COBRA (Continuation Coverage)
The Consolidated Omnibus Reconciliation Act (COBRA) of 1986 is the federal law that allows certain employees to continue their group health insurance when they would otherwise lose that coverage due to certain life changes called "qualifying events" (such as involuntarily losing a job). The Department of Labor(DOL) and the Department of Treasury (26 CFR 54.4980B et seq) share regulatory authority of the COBRA law.
An individual who is deemed eligible for COBRA must assume the full cost of the coverage (both the employer and the employee share) up to 102 percent (including a 2 percent administrative fee). If the individual has COBRA coverage extended due to a disability determination by the Social Security Administration, then he or she can be responsible for the full cost of the coverage up to 150 percent. COBRA coverage must be offered only on a temporary basis between 18 to 36 months depending on the qualifying event that makes the individual eligible for continuation coverage. Employers, however, may choose to offer the coverage for longer periods.
In 2009, the American Recovery and Reinvestment Act (the economic stimulus legislation) provided COBRA subsidies to help workers during the recession. For more information on that assistance, see Understanding COBRA Premium Assistance.
To determine who is eligible for COBRA, certain criteria must be met for plans, qualified beneficiaries, and qualifying events.
Plan- Group health plans sponsored by employers with 20 or more employees (full-time or part-time equivalent) on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA.
Includes:
- Plans of private employers
- Plans of public employers (local and state government)
Does Not Include:
- Church Plans
- Plans of the federal government
There are different federal agencies that oversee plan compliance with COBRA depending on the type of plan. Issues related to self-insured and fully-insured private employers should be directed to the DOL. Issues related to public (local and state government) employers should be directed to the Centers for Medicare and Medicaid Services.
Some states require small employers (less than 20 employees) to also provide continuation coverage. The state insurance department can provide information on any such state laws.
Qualified Beneficiary- An employee, an employee's spouse, or an employee's dependent child (including a child born to or placed for adoption during a period of COBRA) who is covered under the health plan on the day before a qualifying event (there is an exception when divorce is the qualifying event) or the circumstance that makes them eligible for COBRA.
Qualifying Event- A circumstance specifically identified in the COBRA law or regulations that causes a qualified beneficiary to lose coverage. The applicability of qualifying events depends on the qualified beneficiary who is being affected. A qualifying event is limited to those listed below.
- Voluntary or involuntary termination of employment for reasons other than gross misconduct
- Reduction in hours of employment
- Entitlement to Medicare for covered employee
- Divorce of legal separation of covered employee
- Death of the covered employee
- Loss of "dependent child" status under the plan rules
COBRA requires employers of group health plans to provide new plan participants with a general notice of their COBRA rights and responsibilities. This notice can be provided independently or it can be included in the plan's summary plan description (SPD).
The IRS provides a publication to help consumers decide whether to elect COBRA after the enactment of HIPAA.
Publications on the New COBRA Notice Rules
On May 26th, 2004, final COBRA rules were published in the Federal Register setting minimum standards for timing and content of the notices required under the continuation coverage provisions of part 6 of title I of ERISA. The rules establish a uniform process for issuing notices between employers, employees and qualified beneficiaries, and plan administrators. These rules are important as they affect around 411,000 group health plans which cover about 111 million participants and their dependents. The final rules are expected to improve administrative efficiency among employers and plan administrators and reduce avoidable losses of group health plan coverage suffered by qualified beneficiaries.
All notice obligations pursuant to continuation coverage provisions that arise on or after the first day of the first plan year beginning on or after November 26, 2004 must comply with the final rules. This means that depending on the group's plan year, notices may continue as they have under the proposed COBRA rules published on May 28, 2003 for an additional 18 months from publication.
Did you know that if a plan fails to fulfill its obligation to notify consumers of their COBRA rights, the plan may be subject to a daily penalty of $110 that could be paid directly to the consumer? A consumer or health assistance program should report these complaints to their Regional US Department of Labor Offices.
Government Publications on COBRA
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