COBRA Continuation Coverage

Employees who lose coverage through an employer health may seek to utilize COBRA to extend that coverage. The Consolidated Omnibus Budget Reconciliation Act (COBRA), passed in 1986, is a law with health plan provisions that allows employees to continue health benefits after they leave employment or lose eligibility under the health plan. Whether or not COBRA applies to you and your employees depends on the size of your company. When COBRA does apply, it is important to be in tune with the details regarding eligibility, notice requirements, coverage duration, etc.

Employers Responsible under COBRA

COBRA applies to employers that offer group health plans and have had 20 or more employees on at least 50% of typical business days in the preceding calendar year. Not all benefits are subject to COBRA, but most standard health benefits are (including medical, dental, vision and health FSAs).

Some states may have laws similar to COBRA that require employers to extend continuation coverage to eligible members even if the employer is not responsible to offer continuation coverage under COBRA.

COBRA Enrollment Rules

Generally, COBRA must be offered any time an enrolled member is involuntarily terminated from their coverage. In most cases, this will be when an employee is terminated, when an employee changes to part-time status, or when a spouse or dependent is removed from employee coverage for no longer satisfying eligibility requirements. These COBRA eligible members are called COBRA beneficiaries.

Once eligible for COBRA, a series of deadlines begins for the employer and (if applicable) the COBRA administrator to communicate COBRA rights to the COBRA beneficiary.

If you need help determining whether or not COBRA applies to your health plan or meeting your responsibilities under COBRA, please contact us.

COBRA during Open Enrollment

It is important to note that each COBRA beneficiary has the same rights as an active employee, even if they were originally a spouse or dependent when enrolled on the group health coverage. This means that COBRA beneficiaries that enroll in COBRA coverage will also have enrollment rights during open enrollment on the group health plan. At that time, they may elect coverages that they previously waived, and may add and remove dependents as if they were an active employee.

Paying for COBRA Continuation Coverage

COBRA coverage is typically paid for by the terminated member. If desired, an employer may be able to pay for a member’s COBRA coverage, or for a portion of it.

The COBRA Continuation Coverage Period

Typically, COBRA continuation coverage lasts for 18 months. Certain circumstances may allow the COBRA period to extend to up to 36 months.

It is important to note that voluntary termination of COBRA coverage is not a qualifying event under the law and therefore not a qualifying event under most health plans unless there was a change in who was paying for the COBRA coverage (i.e. the member drops COBRA coverage because their previous employer stops paying for it).

Employer Responsibilities under COBRA

If COBRA applies to an employer, they have several responsibilities including the distribution of COBRA notices. Failure to provide notices or to provide COBRA at all can result in significant liability for an employer.

An Initial COBRA notice is to be provided to all members within 90 days of their initial enrollment in any COBRA eligible benefit. Once a member is terminated from coverage, the entity who knows of the event resulting in COBRA eligibility (typically the employer) must notify the COBRA administrator within 30 days. Once notified, the COBRA administrator must then send an election notice to each COBRA beneficiary within 14 days. The COBRA beneficiary then has 60 days to make a COBRA election.

Failure to provide these notices can increase employer COBRA liability by extending a period during which a COBRA beneficiary can elect COBRA coverage. Your health insurance carrier(s) would likely not allow this extended election period and the liability for coverage in that situation would therefore fall back on the employer. It is therefore important to provide these notices in a timely manner.

Administering COBRA

Lau & Lau Associates partners with several COBRA administrators to help employers meet their responsibilities under COBRA. Contact us for details.

Model notices are available online at the Department of Labor’s website. Lau & Lau Associates can assist in the customization of the notices, but a COBRA administrator will best be able to manage the notice requirements for an employer.

Additional Resources

The Employee Benefits Security Administration website

An Employer’s Guide to Group Health Continuation Coverage under COBRA from the Department of Labor

FAQs on COBRA Continuation Health Coverage from the Department of Labor

Lau & Lau Associates has many additional resources on COBRA and related topics. These include how COBRA interacts with FSAs, how COBRA interacts with Medicare and how COBRA applies during mergers and acquisitions. Please contact us with questions.