COBRA Requirements

September 15, 2012 in , , ,

What is COBRA and who is covered?
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) is a federal regulation covering group health plans maintained by employers with 20 or more employees during 50 percent of the working days in the preceding calendar year. The law requires employers to offer employees (in certain circumstances), and their qualified beneficiaries, the option of continuing their group health insurance coverage.

Who is a qualified beneficiary?
An individual covered under a group health plan on the day before a qualifying event is a qualified beneficiary. It can be an employer’s employees, former employees, and their families.

What is a qualifying event?
A qualifying event is a specific event defined within the COBRA regulations that results in the loss of coverage by a qualified beneficiary. The following are qualifying events if they result in loss of coverage under the group health plan:

  • Death of the covered employee.
  • Termination (other than by reason of gross misconduct) or reduction of hours of the covered employee’s employment.
  • Divorce or legal separation of the covered employee from their spouse.
  • The covered employee becomes entitled to benefits under Medicare.
  • The dependent child ceases to be a dependent child under the requirements of the plan.
  • An employer’s bankruptcy can be a qualifying event for some retirees.

What is the length of continued coverage?
It depends on the event. Refer to U.S. Departments of Labor and Treasury and the Internal Revenue Service Web sites for more information.

What are the notification requirements?
COBRA notification requirements typically fall into four categories:

  • Notice to participants upon entering the plan. COBRA requires that covered employees and their covered spouses receive a notice that describes the basic principles as well as their rights and responsibilities before electing COBRA. This notice must be provided within 90 days of beginning coverage under the group plan.
  • Notice from employer to plan administrator. If the employer is not the plan administrator, the employer is responsible for notifying the plan administrator of a qualifying event within 30 days of an employee’s death, termination, reduction in hours, or entitlement to Medicare.
  • Notice from employees or beneficiaries to administrator. COBRA requires a covered employee (or spouse) to notify the plan administrator of a qualifying event within 60 days of a divorce or legal separation or loss of dependent child status under the employer’s plan.
  • Notice of disability extension. Qualified beneficiaries who are disabled at any point within the first 60 days of COBRA coverage (as deemed by the Social Security Administration) may receive an 11-month extension of coverage. The plan administrator must receive a copy of the ruling letter from the Social Security Administration within 60 days of receipt, but before the original 18-month continuation ends. Additionally, the plan administrator must be notified within 30 days of a ruling that the individual is no longer disabled.

How long does an individual have to elect continuation coverage?
Once notified of their right to elect continuation coverage, employees and their qualified beneficiaries have 60 days to elect COBRA coverage. If they elect to continue coverage, they have 45 days from the date of election to make the initial premium payment. This payment must consist of the total amount due since the coverage loss date.

What are the payment requirements?
Beneficiaries must pay the full cost of the premium, plus up to 2 percent for administrative costs. Qualified beneficiaries receiving the 11-month extension for disability may be charged up to 150 percent of the plan’s cost for coverage. The initial premium payment is due within 45 days of election. Subsequent payments are due in accordance with plan rules, but must allow a 30-day grace period.

What are employer liabilities?
An employer who violates COBRA may be subject to both civil and tax penalties. Penalties for non-compliance with COBRA include:

  • IRS excise tax penalty of $100.00 per day for each violation. This fine can be increased to $200.00 for each day if there was more than one qualified beneficiary per family.
  • An ERISA penalty of $110.00 per day, payable to each qualified beneficiary for each day the employer was not in compliance.
  • The employer can be held liable for payment of legal fees, court costs, and even for medical claims incurred by a qualified beneficiary.

Can an employer offer continuation for longer than COBRA requires? Employers can be more generous with qualified beneficiaries than the law requires, but they must examine contracts with insurers and possibly obtain their agreement to confirm that the proposed qualified beneficiaries will be accepted.

If an individual doesn’t pay his/her COBRA premium, can coverage be canceled?
COBRA regulations require plans to allow a 30-day grace period for payments. If payment isn’t received by the first day of the coverage period, the plan can cancel coverage until the payment is received; however, once payment is received, coverage must be reinstated retroactively. Failure to make premium payments beyond the 30-day grace period may result in termination of coverage.

What constitutes gross misconduct?
Gross misconduct has not been explicitly defined by either the IRS or the Department of Labor, but dangerous or illegal acts committed in the workplace that result in termination of employment may constitute gross misconduct.

Will posting COBRA information at the work site meet the requirement to provide initial notification?
Posted information in the workplace alone is not sufficient to meet the initial notification requirements. Both employees and their covered spouses must be provided with initial notification upon entering the plan or when a plan becomes subject to COBRA rules. A first class mailing of the initial notification would meet this requirement.

What happens if a beneficiary isn’t notified?
Failure to provide initial notifications may result in a qualified beneficiary being eligible for COBRA even if the beneficiary fails to notify the plan administrator of a divorce, legal separation, or loss of dependent child status under the plan.

Where can I get more information?
For additional information, contact the appropriate federal agency or your state Department of Insurance.

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