What is the Consolidated Omnibus Budget Reconciliation Act?

COBRA (Consolidated Omnibus Budget Reconciliation Act) is a law passed by the U.S. Congress in 1985 that provides eligible employees with the ability to continue health insurance coverage for a limited period of time at group rates after employment ends or another qualifying event happens. Qualifying events can include job loss, involuntary work reduction, a transition period between jobs and other major life events. COBRA coverage is typically available for 18 to 36 months following a qualifying life event.

COBRA is available to employees of private-sector employers with more than 20 employees that offer group health coverage, as well as to state and local governments. Most states have similar laws that apply to businesses with fewer than 20 employees. Federal government and church employees are excluded from COBRA.

While group health coverage is typically available for eligible workers at group rates, once employment ends, an employer is no longer obligated to pay any portion of their former employees’ health insurance premiums. This means the former employee is responsible for the full cost of their continued coverage premiums, which, without employer-sponsored subsidization, can be very expensive to many people. However, the main benefit of COBRA is the ability to avoid gaps in health coverage while pursuing new employment or other coverage options.

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What managers should know

If you are an employer with 20 employees or more, here is some important information to know regarding COBRA:

Who is eligible for COBRA

Employees who are eligible for COBRA coverage include full-time and part-time employees who are participants in your group health plan on the day before the job loss or qualifying event. Their covered spouses, dependents and legal partners are eligible for continued coverage under COBRA, as well. Retirees are eligible unless they are also eligible for Medicare, which adds another layer of eligibility requirements to meet.

Employees who are not eligible for COBRA coverage include employees who cannot be covered under your group health plan due to length of employment or any other reason, employees who have declined to participate in your health plan and employees who are receiving Medicare coverage.

What counts as a qualifying event

Events that qualify an employee for continued health coverage under COBRA include the following:

• Termination of employment, voluntary or involuntary, unless it is for misconduct or insubordination . While COBRA does not specifically define misconduct, employers typically define misconduct as involving a willful job-related offense that the employee understands is grounds for termination.
• Reduction in work hours
• Divorce or legal separation from a covered spouse
• The death of the employee
• Eligibility for Medicare
• A covered dependent reaches adulthood
• Deployment for active military duty
• Your business files for bankruptcy

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Benefits covered by COBRA

COBRA covers the following benefits, provided they’re already available to employees:

• Group health and mental health plans
• Dental, vision and hearing plans
• Medical spending accounts and prescription drug plans
• Substance abuse treatment plans

Benefits currently not covered under COBRA include:

• Life insurance
• Disability insurance
• Retirement plans
• Vacation

Rules surrounding the communication of COBRA details to employees

As an employer, it is your responsibility to communicate the availability of benefits continuation under COBRA when a qualifying event takes place, including the following details:

• The employee’s rights under COBRA upon the employee and their covered spouse joining the plan
• The employee’s right to continue coverage after a qualifying event occurs
• Notification deadlines and requirements

After you notify an employee of their right to COBRA coverage after a qualifying event, the employee is allowed up to 60 days to accept or decline coverage. This election can take place via written notice, a telephone call or a face-to-face verbal notification. If the employee fails to respond to your notice within 60 days, they’re no longer eligible to elect to receive coverage.

Special circumstances

Some circumstances may change one or more of the requirements of the employer, beneficiary or plan administrator, including:

• • MEPs:In the case of multi-employer plans, qualified beneficiaries may have up to 60 days to notify plan administrators after an occurrence such as divorce, separation or the end of a dependent’s eligibility. Furthermore, employers under MEPs are not obligated to notify plan administrators when an employee is terminated or no longer eligible due to reduced hours.

• Disability:Disability determinations must be furnished to plan administrators by plan participants or beneficiaries within 60 days of the determination and must be furnished prior to the expiration of COBRA coverage. Beneficiaries are allowed up to 30 days to inform plan administrators of a final determination that their disability status has changed or ceased.

FAQs about COBRA

Below are some commonly asked questions concerning COBRA:

I am an employer with fewer than 19 employees. How do I know whether I’m subject to a COBRA-like state law?

A reliable way to find out about what your responsibilities are under the laws of your state is to contact your state’s department of labor or a labor attorney. Topics you should be prepared to ask about include:

• Benefit plans that are covered
• Employee eligibility
• Qualifying events
• Notification responsibilities
• Length of continuation coverage
• Circumstances in which coverage can be discontinued

What are the required COBRA documentation and notices?

An initial notice of their rights under COBRA and provisions of the law must be provided to employees and their covered spouses upon hire and upon joining the health plan. This information also is required to be provided within the summary plan description, which must be distributed to plan participants within 90 days of initializing participation in the plan. Documentation related to modifications made to plan descriptions must be automatically furnished to plan participants under ERISA (Employee Retirement Income Security Act of 1974).

Employers are required to notify the insurance company of a qualifying event, including the death of the employee, termination of employment, reduction of hours or eligibility for Medicare.