 20 employees.
There are 3 elements to qualifying for COBRA
benefits. COBRA establishes specific criteria for plans,
qualified beneficiaries, and qualifying events:
Plan Coverage - 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 on 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.
Qualified Beneficiaries - A qualified
beneficiary generally is 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.
Qualifying Events - Qualifying events
are certain events that would cause an individual to lose health
coverage. The type of qualifying event will determine who
the qualified beneficiaries are and the amount of time that a
plan must offer the health coverage to them under COBRA. A
plan, at its discretion, may provide longer periods of
continuation coverage.
The qualifying events for employees are:
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:
Qualified beneficiaries must be offered
coverage identical to that available to similarly situated
beneficiaries who are not receiving COBRA coverage under the
plan (generally, the same coverage that the qualified
beneficiary had immediately before qualifying for continuation
coverage). A change in the benefits under the plan for the
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.
Beneficiaries may be required to pay for
COBRA coverage. The premium cannot exceed 102 percent of
the cost to 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 2 percent for administrative costs.
For qualified beneficiaries receiving the 11
month disability extension of coverage, the premium for those
additional months may be increased to 150 percent of the plan's
total cost of coverage.
COBRA premiums may be increased if the costs
to the plan increase but generally must be fixed in advance of
each 12-month premium cycle. The plan must allow qualified
beneficiaries to pay premiums on a monthly basis if they ask to
do so, and the plan may allow them to make payments at other
intervals (weekly or quarterly).
The initial premium payment must be made
within 45 days after 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.
Premiums for successive periods of coverage are due on the date
stated in the plan with a minimum 30-day grace period for
payments. Payment is considered to be made on the date it
is sent to the plan.
If premiums are not paid by the first day of
the period of coverage, the plan has the option to cancel
coverage until payment is received and then reinstate coverage
retroactively to the beginning of the period of coverage.
If the amount of the payment made to the plan
is made in error but is not significantly less than the amount
due, the plan is required to notify the qualified beneficiary of
the deficiency and grant a reasonable period (for this purpose,
30 days is considered reasonable) to pay the difference.
The plan is not obligated to send monthly premium notices.
COBRA beneficiaries remain subject to the
rules of the plan and therefore must satisfy all costs related
to co-payments and deductibles, and are subject to catastrophic
and other benefit limits.
COBRA continuation coverage laws are
administered by several agencies. The Departments of Labor
and Treasury have jurisdiction over private-sector health group
health plans. The Department of Health and Human Services
administers the continuation coverage law as it affects
public-sector health plans.
The Labor Department's interpretive and
regulatory responsibility is limited to the disclosure and
notification requirements of COBRA. If you need further
information about ERISA generally, write to the EBSA office
nearest where you live. Consult the U.S. Government, U.S.
Department of Labor listing in your telephone directory for the
office nearest you or call EBSA's Toll-Free Employee &
Employer Hotline number at: 1.866.444.EBSA (3272) and request a
list of EBSA offices, or write to:
U.S. Department of Labor
Employee Benefits Security Administration
Division of Technical Assistance and Inquiries
200 Constitution Avenue NW, Suite N-5619
Washington, DC 20210
The Internal Revenue Service, Department of
the Treasury, has issued regulations on COBRA provisions
relating to eligibility, coverage and premiums in 26 CFR Part
54, Continuation Coverage Requirements Applicable to Group
Health Plans. Both the Departments of Labor and Treasury
share jurisdiction for enforcement of these provisions.
COBRA administration is shared by three
federal agencies. The U.S. Department of Labor handles
questions about notification rights under COBRA for
private-sector employees. The Department of Health and
Human Services handles questions relating to state and local
government workers. The Internal Revenue Service,
Department of the Treasury, has other COBRA jurisdiction.
More details about COBRA coverage are
included in the booklet Health
Benefits under the Consolidated Omnibus Budget Reconciliation
Act. To request a copy, call EBSA's Toll-Free Employee
& Employer Hotline number at: 1.866.444.EBSA (3272).
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