Consolidated Omnibus Budget Reconciliation Act (COBRA)

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances, such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified individuals may be required to pay the entire premium for coverage up to 102 percent of the cost to the plan. Below is a overview of COBRA basics. For additional informaion, we recommend this guide created by the Department of Labor, which can be easily found here.

Who Must Offer COBRA

COBRA generally must be offered by employers who sponsor a group health plan and that had 20 or more employees on 50% or more of their business days in the prior year. Both full-time and part-time employees should be counted when determining whether a plan is subject to COBRA. Each part-time employee counts as a fraction of a full-time employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time. For instance, if an organization considers 32 hours to be full-time and an employee regularly worked 20 hours per week, they would count as .625 FTE.

Qualifying Events

Qualifying events are events that cause an individual to lose their group health coverage. The type of qualifying event determines who the qualified beneficiaries are for that event and the period of time that a plan must offer continuation coverage. COBRA establishes only the minimum requirements for continuation coverage. A plan may always choose to provide longer periods of continuation coverage. 

The following are qualifying events for covered employees if they cause the covered employee to lose coverage: 

• Termination of the employee's employment for any reason other than gross misconduct; or
• Reduction in the number of hours of employment.

The following are qualifying events for the spouse and dependent child of a covered employee if they cause the spouse or dependent child to lose coverage: 

• Termination of the covered employee's employment for any reason other than gross misconduct
• Reduction in the hours worked by the covered employee;
• Covered employee becomes entitled to Medicare;
• Divorce or legal separation of the spouse from the covered employee; or
• Death of the covered employee.

In addition to the above, the following is a qualifying event for a dependent child of a covered employee if it causes the child to lose coverage: 

• Loss of dependent child status under the plan rules. Under the Patient Protection and Affordable Care Act, plans that offer coverage to children on their parents' plan must make the coverage available until the adult child reaches the age of 26.

Notice Requirements

Group health plans must give each employee and each spouse of an employee who becomes covered under the plan a general notice describing COBRA rights. The general notice must be provided within the first 90 days of coverage. Group health plans can satisfy this requirement by including the general notice in the plan’s Summary Plan Description (SPD) and giving the SPD to the employee and to the spouse within this time limit.

The employer must provide notice to their health plan administrator within 30 days of the following events: 

• Death of the covered employee
• Termination of employment (other than for gross misconduct)
• Reduction in hours
• When the covered employee becomes eligible for Medicare 
• When the employer files for Chapter 11 bankruptcy

In the case of divorce, legal separation, or a child ceasing to be dependent, the employee or qualified beneficiary must notify the plan administrator within 60 days, or when coverage would cease as a result, whichever is later.

Within 14 days of notice of the qualifying event, the plan administrator must notify the employee or other qualified beneficiary of their right to elect to continue health care coverage identical to that provided to employees in similar circumstances. If the employer is also the administrator, notice must be given within forty-four days of the qualifying event. Notice must be given by first class mail to the recipient's last known address.

The employee or beneficiary must elect continuation coverage within sixty days of when coverage would end or, if later, when notice was received of the right to elect continuation coverage. Payment then due for the coverage must be made within forty-five days of the date of election and thereafter in installment periods as designated.

Continuation Coverage

Continuation coverage must be made available at a premium not exceeding 102% of the applicable premium for the following time periods:

• For 18 months if coverage would end because of a reduction in hours or termination of employment (29 months if beneficiary is disabled)
• For 36 months if coverage would end because of death, divorce, legal separation, eligibility for Medicare or cessation of dependent child coverage
• For 36 months if a second qualifying event (except termination, reduction of hours, or bankruptcy) occurs after the initial 18 month coverage period

A qualified beneficiary will lose the right to COBRA benefits if:

• Premiums are not paid in a timely manner
• The beneficiary becomes covered under another group health plan which has no exclusion or limitation as to any pre-existing condition of the beneficiary
• The beneficiary becomes entitled to Medicare
• The employer no longer maintains any group health plan

Retiree plans have special rules that should be discussed with the plan administrator.