Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA)
COBRA
Health Care Continuation Coverage
OVERVIEW
Most employers with group health plans are required to offer employees the
opportunity to continue temporarily their group health care coverage under their
employer's plan if their coverage otherwise would cease due to a termination,
layoff, or other change in employment status (referred to as "qualifying
events"). These "COBRA" health care continuation requirements, so
called because they were enacted as part of the Consolidated Omnibus Budget
Reconciliation Act of 1985, generally entitle certain "qualified
beneficiaries" (as well as covered spouses and dependents) to extend (at
their own expense) their employer-provided health care coverage for a period of:
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Up
to 18 months for covered employees, as well as their spouses and
dependents, when workers otherwise would lose coverage because of a
termination or reduction of hours;
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Up
to 36 months for spouses and dependents facing a loss of
employer-provided coverage due to an employee's death, a divorce or
legal separation, or certain other "qualifying events."
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The range of employers affected by COBRA is very broad, with exemptions
available only for employers that normally employ fewer than 20 workers, church
plans, and plans maintained by the U.S. government. Although employers are
permitted to charge COBRA beneficiaries a premium for continuation coverage of
up to 102 percent of the cost of the coverage to the plan (150 percent in the
case of certain disabled employees), the 2 percent "mark up" usually
does not cover the full cost of administering COBRA.
Employers that violate the COBRA requirements are subject to an excise tax of
$100 per affected employee for each day that the violation continues. In
addition, plan administrators who fail to provide required COBRA notices to
employees may be personally liable for a civil penalty of up to $100 a day for
each day the notice is not provided.
COBRA is one of the more administratively complex pieces of legislation in the
employee benefits area. This complexity is underscored by the fact that COBRA
has been subject to numerous legislative changes that have outdated parts of the
proposed regulations originally issued by IRS in 1987.
These modifications to COBRA's requirements are noted in this chapter, as well
as in a checklist of legislative changes that appears at the end of this
chapter. Most recently, Congress enacted the of 1996 (PL 104- 191). Effective
Jan. 1, 1997, HIPAA:
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Expanded
the definition of "qualified beneficiary" to include a child who
is born or adopted by the covered employee during the period of
continuation coverage;
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Clarified
that an additional 11 months of COBRA coverage (up to 29 months) is
available to employees who are disabled at any time during the first 60
days of COBRA coverage and applies as well to the disabled employee's
non-disabled qualified beneficiaries; and
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Limits
COBRA coverage for pre-existing condition exclusions, where other HIPAA
rules on portability have eliminated those exclusions.
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For a copy of a COBRA notice that may be sent to employees and qualified
beneficiaries upon a qualifying event, see the sample policy (updated for HIPAA)
Sample COBRA Notice To Employees and Qualified Beneficiaries.
GENERAL
PRINCIPLES
In General
COBRA requires an employer to offer employees and their dependents the
opportunity to continue their group health coverage under the employer's plan
upon the occurrence of certain events that otherwise would cause them to lose
their employment- related health plan coverage. Important terms used for COBRA
administration purposes include:
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"Qualifying
event," which refers to the specific events, such as, an employee's
termination, layoff, or death, that would cause a loss of employer-
provided coverage and thus trigger the coverage-continuation option. §4980B(g)(3),
Prop. Treas. Regs. § 1.162-26, Q/A- 18 to Q/A-21.)
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"Qualified
beneficiary," which is used to refer to an employee or a worker's
spouse or dependent who is or was covered under the employer-provided
health plan and has experienced a qualifying event. (§4980B(g)(3))
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Note: The Health Insurance Portability and Accountability Act of 1996
modified the definition of a qualified beneficiary in (§4980B(g)(1) ) to
include a child who is born to or placed for adoption with the covered employee
during the period of continuation coverage. This rule is effective on Jan. 1,
1997, regardless of whether the qualifying event occurred before, on, or after
that date. In addition, HIPAA clarified that extended coverage of 11 additional
months available to disabled employees also is available to the non-disabled
family members of an employee.
COBRA imposes a host of rules governing the obligations and duties of both
employers and qualified beneficiaries involved in coverage-continuation
situations. Specific rules under COBRA, for example, address such issues as the
length of the required coverage period, notification requirements for employers
and plan administrators, procedures for electing continuation coverage, premiums
the employer may require beneficiaries to pay, and the circumstances under which
an employer may terminate COBRA coverage short of the full continuation period.
How COBRA Rights Are Triggered
An employer's obligation to offer COBRA coverage is triggered by the occurrence
of a qualifying event. Specifically, COBRA recognizes a qualifying event as a
loss of employer-provided health coverage due to one of the following reasons:
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The
death of a covered employee;
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The
employee's change in employment status- such as the employee's
termination or reduction in working hours;
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Divorce
or legal separation of the employee;
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The
employee's entitlement to Medicare;
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A
dependent child's loss of eligibility under the plan; or
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Bankruptcy
of the employer. IRC Section 4980B(f)(3))
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An employee called to military duty also has COBRA continuation rights,
according to the Internal Revenue Service. In Notice 90-58 , the IRS has ruled
that the termination of health coverage arising from an employee's being called
to active military duty triggers an employer's obligation to offer health care
continuation coverage, unless the employer continues normal coverage while the
employee is on military leave.
The of
1994 also requires COBRA continuation coverage in some circumstances. (USERRA
Section 4317(a))
Coverage Periods: Basic Rules
The normal COBRA coverage continuation period is either 18 or 36 months under
section 4980B(f)(3). However, special coverage periods are available to
qualified beneficiaries who:
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Are
disabled at the time of a qualifying event (or are disabled within the
first 60 days of COBRA coverage, effective Jan. 1, 1997); or
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Are
retirees (or are a retiree's widow or widower) and would lose their
health plan coverage due to the bankruptcy of the sponsoring employer.
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An 18-month period of continuation coverage is available to covered employees
and their spouses and dependents in cases where coverage is lost due to the
employee's termination or reduction of hours. A special 29-month period of
coverage - the basic 18-month period of continuation coverage, plus an
additional 11 months - is available for beneficiaries who are disabled at the
time of the qualifying event.
Effective on Jan. 1, 1997, the extended coverage is available if the disability
exists at any time during the first 60 days of COBRA coverage, rather than at
the time of the qualifying event. In addition, the 29-month coverage period also
applies to the non-disabled qualified beneficiary of the covered employee. (IRC
Section 4980B(f)(2))
EMPLOYERS AND PLANS AFFECTED BY COBRA
In General
COBRA applies to any employer that employed 20 or more employees on a typical
business day during the preceding calendar year. However, churches and the
federal government are exempt from COBRA. (IRC Section 4980B(d))
Group health plans maintained by state governments and their political
subdivisions must comply with COBRA if the state receives funds under the Public
Health Service Act. This is because the COBRA law not only amended the Employee
Retirement Income Security Act (from which government plans are exempt), but
also added parallel requirements to the Public Health Service Act. Since all
states receive PHSA funds, the COBRA requirements extend to virtually all state
and local employers, except those that qualify for the small employer exemption.
Small Employer Exemption
Small employers that normally employ fewer than 20 employees are exempt from
COBRA. An employer is considered as "normally" employing fewer than 20
employees if it had fewer than 20 employees on at least 50 percent of its
working days during the preceding calendar year.
For purposes of applying the 20-employee limit, the employer must count agents,
independent contractors, and corporate directors if such individuals are
eligible to participate in a group health plan maintained by the employer.
Part-time employees must be counted as employees regardless of the number of
hours they work.
When an employer increases its work force to where it normally employs 20 or
more employees, the plan becomes fully subject to COBRA beginning with the next
calendar year. If an employer's work force drops below 20 employees, employees
remain eligible for COBRA coverage during the calendar year following the year
in which the employer had at least 20 employees.
Plans maintained jointly by several small employers remain eligible for the
small-employer exemption as long as each participating employer normally employs
fewer than 20 employees. However, where one or more of such employers exceeds
the 19-employee limitation, the whole plan becomes subject to COBRA in the next
calendar year. A special rule allows such a plan to retain its exempt status if
any employers that exceed the 19-employee limit withdraw from the plan prior to
February 1 of the year following the year in which the limit was exceeded.
Types of Plans Affected
The coverage continuation rules apply to any type of employer-provided group
health plan, whether insured or self-insured, funded or unfunded. A health plan
is deemed to be "employer-provided" if the coverage under the plan
would not be available at the same cost to employees or independent contractors
if such individuals did not perform services for the plan sponsor. The COBRA
rules do not apply to group health plans that cover only qualified long-term
care services (as defined in tax code Section 7702B(b)) or medical savings
accounts. (IRC Section 4980B(g)(2))
Under the COBRA rules, a health plan is any type of plan maintained by an
employer to provide medical care to employees, former employees, or the families
of such employees or former employees. A health plan may include health benefits
or reimbursements provided through a cafeteria or flexible benefit plan, as well
as health and medical services provided through a health maintenance
organization (HMO) or preferred provider organization (PPO). In addition, the
COBRA rules generally treat drug or alcohol treatment programs as health plans.
Health care flexible spending accounts, also known as health care "FSAs,"
qualify as group health plans under the COBRA rules, although employees
generally would not have any incentive to elect continuation coverage under an
FSA. This is because FSAs usually are funded through pre-tax deductions from an
employee's salary. Since employers are permitted to charge COBRA beneficiaries a
2- percent markup over their regular plan contributions, employees electing an
FSA as their COBRA plan essentially end up paying $1.02 for each $1.00 of
coverage.
COBRA provides no special exemption for collectively-bargained plans. However,
union-sponsored plans under which employees pay all the costs of their coverage
are exempt from COBRA coverage continuation requirements.
Not Treated as Health Plans
Arrangements not treated as health plans under the COBRA rules include the
following:
On-site medical facilities, which are not treated as covered plans under the
following conditions: (1) the medical care (primarily first aid) provided by
such facilities occurs during the employer's working hours for the treatment of
health conditions, illnesses, or injuries that occur during those hours; (2) the
medical care is available only to the employer's current employees; and (3)
employees are not charged for the use of the facility.
Discount programs for merchandise, such as drugs or eyeglasses, generally are
not affected by COBRA. These programs are not treated as medical plans as long
as they are accessible to and used by employees without regard to health needs.
Exercise or fitness facilities normally accessible to and used by employees for
reasons other than relief of health or medical problems do not constitute
medical care and are not affected by COBRA.
QUALIFIED
BENEFICIARIES AND QUALIFYING EVENTS
Who Is a "Qualified Beneficiary?"
A "qualified beneficiary" is defined as any individual who, on the day
before a qualifying event, is covered under an employer's group health plan by
virtue of being either:
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The
spouse of a covered employee; or
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The
dependent child of a covered employee. (Section 4980B(g)(1))
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COBRA defines a "covered employee" as an individual who is or was
covered under a group health plan as a result of having performed services for
one or more persons maintaining the plan. Although COBRA continuation coverage
rights generally arise out of an employment relationship, COBRA's definition of
"covered employee" is designed to be sufficiently broad so that
independent contractors, partners, and other non employees may have continuation
coverage rights if they are covered by a plan as a result of services performed
for the plan sponsor. (Section 4980B(g)(1))
Dependents acquired by a COBRA beneficiary during a period of continuation
coverage, such as a spouse who marries a qualified beneficiary after he or she
has already started to receive continuation coverage, must be permitted to elect
coverage for the remaining period of the qualified beneficiary's coverage
period, if a such a health care election is permitted for the acquired
dependents of active employees.
Generally, a dependent acquired after a qualifying event would not gain
status as a "qualified beneficiary." For example, if a qualified
beneficiary acquires a spouse who signs up for the COBRA coverage provided that
beneficiary, the spouse would not have COBRA rights if the covered employee were
to die during the continuation coverage period. However, effective Jan. 1, 1997,
HIPAA expanded the definition of qualified beneficiary to include a child who is
born or adopted by the covered employee during the period of continuation
coverage.
What Is a "Qualifying Event?"
COBRA privileges arise whenever there is a "qualifying event." A
qualifying event is one of a number of events that causes a loss of
employer-sponsored health care coverage. A loss of coverage does not have to be
a complete loss of coverage to trigger a qualified beneficiary's COBRA rights.
For example, a retiring employee may be offered continued employer-sponsored
coverage, but under a plan that provides somewhat different coverage than that
provided to active employees. Even though some type of coverage is offered to
the retiring employee, COBRA election rights would be triggered since the
employee lost the original coverage as a result of his or her retirement.
The specific events for which workers or their dependents are entitled to COBRA
continuation coverage are:
Death of the employee - When employees who are covered under their
employer's health care plan die, their spouse and dependents who would lose
their health plan coverage as a result of the worker's death have the right
under COBRA to elect to continue their coverage under the employer's plan.
Termination of employment-Employees and other qualified beneficiaries are
entitled to elect COBRA continuation coverage upon a loss of coverage resulting
from an employee's termination of employment, unless such termination occurs as
a result of "gross misconduct". Qualified beneficiaries retain their
COBRA election rights whether they are discharged or terminate voluntarily.
Except for cases of gross misconduct, the particular facts surrounding a
termination or reduction of hours are irrelevant. Therefore, strikes, walkouts,
and layoffs are all qualifying events if they result in a loss of coverage under
an employer's plan. Retirement also constitutes a qualifying event if an
employer's plan ceases coverage at that time.
Reduction of employment- The COBRA rules treat a loss of coverage caused
by a reduction in working hours the same as a coverage loss due to termination
of employment. COBRA continuation rights convey to employees and other qualified
beneficiaries whenever employees would lose coverage because their work hours
are reduced below the level required for coverage under the plan, regardless of
whether the hours reduction is voluntary (i.e., requested or sought by the
employee) or mandated by the employer.
Employee's divorce or legal separation- The spouse of a covered employee
who loses cover age under an employer's health plan as a result of divorce or
legal separation is entitled to elect COBRA continuation coverage under the
employer's plan. Dependent children who lose coverage because of a divorce or
legal separation also are entitled to make elections for COBRA coverage. The
covered employee or spouse is responsible for notifying the employer or plan
administrator of the occurrence of the divorce or legal separation.
Employee's entitlement to Medicare- The spouse and dependents of a former
employee are eligible to elect up to 36 months of COBRA coverage if they lose
coverage as a result of the employee becoming entitled to Medicare. Individuals
generally become eligible for Medicare benefits at age 65, but become
"entitled" to Medicare benefits only after they enroll in the program.
(Keep in mind that employers are prohibited by the Social Security Act and the
Age Discrimination in Employment Act from forcing active employees to enroll in
Medicare, even if those employees are age 65 and over. However, employers may
include provisions in their health plans that terminate the coverage of retirees
upon their entitlement to Medicare. Such a loss of coverage would not give the
retiree any rights to elect COBRA coverage, but would trigger COBRA rights for
the retiree's spouse and dependents if they lose their coverage.)
Loss of dependent child status- Group health care plans typically specify
an age at which an employee's child loses eligibility as a child dependent under
the plan. The COBRA rules allow dependents to elect continuation coverage upon
such a loss of eligibility under the plan.
Bankruptcy of the employer- When retirees (or their widows or widowers)
experience a loss of health plan coverage because the employer sponsoring the
plan files for bankruptcy under Chapter 11 of the Federal Bankruptcy Code, the
employer is responsible for providing COBRA coverage for such individuals and
their covered spouses or dependents. A loss of health plan coverage is treated
as a loss of coverage due to bankruptcy if the health plan beneficiaries lose
their coverage during the period one year before or one year after the
sponsoring employer files for bankruptcy.
Upon a loss of health plan coverage due to bankruptcy, an employer must provide
continuation coverage until the earlier of: (1) the death of the retiree (or
widow/widower); (2) the coverage of the beneficiary under another plan; (3) or
the failure of the beneficiary to pay the required COBRA premium. The
continuation coverage period does not end when the beneficiary becomes entitled
to Medicare. In addition, where the death of the retiree or widow/ widower would
cause coverage to cease for a surviving spouse and/or dependents, the spouse and
dependents may elect to remain covered for up to 36 months after the retiree's
or widow/widower's death.
Military leave- Employers cannot deny those who serve in the armed forces
any benefit of employment on the basis of that service, under Section 4317 of
the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA).
Individuals who serve in the uniformed service are treated as being on a leave
of absence from their employers. Benefits offered to employees on leave must
also be offered to employees serving in the uniformed service.
If employees and their dependents have health plan coverage, and they are absent
from employment due to military service, they may elect to continue coverage on
a COBRA-like basis. The maximum period of coverage they may elect will be the
lesser of the 18-month period beginning on the date on which the absence began;
or the day after the date on which the person fails to apply for or return to
work.
For leaves of 31 days or longer, individuals in military service would pay 102
percent of the premium. However for leaves shorter than 31 days, individuals are
not required to pay more than the employee share, if any. For more information,
see separate chapter Military Leave
"Gross Misconduct" Exception
COBRA Section 4980B(f)(3)(B) permits employers to deny continuation coverage to
employees who are terminated for gross misconduct. However, neither the law nor
IRS' proposed regulations specifically define what constitutes "gross
misconduct". Moreover, the IRS has indicated that it will not issue private
rulings on what constitutes gross misconduct.
In view of COBRA's stiff penalties and the absence of any legal definition or
guidelines on what constitutes "gross conduct," employers are
well-advised to apply COBRA's gross-misconduct exception only in very clear-cut
cases of egregious or outrageous misconduct. According to legislators who worked
closely with the statute, the "gross misconduct" exception was
intended for use in only extreme cases of employee misconduct.
In one unpublished case involving COBRA's gross misconduct exception, a federal
district court turned for guidance to the definition of "gross
misconduct" used under California unemployment insurance law. Under that
definition, the court noted, "gross misconduct" is conduct
characterized by:
Willful or wanton disregard of an employer's interests;
Deliberate violations or disregard of standards of behavior that an employer has
the right to expect of an employee;
Carelessness or negligence of such degree or recurrence as to indicate an
"evil design" or wrongful intent on the part of the employee.
On the other hand, the court pointed out, the gross misconduct standard did not
extend to such actions as "mere inefficiency, unsatisfactory conduct,
failure in good performance as a result of inability, incapacity, inadvertencies
or ordinary negligence in isolated instances, or good faith errors in judgment
or discretion." ( Paris v. F. Korbel & Brothers, 12 EBC 2489.)
Multiple Qualifying Events
COBRA section 4980B(f)(2)(B)(i)(II) provides that qualified beneficiaries
entitled to 18 months of COBRA continuation coverage due to a covered employee's
termination or reduction in hours can extend the length of their coverage period
if a second qualifying event occurs during the initial 18 month period. The
extension generally cannot exceed 36 months from the date of the first
qualifying event and applies to individuals who were qualified beneficiaries
under the plan as of the first qualifying event and who were covered under the
plan at the time of the second qualifying event.
An exception to the general rule governing multiple qualifying events applies in
cases where employees become entitled to Medicare prior to the expiration of an
existing period of continuation coverage that was triggered by a change in
employment status. As discussed above, COBRA Section 4980B(f)(2)(B)(i)(I) ,
qualified beneficiaries generally are eligible for 18 months of COBRA coverage
when an employee loses health plan coverage due to a termination of employment
or a reduction in working hours. However, under Section 4980B(f)(2)(B)(i)(V) ,
if a COBRA-covered employee becomes entitled to Medicare before the expiration
of the 18-month period, the worker's COBRA coverage ends, but other qualified
beneficiaries --e.g., the employee's spouse -- become eligible for an additional
36 months of continuation coverage.
Note: One possible interpretation of the above exception would have
permitted continuation coverage for up to 54 months. However, this was not the
intent of the exception. As a result, the of 1996 amended the COBRA rules to
limit the continuation coverage in such cases to no more than 36 months. This
amendment is effective as if included in the Revenue Reconciliation Act of 1989,
i.e., it is effective for plan years beginning after 1989. Thus, under Section
4980B(f)(2)(B)(i)(V) as amended, if the covered employee separates from service
or has hours reduced less than 18 months after the date the covered employee
became entitled to Medicare, the period of coverage for the covered employee's
spouse and dependents will not terminate before the end of the 36-month period
beginning on the date the covered employee becomes entitled to Medicare.
Events Terminating COBRA Coverage
COBRA coverage may be terminated prior to the end of the applicable coverage
period, i.e., 18-, 29-, or 36-months, or the lifetime coverage provided to
retirees whose coverage terminated as a result of employer bankruptcy, under any
of the following circumstances:
All health plans are terminated - If the employer no longer provides
group health coverage to any of its employees, it is not obligated to provide
continuation coverage. For instance, a plant closing generally results in
termination of employment and loss of health coverage. If the employer offers no
other health benefit plans after the closing, employees have no rights to
continuation coverage. However, if the employer maintains other plans e.g., for
other plants or divisions, employees retain their right to elect continuation
coverage. (IRC Section 4980B(f)(2)(B)(ii) )
Beneficiary fails to pay COBRA premium- Where a beneficiary fails to make
"timely payment" of any required COBRA premium, the employer may
terminate the beneficiary's continuation coverage short of the full coverage
period. A qualified beneficiary's initial premium payment following the election
of COBRA coverage is considered timely if received within 45 days of such
election. In addition, a premium is considered timely if it is paid within the
longer of: (1) 30 days from the due date; (2) the period specified in the plan
document; or (3) the period permitted for the employer to make premium payments
on behalf of similarly situated active employees to the insurer, HMO, or other
entity providing plan benefits. (IRC Section 4980B(f)(2)(B)(iii) )
Beneficiary's coverage under another plan-
Employers may terminate continuation coverage when a qualified beneficiary
becomes covered under any other group health plan that contains no restrictions
or limitations on coverage of "preexisting conditions." Under this
rule, an employer is barred from terminating continuation coverage, whether or
not the beneficiary actually is affected by the particular preexisting
conditions excluded under the employee's new health plan coverage. (IRC Section
4980B(f)(2)(B)(ii) )
Note: The Health Insurance Portability and
Accountability Act of 1996 limited preexisting conditions, effective July 1,
1997. COBRA Section 4980B(f)(2)(B)(ii) was amended to coordinate with the
preexisting condition requirements. Thus, under the amended section, COBRA
coverage can be terminated if a qualified beneficiary becomes covered under
another group health plan, even if this other group health plan contains a
preexisting condition limitation or exclusion, as long as the limitations or
exclusions would not actually apply to the qualified beneficiary.
Beneficiary's entitlement to Medicare- When certain qualified
beneficiaries become entitled to Medicare, an employer may terminate their
continuation coverage. Employers also should note that individuals generally
become "eligible" for Medicare at age 65, but become
"entitled" to Medicare benefits only after enrolling in the program.
(IRC Section 4980B(f)(2)(B)(iv)(II) )
Determination that beneficiary is no longer disabled- This rule applies
to disabled beneficiaries who were granted an additional 11 months of
continuation coverage over the basic 18-month continuation coverage period. The
plan administrator may terminate the continuation coverage of such individuals
at the beginning of the next month after there has been a determination (in
accordance with Title II or Title XVI of the Social Security Act) that the
individual no longer is disabled. Qualified beneficiaries are required to notify
the plan administrator within 30 days of such determination. (IRC Section
4980B(f)(2)(B)(v) )
COBRA ELECTION RULES AND PROCEDURES
Election Procedures
The regulations do not require that beneficiaries make their elections on a
specific form. However, most employers prepare a carefully worded election form
accompanied by an explanation of the COBRA law to help document that the
beneficiaries were fully notified of their COBRA rights at the time of their
election.
Qualified beneficiaries may waive their rights to continuation coverage rather
than make a COBRA election. However, qualified beneficiaries must be permitted
to revoke their waiver if they change their minds and decide to elect COBRA
coverage at any time during the election period. If a qualified beneficiary
revokes a waiver, coverage does not have to be provided for any period before
the waiver.
The time limit on the election period allowed qualified beneficiaries to
exercise their COBRA rights is 60 days. This election period begins on the later
of:
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The
date that the qualified beneficiary would lose coverage as a result of a
qualifying event; or
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The
date that the qualified beneficiary is notified of his or her right to
elect continuation coverage.
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(IRC Section 4980B(f)(5)(A))
COBRA and Open-Enrollment Periods
An open enrollment period is a period during which an employee covered under a
health plan can choose to be covered under another group health plan or to add
or eliminate coverage as needed. If an employer maintains more than one group
health plan and permits active employees to change benefit coverage during an
open enrollment period, it must extend the same opportunity to change benefit
elections to each qualified beneficiary receiving COBRA continuation coverage.
"Identical Coverage" Requirement
As a general rule, the COBRA continuation coverage must be identical to the
health coverage provided to similarly situated beneficiaries under the plan to
whom a qualifying event has not occurred. Certain exceptions to the general rule
give employees the right to select just "core coverage" i.e., all
coverage except dental and vision benefits, or core coverage plus any
"non-core benefits" i.e., dental and vision benefits that the
qualified beneficiary was receiving immediately before the qualifying event).
Specifically, the continuation coverage provided qualified beneficiaries must be
identical to coverage provided similarly situated employees with respect to the
following items:
Deductibles and Coinsurance - Deductibles and coinsurance amounts
applicable to qualified beneficiaries may not be any greater than those for
active employees, even though the employer may charge COBRA beneficiaries a
higher premium.
Additionally, if continuation coverage is elected, expenses already credited to
the deductible for that year must be carried forward into the continuation
coverage period.
Plan Options- Plan options, such as "conversion" features, must
be offered to qualified beneficiaries if they are offered to similarly situated
employees. Conversion features generally enable terminating employees to convert
their group health coverage to individual health coverage without regard to
preexisting conditions and without having to undergo a medical examination or
otherwise demonstrating "proof of insurability." Where a conversion
option exists, qualified beneficiaries must be notified within 180 days prior to
the end of the continuation period that such an option is available.
Plan Limitations- The continuation coverage provided qualified
beneficiaries must have the same benefit limits (e.g., a maximum number of
hospital days or dollar amount of reimbursable expenses) and limits on
"out-of-pocket" expenses (e.g., annual and lifetime caps or "stop
loss" limits) applicable to similarly situated employees. Moreover, like
deductibles, any amounts already credited to the limits prior to a qualifying
event are carried forward into the continuation coverage period.
Election Rule for "Region-Specific" Plans
In some cases a COBRA beneficiary may have received coverage under a
"region-specific" plan- such as a health maintenance organization that
primarily serves a single metropolitan area - prior to a qualifying event. In
such cases, the coverage provided under the plan may be of little value to the
beneficiary leaving the plan's service area following the qualifying event.
Therefore, Prop. Treas. Regs. Section 1.162-26, Q&A 30, provides a rule that
permits beneficiaries relocating to an area not served by a region-specific plan
(regardless of the reason for the relocation) to elect alternative coverage
serving the region to which they relocate if active employees ordinarily are
given the opportunity when they transfer outside the area served by the plan in
which they participate.
Core and Non-Core Benefits
The COBRA rules prohibit an employer from requiring a qualified beneficiary to
continue all the coverage he or she was receiving under a plan prior to a
qualifying event. In general, a plan must offer beneficiaries the choice of
either "core-coverage only" or core coverage plus "non-core
coverage." "Core coverage" is defined under IRS regulations as
all the health coverage received by a beneficiary, except dental and vision
benefits. Dental and vision benefits are the only types of coverages defined as
"non-core coverage." However, dental and vision will be treated as
core coverage where such benefits are mandated by law (see separate chapters
State Benefit Mandates).
The COBRA rules provide two exceptions under which employers do not have to
offer core coverage separately from non-core coverage:
De minimis non-core benefits- An employer does not have to offer core
coverage separately from "core plus non-core coverage" if non-core
benefits offered under a plan constitute a "de minimis" portion of the
total benefits provided under the plan. Non-core benefits are considered
"de minimis only" if the applicable premium for core coverage would be
at least 95 percent of the applicable premium for core coverage and non-core
coverage combined.
Other "core-coverage" plan - Where a qualified beneficiary was
covered under a plan that includes both core and non-core coverage prior to a
qualifying event, the employer does not have to offer core coverage separately
from non-core coverage, provided that: (1) the employer offers at least one
other plan comprised solely of core-only coverage for similarly situated active
employees; and (2) the employer allows the qualified beneficiaries to elect
COBRA coverage under that core-only plan and any other group health plan
available to similarly situated employees.
Beneficiaries' Independent Election Rights
Each qualified beneficiary may make an independent election to receive COBRA
coverage. For instance, although a covered employee may elect not to receive
continuation coverage on his or her own behalf, the employee's spouse and
dependents may elect COBRA coverage independently of the employee. Moreover, if
there is a choice among types of coverage under a plan, each qualified
beneficiary is entitled to make a separate election from among the various types
of coverage offered under the plan. Thus, even if the employee elects certain
coverage, the spouse or other dependent may elect different coverage.
Although a plan must permit beneficiaries to make separate COBRA elections, the
covered employee (or spouse in the case of the employee's death or divorce or
legal separation from the spouse) is permitted to make the election on behalf of
other qualified beneficiaries affected by the qualifying event. In such cases,
the decision of the employee or spouse is binding on the other qualified
beneficiaries in the family and the other family members lose their right to
make an independent election.
Separate Plan Rules
Qualified beneficiaries have the right to make a separate COBRA election for
each plan they were covered under prior to a qualifying event. In general, this
requires an employer to divide its health care program into separate health
plans as determined under the following guidelines:
Each benefit level or option offered under an arrangement will be treated as a
separate group health plan e.g., "high option" and "low
option" health coverages would be treated as separate health plans.
An insured health arrangement may be treated as more than one plan where there
exist multiple insurance contracts between the insurer and the plan sponsor,
even if the coverage under the separate contracts is identical.
A self-funded health care arrangement may be treated as more than one plan if
segments of the arrangement have assets available only to pay the benefits of
their respective segment.
Multiple employer welfare plans must be treated as a separate group health plan
for each participating employer.
Collectively bargained arrangements must be treated as a separate group health
plan from any non-collectively bargained arrangement offered by the same
employer.
Pediatric Vaccines
Any group health plan that covered the cost of pediatric vaccines as of May 1,
1993, must continue the same level of coverage after that date. Failure to do so
subjects the plan to the excise tax penalty under COBRA, applicable to plans
that fail to allow qualified employees to elect health care continuation
coverage.
Portability
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) provides
that group health plans must limit any preexisting condition period by the
length of the period of prior creditable coverage.
The group health plan and the employer offering group health insurance coverage
must provide a certification of the period of creditable coverage under the
plan, the coverage under any applicable COBRA continuation provision, and any
waiting period.
The certification must be provided when:
| · |
The
individual ceases to be covered under the plan;
|
| · |
The
individual becomes covered under COBRA or COBRA continuation coverage
stops; or
|
| · |
The
individual requests certification within 24 months after coverage
ceased.
|
NOTIFICATION
REQUIREMENTS
General Rules for Employers and Beneficiaries
COBRA notification requirements generally fall into the four following
categories:
Notice to participants upon entering the plan - A written notice of COBRA
rights must be distributed to each employee and spouse when they first enter the
health plan. The Department of Labor has issued a model notice for employers to
use for this purpose. Employers will be considered as having demonstrated
good-faith compliance with the law, according to DOL, if the notice is mailed,
first class, to the covered employee's and spouse's last known addresses. In
addition to providing employees with special written notices, employers also
should incorporate an explanation of COBRA rights as part of the plan's summary
plan description provided to employees.
Notice from employer to plan administrator-In cases where the employer is
not the plan administrator, the employer is responsible for notifying the plan
administrator of certain qualifying events. The employer has 30 days from the
date coverage ceases (if provided under the terms of the plan) or the date of
the following qualifying events: (1) the death of the covered employee, (2) the
covered employee's termination (for reasons other than gross misconduct), (3)
the covered employee becoming entitled to Medicare, and (4) the employer's
bankruptcy. Multi-employer plans are permitted to take more than 30 days to
notify the plan administrator if permitted by the terms of the plan.
Notice from administrator to beneficiaries-The administrator of the
health plan is obligated to notify qualified beneficiaries of their COBRA rights
when a qualifying event occurs. Such notice must be provided within 14 days of
receiving notice of any qualifying event. Multi-employer plan administrators are
allowed more than 14 days to notify qualified beneficiaries as long as the
length of the notification period is spelled out in the plan document and
summary plan description.
Notice from employees or beneficiaries to administrator - COBRA requires
spouses who be come divorced or legally separated from a covered employee, as
well as dependents who lose their "dependent status" under the
employer's plan, to notify the plan administrator that these qualifying events
have occurred. Such notice must be made within 60 days of the qualifying event
or the date the qualified beneficiary would lose coverage as a result of the
qualifying event, whichever is later. The group health plan does not have to
offer the qualified beneficiary the opportunity to elect COBRA coverage if the
covered employee or qualified beneficiary fails to make the required
notification.
Rules for Disabled Beneficiaries
Qualifying beneficiaries who are disabled at the time they experience a change
in employment status e.g., a termination, reduction of hours below the level
required for coverage, etc. are eligible for an extra 11 months of continuation
coverage in addition to the regular 18-month continuation coverage period. To
qualify for this extended period of COBRA coverage, disabled qualified
beneficiaries must notify the plan administrator of their disability status
within 60 days of their disability determination under Title II or Title XVI of
the Social Security Act. Such notice must be given no later than the end of the
regular 18-month COBRA coverage period that applies whenever there is a change
in employment status.
Note: The Health Insurance Portability and Accountability Act of 1996
amended IRC Section 4980B(f)(2)(B)(i)(V) to provide that the 29-month coverage
period applies if the qualified beneficiary's disability exists at any time
during the first 60 days of COBRA coverage, rather than at the time of the
qualifying event. In addition, the COBRA rules were modified to clarify that the
29-month coverage period also applies to the non-disabled qualified beneficiary
of the covered employee. These rules are effective on Jan. 1, 1997, regardless
of whether the qualifying event occurred before, on, or after that date. A group
health plan must notify each qualified beneficiary who has elected COBRA
coverage of these changes by Nov. 1, 1996.
Where there is a subsequent determination that the individual no longer is
disabled, the person is required to notify the plan administrator within 30 days
of such determination. The plan administrator then may terminate COBRA coverage
at the beginning of the next month after the determination that a beneficiary is
no longer disabled.
RULES
GOVERNING COBRA PREMIUMS
Premium Payment Rules
A group health plan must allow qualified beneficiaries the option of paying for
COBRA continuation coverage in monthly installments. However, a plan also may
allow beneficiaries to pay COBRA premiums at other intervals e.g., quarterly or
semiannually.
Where a beneficiary fails to make "timely payment" of any required
COBRA premium, the employer may terminate the beneficiary's continuation
coverage short of the full coverage period. A premium will be considered timely
where it is paid within the longer of: (1) 30 days from the due date (2) the
period specified in the plan document; or (3) the period permitted for the
employer to make premium payments on behalf of similarly situated active
employees to the insurer, HMO, or other entity providing plan benefits.
Group health plans cannot require payment of any COBRA premium until 45 days
after the qualified beneficiary made the initial election of COBRA coverage.
However, employers may collect premiums for this period on a retroactive basis.
Amount of COBRA Premiums
The premium charged to the employee or beneficiary for COBRA continuation
coverage is based on the applicable premium cost under the plan for
"similarly situated" employees. In general, employers are permitted to
charge qualified beneficiaries up to 102 percent of the applicable plan premium
cost. The additional 2 percent above the premium cost is intended to help
employers recoup part of the cost of administering COBRA.
Disabled qualified beneficiaries granted the special extended period of
continuation coverage an additional 11 months over the basic 18-month period of
continuation coverage may be charged up to 150 percent (rather than 102 percent)
of the applicable plan premium during the 11-month period of extended coverage.
This 48-percent differential is permitted since disabled individuals are more
likely to incur substantial medical expenses.
Determining Applicable Premium Costs
COBRA premiums are based on a percentage (102 percent or 150 percent) of the
applicable premium costs for similarly situated employees. In the case of
insured plans, the applicable premium cost would be the group premium imposed by
the insurance company for covering a similarly situated employee. However,
special rules are necessary to determine the applicable premium for self-funded
arrangements.
For purposes of determining groups of similarly situated employees,
administrators may take into account the following factors:
| · |
The
level of coverage ("high option" or "low option"
plans) elected by employees;
|
| · |
Employees
who elect employee-only versus those that elect family coverage and any
varying levels of family coverage (employee plus one dependent, employee
plus two or more dependents); and
|
| · |
Employees'
geographical locations where there are regional differences in plan
costs.
|
For instance, a plan may charge a qualified beneficiary who elects high-option
family coverage a COBRA premium of 102 percent of what the plan charges to cover
an active employee who also elects high-option family coverage. However, plans
are restricted from assessing COBRA premiums on the basis of premium costs to
employees grouped by their sex or specific medical conditions that employees may
suffer. Moreover, employers may not group active employees separately from
retirees in determining applicable plan costs.
To ensure some consistency in how self-insured plans determine their premiums,
the COBRA rules provide the following two premium-costing methods from which
self-insured plans may choose:
| · |
General
Method-Under this method, self- funded arrangements are permitted to use
certain actuarial techniques to make a reasonable estimate of the cost of
providing coverage to similarly situated employees during the same
coverage period.
|
| · |
Alternate
Method-The alternate method allows the applicable continuation coverage
premium to be determined on the basis of the cost to the plan for
covering similarly situated beneficiaries during the preceding year.
Then, that cost is adjusted for cost-of-living increases or decreases as
measured by the gross national product (GNP) implicit price deflator, as
calculated by the Commerce Department. This method may not be used where
either the coverage available under the plan or the employees covered by
the plan differ significantly between the preceding year and the current
year.
|
State Payment of COBRA Premiums
Under certain circumstances state governments are required to pay COBRA premiums
on behalf of Medicaid-eligible individuals and have the option of paying COBRA
premiums for certain lower-income individuals not eligible for Medicaid.
Medicaid is a public health program for low-income individuals that is
administered by individual states and funded jointly by federal and state
governments.
The provisions relating to the state payment of COBRA premiums were contained in
the Omnibus Budget Reconciliation Act of 1990 and are effective beginning
December 3, 1990. They allow states to pay the group premiums for the following
types of individuals who are eligible for COBRA coverage:
Medicare-eligible individuals- Under this rule, state Medicaid programs
are required to pay the group premiums as well as any deductibles and
coinsurance for individuals eligible for group health coverage (including COBRA
coverage) if it would be cost effective for the state to do so.
Other lower-income individuals - Under this rule, states have the option of
paying COBRA premiums for lower-income individuals who are not Medicaid
eligible, but are eligible for COBRA coverage under a plan maintained by an
employer with 75 or more employees.
Some states have programs under which the state pays the COBRA premiums for
individuals suffering from catastrophic illnesses. Under Maryland's program, the
state will pay COBRA premiums for certain Medicaid-eligible persons suffering
with AIDS- related diseases who are unable to continue working, but are eligible
for COBRA continuation coverage. The state program, which began in July 1990, is
projected to cost the state about $240,000 in premium payments during its first
year. However, that cost would be more than offset by projected savings of about
$3,000,000 in Medicaid payments.
COBRA PENALTIES
In General
Employers that violate COBRA may be subject to both civil sanctions and tax
penalties. Under COBRA's civil sanction procedures, either the Department of
Labor or plan beneficiaries themselves can sue a plan that fails to provide
required COBRA notices to employees. Where a court decides beneficiaries were
wrongfully denied continuation coverage, they are entitled to equitable relief.
In addition, plan administrators may be personally liable for a special civil
penalty of up to $100 a day for failure to provide the required COBRA notice.
COBRA's tax sanctions include a nondeductible excise tax of $100 a day for each
beneficiary affected during the noncompliance period. However, the tax penalty
is capped at $200 per day with respect to each affected family. For purposes of
applying the $100 a day penalty, the period of noncompliance is measured from
the date of the failure to the date when the failure is corrected or the date
six months after the last day of the otherwise applicable COBRA coverage period,
whichever is earlier. An employer's maximum liability under the tax penalty is
limited to the lesser of $500,000 or 10 percent of the preceding year's total
costs of providing group health coverage.
Joint Liability
Liability for COBRA violations may extend to third parties - such as plan
administrators or benefits providers - where their actions or omissions cause a
compliance failure. For third parties jointly liable for violations, the maximum
liability for the excise tax penalty is $2 million per non compliance period.
Third parties become subject to COBRA penalties under either of the following
circumstances:
Responsibilities assumed in writing- A third party may be subject to the
COBRA excise tax penalty if it signs a written agreement with the employer to
assume either plan administration or plan benefit payment responsibilities.
However, penalties may be assessed against an administrator or benefit provider
only for violations relating to the specific responsibilities it assumed under
the written agreement. In addition, the third party's actions (or lack thereof)
must contribute to the violation in question. However, even in cases where a
written agreement exists between the employer and the third-party administrator
or provider, the administrator/ provider may be spared liability for COBRA
violations where the employer's actions (or lack thereof) render the
administrator/provider unable to carry out its responsibilities under the
agreement.
Written request for COBRA coverage- A third party administrator or
provider also may be subject to the COBRA excise tax penalty if the failure
occurs, despite the fact that the administrator/provider received a written
request to provide COBRA coverage. This liability might be triggered by an
employer's request to the plan administrator or benefit provider or the plan
administrator's request to a benefit provider or another administrator. A
written request submitted by a qualified beneficiary also can trigger an
administrator/provider's liability where the request relates to coverage lost
due to divorce, legal separation, or loss of dependent child status under the
plan.
Prompt Correction Exception
The $100 a day tax penalty does not apply in cases where a violation was for
"reasonable cause" and was corrected quickly. In general, employers
will be spared the $100-a-day excise tax in cases where failures are for
"reasonable cause" (rather than "willful neglect") and are
corrected within 30 days of the date that they first occur. This exception does
not apply in cases where the failure is discovered in the course of an IRS
audit.
Reasonable Cause Exception
The COBRA rules also grant relief to COBRA violators in cases where the
violations are purely inadvertent. Under this rule, the $100-a-day excise tax
does not apply to periods of noncompliance during which the parties responsible
for administering the plan did not know and could not have known of the failure
to meet the COBRA requirements. This exception does not apply in cases where the
failure is discovered in the course of an IRS audit.
COBRA Coordination With FMLA
Taking leave under the generally does not constitute a qualifying event for
COBRA purposes, the Internal Revenue Service said in Notice 94-103.
However, a qualifying event occurs if three conditions are satisfied:
| · |
The
employee (or spouse or dependent) is covered on the day before the first
day of FMLA leave under a group health plan offered by the employer;
|
| · |
The
employee does not return to work at the end of FMLA leave; and
|
| · |
The
employee would, in the absence of COBRA coverage, lose coverage under
the health plan before the end of the maximum period.
|
Under these circumstances, a qualifying event would occur on the last day of
FMLA leave. The maximum coverage period should be measured from the date of the
qualifying event. However, if coverage under the group health plan is lost at a
later date and the plan provides for the extension of the required period, then
the maximum coverage period would be measured from the date when coverage is
lost.
A COBRA qualifying event still may occur if an employee fails to pay the
employee portion of premiums for coverage under a group health plan during FMLA
leave, or declined coverage under a group health plan during FMLA leave. A
determination of when a qualifying event occurs is not affected by any state or
local law that requires coverage under a group health plan to be maintained
during leave of absence for a longer period than that required under FMLA. A
right to COBRA continuation coverage may not be conditioned upon reimbursement
of the premiums paid by the employer for coverage under a group health plan
during FMLA leave.
State Continuation Rules
Many states have enacted so-called "mini-COBRA" laws that require that
a continuation coverage option be included in group health insurance policies.
Like COBRA, these state laws generally require that employer-sponsored group
health insurance plans offer employees, their spouses, and dependents a period
of continued health coverage upon termination of the employee, a change in
marital status, or other event causing a loss of eligibility under the plan.
However, the continuation coverage periods required under state laws typically
are less extensive than required under the federal rules.
The period of continuation coverage provided by an employer pursuant to a state
continuation coverage mandate generally may be credited toward satisfaction of
18-, 29-, or 36-month coverage periods required under COBRA, providing the
coverage is identical to that required by COBRA. However, certain states, such
as California, specifically require that state mandated continuation coverage be
offered only after the expiration of any continuation coverage elected by an
employee under COBRA.
REFERENCES
Employers Affected By COBRA
- Private-Sector Employers: Internal Revenue Code § 4980B(d); Employee
Retirement Income Security Act Section 601(b).
- Public-Sector Employers: Public Health Service Act Title XXII, Sec.
2201(b)(1).
- Small Employers: Martinez v. Dodge Printing Centers, 13 EBC 1625 (D.Colo.
1991).
Qualifying Events
- In General: IRC Section 4980B(f)(2)(B)(i).
- Call To Military Service: IRS Notice 90-58 ; Uniformed Services Employment
and Reemployment Rights Act of 1994 Section 4317.
Coordination with Family and Medical Leave Act: IRS Notice 94-103.
Notice Requirements
IRC Section 4980B(f)(6).
U.S. Department of Labor, ERISA Technical Release No. 86-2, June 6, 1986.
COBRA Premiums
State Payment: Title 42 U.S.C. Section 1396a as amended by the Omnibus Budget
Reconciliation Act of 1990.
Premium Payments: IRS Rev. Rul. 96-8 .
Core and Non-Core Benefits
U.S. House of Representatives Report No. 99- 841, Volume II, 99th Congress,
2nd Session (Sept. 18, 1986), p. II-859.
Pediatric Vaccines: IRC Section 4980B , as amended by Omnibus Budget
Reconciliation Act of 1993, Section 13422(a).
Terminating COBRA Coverage
Oakley V. City of Longmont, 11 EBC 2452 (CA 10) 1989; 890 F2d 1128USSC Rev.
Denied, 58 USLW 3658 (1990).
Gross Misconduct: Paris v. F. Korbel & Brothers,)12 EBC 2489, 951 F. Supp
834 (N.D. Cal 1990).
COBRA Penalties
Civil Penalties: ERISA Section 502(c).
Excise Tax: IRC Section 4980B(b)(2).
Relationship To State Continuation Rules
Sample Letter
Dear (employee or beneficiary's name):
On (date), the following qualifying event occurred:
For employee:
Change in employment status - termination.
Change in employment status - reduction in working hours.
For spouse of an employee or other worker covered by (group health plan name):
Death of your spouse.
Change in your spouse's employment status - termination.
Change in your spouse's employment status - reduction in working hours.
Divorce or legal separation from your spouse.
Your spouse has become entitled to Medicare.
For dependent child of an employee or other worker covered by (group health plan
name):
Death of your parent.
Change in your parent's employment status- termination.
Change in your parent's employment status - reduction in working hours.
Your parents' divorce or legal separation.
Your parent has become entitled to Medicare.
You have been born or adopted while your parent is receiving COBRA.
You are no longer a dependent child under (group health plan name).
Because of this qualifying event, your health insurance coverage provided by
(company name) will end as of midnight on (date). You have the option, however,
of continuing the health insurance coverage available to you prior to the
qualifying event if you pay the required premium. Your coverage options are
described on the enclosed COBRA Election Form. Please review this information,
and, regardless of your decision to continue or waive coverage, complete and
return the COBRA Election Form by (date).
You are eligible for continuing coverage for a period of up to:
18 months (for covered employees, as well as their spouses and dependents)
for loss of coverage due to termination or reduction of hours.
29 months (for covered employees who are disabled at any time during the
first 60 days of COBRA coverage, and for spouses and dependents (disabled or
not)).
36 months (for spouses and dependents) for loss of coverage due to
employee's death, a divorce or legal separation, or Medicare entitlement.
36 months (for dependent children) for loss of dependent child status,
having reached the age of (maximum age of coverage under the company's plan).
Frequent Questions About COBRA
Please review the following frequently asked questions and answers regarding
COBRA coverage. They may help answer some of your own questions.
Q: Who pays for COBRA coverage?
A: The employee or employee's beneficiary. If you decide to continue
health insurance coverage, you must pay the full cost of such coverage. Current
monthly rates - subject to change - appear on the enclosed COBRA Election Form.
You will be notified of any change in rates.
Q: Must I elect COBRA coverage?
A: No. You can waive your right to COBRA coverage if you prefer.
Q: How much time do I have to decide if I want coverage?
A: You have a 60-day election period. The election period begins on the
later of: (a) the date you would lose coverage due to the qualifying event; or
(b) the date you are notified of your right to elect continuation coverage.
Q: What happens if I waive coverage and then change my mind?
A: If you waive coverage, you can revoke your waiver during the 60-day
election period. However, no coverage will apply for the period before the
waiver.
Q: What coverage can I continue under COBRA?
A: You can elect the identical coverage you had prior to your qualifying
event, or you can reduce coverage. You also can switch coverage during open
season.
Q: How is billing handled?
A: When we receive your election to continue coverage, we will send you
written confirmation of your election, along with payment instructions. You will
have 45 days from confirmation date to make your first payment. COBRA coverage
does not begin until receipt of your payment. After the initial payment, you
will receive monthly invoices. Failure to make regular, timely payments will
result in the termination of COBRA coverage.
Q: What happens if I elect not to continue coverage, but my spouse or
dependent child wants to continue?
A: You, your spouse, and your dependent child may each make separate
elections as to whether to continue coverage.
Q: What should I do if I want to continue coverage?
A: If you want to continue your health insurance coverage at your own
expense under COBRA, complete the enclosed COBRA Election Form and return it to
this office by (60 days from the date that coverage would cease or 60 days from
the date of notification, whichever is later). Unless we hear from you by that
date, your coverage, which terminated automatically on (date of qualifying
event), cannot be continued.
Q: Am I guaranteed coverage for the full period?
A: If you accept coverage, you do not have to undergo a medical review, so in
that sense you are "guaranteed" coverage. However, your coverage may
be cut short of the full period if any of the following happens: the employer
providing COBRA no longer provides group health coverage to any of its
employees; you do not pay the premiums; you become covered by another health
plan that does not contain any provision restricting or limiting coverage of
preexisting medical conditions; you become entitled to Medicare (although your
spouse and dependents may continue COBRA coverage for up to 36 months if the
Medicare entitlement occurred within the first 18-month period); or you are no
longer disabled.
Q: Who can I talk to if I have other questions?
A: If you have questions, contact (name) in the Human Resources Department
at (telephone number).
Sample COBRA Election Form
COBRA election/waiver:
Monthly cost breakdown for (company name) group health insurance:
Certification:
COBRA election/waiver:
Please check one:
I elect to continue my (company name) group health coverage under COBRA and pay
the required premiums.
I elect to continue my (company name) group health coverage under COBRA with the
following reduction in coverage and pay the required premiums.
I decline to continue my (company name) group health coverage under COBRA.
Monthly cost breakdown for (company name) group health insurance:
Please check options:
Family health, prescription drugs, vision coverage = per month (fill in exact
amount, for example $635.00 per month)
Family dental* coverage = per month
Single health, prescription drugs, vision coverage = per month
Single dental* coverage = per month
*You may elect health and dental coverage, or health-only coverage, but you may
not elect dental-only coverage.
Certification:
I will immediately notify the Human Resources Office in writing in the event
that I become a participant in any other group health plan; become eligible for
Medicare; or have a change in marital or dependent status. My failure to notify
(company name) of a change of my status may result in termination of my
coverage.
Your signature, date
Regardless of your election, please return this form to the Human Resources
Office in the enclosed envelope by (date). See the accompanying COBRA Cover
Letter for additional information.
Sample COBRA Notice to Employees and Qualified Beneficiaries
An employer must provide a written notice describing COBRA continuation coverage
rights to each employee and spouse that enrolls in the employer's health plan.
The Department of Labor issued a model notice (DOL ERISA Technical Release No.
86-2, June 6, 1986) for employers to use in notifying their employees. (Note:
This sample notice is general in nature and may not be appropriate for all types
of health care arrangements. Employers should consult legal counsel before
drafting a COBRA notice for their particular health care plans.)
* VERY IMPORTANT NOTICE *
** TO HEALTH PLAN PARTICIPANTS **
ON CONTINUATION COVERAGE RIGHTS
On April 7, 1986, the Consolidated Omnibus Budget Reconciliation Act of 1985
(COBRA) was signed into law (Public Law 99-272, Title X). Under COBRA, most
employers sponsoring group health plans must offer covered workers and their
families the opportunity for a temporary extension of health coverage called
"continuation coverage" at group rates in certain instances where
coverage under the plan would otherwise end. This notice is intended to inform
you, in a summary fashion, of your rights and obligations under the continuation
coverage provisions of the COBRA law. (Both you and your spouse should take the
time to read this notice carefully.)
If you are an employee of (Name of Employer) covered by (Group Health Plan Name)
or you are otherwise covered under the plan by virtue of your services (as an
independent contractor, for example) to (Name of Employer), you have a right to
choose continuation coverage if you lose your group health coverage because of a
reduction in your hours of employment or the termination of your employment (for
reasons other than gross misconduct on your part).
If you are the spouse of an employee or other worker covered by (Group Health
Plan Name), you have a right to choose this continuation coverage for yourself
if you lose group health coverage under (Group Health Plan Name) for any of the
following four reasons:
(1) The death of your spouse;
(2) A termination of your spouse's employment (for
reasons other than gross misconduct) or reduction in your spouse's hours of
employment;
(3) Divorce or legal separation from your spouse;
or
(4) Your spouse becomes entitled to Medicare.
In the case of a dependent child of an employee or other worker covered by (Name
of Group Health Plan), the child has the right to continuation coverage if group
health coverage under (Name of Group Health Plan) is lost for any of the
following five reasons:
(1) The death of a parent;
(2) The termination of a parent's employment (for reasons other
than gross misconduct) or reduction in a parent's hours of employment with (Name
of Employer) ;
(3) Parents' divorce or legal separation;
(4) A parent becomes entitled to Medicare; or
(5) The dependent ceases to be a "dependent child"
under (Name of Group Health Plan).
Note: Previously, the dependents of a covered employee were
considered qualified beneficiaries only if they were covered under the group
health plan on the day before the event triggering eligibility for COBRA
coverage. Effective Jan. 1, 1997, the definition of a qualified beneficiary has
been changed to include a child who is born to or placed for adoption with an
individual who is already receiving COBRA coverage.
Under COBRA, the covered worker or a family member has the responsibility to
inform (Name of Plan Administrator) of a divorce, legal separation, or a child
losing dependent status under (Name of Group Health Plan). Such notice must be
made within 60 days of the event or the date on which coverage would be lost
because of the event. (Name of Employer) has the responsibility to notify (Name
of Plan Administrator) of the covered worker's death, termination of employment
or reduction in hours, or entitlement to Medicare.
Health care continuation rights also are available to covered retirees, their
spouses, and widows or widowers of covered retirees, if they should they lose
group health coverage in the event that (Name of Employer) should ever file for
bankruptcy.
When (Name of Plan Administrator) is notified that one of the above named events
has happened, (Name of Plan Administrator) will in turn notify you that you have
the right to choose continuation coverage. Under the COBRA law, you have at
least 60 days from the date you would lose coverage because of one of the events
described above to inform (Name of Plan Administrator) that you want
continuation coverage.
If you do not choose continuation coverage, your group health insurance coverage
will end.
If you choose continuation coverage, (Name of Employer) is required to give you
coverage which, as of the time coverage is being provided, is identical to the
coverage provided under the plan to similarly situated employees or family
members. The COBRA law requires that you be afforded the opportunity to maintain
continuation coverage for 36 months (i.e., 3 years) unless you lost group health
coverage because of a termination of employment or reduction in hours. In that
case, the required continuation coverage period is 18 months. The 18-month
period may be extended to 36 months if a second event (e.g., divorce, legal
separation, death, or Medicare entitlement) occurs during that 18-month period.
Note: If a qualifying event occurs less than 18 months after the
date an employee becomes entitled to Medicare benefits, the coverage period for
qualified beneficiaries other than the employee is extended to 36 months from
the date of the employee's Medicare entitlement.
Moreover, the 18-month period may be extended for an additional 11 months (for a
total of 29 months) if an individual is determined to be disabled (under the
rules for Social Security disability benefits) and the plan administrator is
notified of that determination within 60 days. The affected individual also must
notify the (Plan Administrator) when it is determined (for purposes of Social
Security disability benefits) that the individual is no longer disabled.
Note: COBRA had required that an individual be disabled at the time of a
termination of employment or reduction in hours of employment to receive 29
months of extended disability coverage. Beginning Jan. 1, 1997, the disability
extension will also apply if the individual becomes disabled at any time during
the first 60 days of continuation coverage. In addition, family members of the
disabled individual are entitled to the 29-month extended coverage period,
whether or not they are disabled.
The COBRA law provides that your continuation coverage may be cut short of the
full coverage period - 18, 29, or 36 months - for any of the following reasons:
(1) (Name of Employer) no longer provides group health coverage
to any of its employees;
(2) The premium for your continuation coverage is not paid;
(3) You become covered under another group health plan that
does not contain any provision restricting or limiting coverage of a
"preexisting medical condition";
(4) You become entitled to Medicare;
(5) There has been a final determination that you are no longer
disabled, for beneficiaries who qualified for an extra 11 months continuation
coverage based on their disability at termination or within the first 60 days.
Note: The circumstances under which group health plans can apply
coverage limitations or exclusions for preexisting conditions will be restricted
in plan years beginning on or after July 1, 1997, or later for plans maintained
under collective bargaining agreements. For COBRA beneficiaries who enroll in
another group health plan, the new restrictions may eliminate coverage limits
based on pre-existing conditions, thus allowing prior employers to terminate
continuation coverage.
You do not have to show that you are insurable to choose continuation coverage.
However, under the COBRA law, you may have to pay all or part of the premium for
your continuation coverage. A minimum 30-day "grace period" will be
allowed for you to pay your regularly scheduled premiums.
(COBRA also provides that at the end of the 18, 29, or 36 month continuation
coverage period you must be allowed to enroll in an individual conversion health
plan provided under (Name of Group Health Plan).)
The COBRA law applies to (Name of Group Health Plan) beginning on (applicable
date). If you have any questions about COBRA, please contact (Plan Administrator
name and business address). Also, if you have changed marital status, or you or
your spouse have changed address, please notify (Plan Administrator) at the
above address.
Last updated: 03-04
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