If you know even a little about the employee benefits industry, you’ve most likely heard COBRA mentioned. You also probably know it’s a law pertaining to health insurance and not a snake. But do you know everything you should about the act? Do you feel comfortable your company is 100 percent compliant with the law?
In this article, we’ll define COBRA, plus we’ll detail the act and tell you how your business can stay ahead of all COBRA-related issues and remain compliant to avoid costly penalties.
What is COBRA?
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act (COBRA). The act is a protection contained in the Employee Retirement Income Security Act (ERISA) which sets standards to protect employee benefits. One of these protections is COBRA.
COBRA requires group health plans to offer continuation coverage to covered employees, former employees, spouses, formers spouses, and dependent children when group health coverage would otherwise be lost due to specific events. These events include:
- A covered employee’s death
- A covered employee’s job loss or reduction in hours for reasons other than gross misconduct
- A covered employee’s becoming entitled to Medicare
- A covered employee’s divorce or legal separation
- A child’s loss of dependent status (and therefore coverage) under the plan
This act sets rules for how and when plan sponsors must offer and provide continuation coverage, how employees and their families may elect continuation coverage, and what circumstances justify termination of continuation coverage. Employers may require individuals to pay for COBRA continuation coverage. But p
What Group Health Plans are Subject to COBRA?
COBRA applies to all private-sector group health plans maintained by employers that had at least 20 employees on more than 50 percent of its typical business days in the previous calendar year. Both full and part-time employees are continued to determine whether a plan is subject to COBRA.
The law also applies to plans sponsored by state and local governments. But COBRA doesn’t apply to plans sponsored by the Federal Government, churches, or certain church-related organizations. And, many states (including Nebraska) have laws like COBRA that extend COBRA-like coverage to health insurers of employers with less than 20 employees.
Additionally, it’s essential to know what’s considered a group health plan. A group health plan is an arrangement an employer establishes or maintains to provide employees or their families with medical care. Note, life and disability insurance aren’t considered “medical care.” COBRA doesn’t cover plans that provide only life insurance or disability benefits.
Who’s Eligible for Continuation Coverage?
A group health plan must offer COBRA continuation coverage only to qualified beneficiaries and only after a qualifying life event has occurred.
A qualified beneficiary is an employee who was covered by a group health plan on the day before a qualifying event occurred or that employee’s spouse, former spouse, or dependent child. In some instances that involve employer bankruptcy, a retired employee and their spouse, former spouse, or dependent children may be qualified beneficiaries.
Plus, any child born to or place for adoption with a covered employee during a period of continuation coverage is automatically considered a qualified beneficiary. An employer’s agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.
A qualifying event is an event that causes an individual to lose group health coverage. The kind of qualifying event determines who the qualified beneficiaries are and the period that a plan must offer continuation coverage.
Notice COBRA establishes only the minimum requirements for continuation coverage. A plan may always choose to provide more extended periods of continuation coverage and/or to contribute toward the cost.
Qualifying events for a covered employee if they cause the employee to lose coverage include:
- Termination if the covered employee’s employment for any reason other than “gross misconduct,” or
- Reduction in the covered employee’s hours of employment
Qualifying events for a spouse and dependent child of a covered employee if they cause the spouse or dependent child to lose coverage include:
- Termination of the covered employee’s employment for any reason other than “gross misconduct”
- Reduction in hours worked by the covered employee
- Covered employee becomes entitled to Medicare
- Divorce or legal separation from the covered employee, or
- Death of the covered employee
Additionally, 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 Affordable Care Act, plans that offer coverage to children on their parents’ plan must make coverage available until the child reaches the age of 26.
Now you know the ins and outs of COBRA continuation coverage. But that isn’t all you need to know about COBRA. Stay tuned throughout this week as we cover COBRA notice and then election procedures.