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| Brief Overview of COBRA |
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| Who Is Eligible for COBRA? |
If your company has 20 or more full-time employees and if you have a group health plan, you have to provide COBRA benefits to qualified beneficiaries. A qualified beneficiary is anyone covered under your group health plan on the day before an event that causes loss of coverage, and it includes:
- employees, including part-time employees, if they are eligible to participate in your plan
- their spouses
- their dependents
- retirees (unless they are eligible for Medicare)
- partners in a partnership
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| You do not have to offer COBRA coverage to any of the following: |
- an employee who is not yet eligible for your group health plan
- an eligible employee who declined to participate in your group health plan
- an individual who is enrolled for benefits under Medicare
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| Which Benefits Are Covered? |
The following types of plans generally need to be offered to employees when COBRA is triggered (but only if you already offer them to employees):
- health care plans
- medical spending accounts
- dental plans
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| What Events Trigger COBRA? |
Events that trigger coverage are called qualifying events. The following are qualifying events:
- An employee's voluntary or involuntary termination of employment, unless it is for gross misconduct. COBRA does not define misconduct, but some criteria to use if you are thinking of denying COBRA benefits on the basis of misconduct are:
- There must be a connection between the offense and the employee's job.
- The employee must be able to understand the gravity of the misconduct.
- The offense must be willful.
- If the departing employee decides to challenge your determination, you're probably going to end up in federal court. Balance the estimated costs of fighting the enforcement suit against the estimated costs of the COBRA coverage.
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| How Long Does Coverage Last? |
Depending upon the type of event and who the beneficiary is, coverage could continue for 18, 29, or 36 months after the date of the event or the coverage loss. Here are the basic rules:
- Termination of employment or reduction in hours - 18 months for the employee and any covered dependents.
- In the case of an individual previously entitled to 18 months of coverage who is determined to be disabled - 29 months of coverage.
- In the case of an individual previously entitled to 18 months of coverage who experiences a second qualifying event - 36 months of coverage.
- In the case of qualifying events for reasons other than termination of employment or reduction in hours - 36 months of coverage.
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| What Benefits Are Not Covered? |
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Life insurance, disability insurance, retirement plans, and vacation plans are not plans that you must extend to people entitled to COBRA coverage.
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| What are Employer COBRA Communication Duties? |
COBRA stresses communication to the employee of the right to continue benefits when a qualifying event occurs. Some of the communications requirements are listed below.
- You have to notify covered employees and covered spouses of their initial rights under COBRA when they first join the plan.
- You have to notify covered persons of their election rights to continue coverage after a qualifying event occurs.
- You have 30 days to notify the plan administrator (usually the insurance company) when a loss occurs for any of the reasons listed above, except for divorce and change of status by a dependent. In those two instances, you have 60 days to notify the administrator. The administrator has 45 days after notice from you to notify the person who is entitled to COBRA coverage.
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| Who Pays for COBRA Coverage? |
The employee must pay the full cost of the insurance premiums. In fact, the law allows you to charge 102 percent of the premium, and to keep the 2 percent to cover your administrative costs.
Federal law states that COBRA coverage can be terminated if premium payments are late. According to the law, payment of any premium is considered to be timely if it is made within 30 days after the due date or within a longer period set out under the plan. The due date must not begin before the first day of the coverage period. And, when someone chooses to take COBRA coverage, they still have 45 days to make the first payment.
The fact that most insurers want you to pay in advance for coverage complicates this process. You have to pay in advance for the coverage under the policy, but the law states that you have to give a COBRA insured a 30-day grace period from the time the payment is due.
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