What is 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.
COBRA generally requires that group health plans sponsored by employers with 20 or more employees in the prior year offer employees and their families the opportunity for a temporary extension of health coverage (called continuation coverage) in certain instances where coverage under the plan would otherwise end.
COBRA outlines how employees and family members may elect continuation coverage. It also requires employers and plans to provide notice.
Failure to comply with COBRA rules can result in substantial monitory penalties. (see below)
Who Is Entitled To COBRA Continuation?
A qualified beneficiary generally is an individual covered by a group health plan on the day before a qualifying event who is either an employee, the employee's spouse, or an employee's dependent child. In certain cases, a retired employee, the retired employee's spouse, and the retired employee's dependent children may be qualified beneficiaries. In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary. Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.
What Triggers A COBRA Qualifying Event?
Qualifying events are certain events that would cause an individual to lose health coverage. The type of qualifying event will determine who the qualified beneficiaries are and the amount of time that a plan must offer the health coverage to them under COBRA. A plan, at its discretion, may provide longer periods of continuation coverage.
The qualifying events for employees are:
- Voluntary or involuntary termination of employment for reasons other than gross misconduct
- Reduction in the number of hours of employment
The qualifying events for spouses are:
- Voluntary or involuntary 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's becoming entitled to Medicare
- Divorce or legal separation of the covered employee
- Death of the covered employee
The qualifying events for dependent children are the same as for the spouse with one addition:
- Loss of dependent child status under the plan rules
Who Pays For COBRA?
Beneficiaries pay for COBRA coverage. The premium cannot exceed 102 percent of the cost to the plan for similarly situated individuals who have not incurred a qualifying event, including both the portion paid by employees and any portion paid by the employer before the qualifying event, plus 2 percent for administrative costs.
How Is The Number Of Employees Calculated?
COBRA generally applies to all private-sector group health plans maintained by employers that have 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 counted to determine 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.
Penalties For Failure to Comply
- The IRS may assess excise tax penalties of $100 per day (up to $200 per day if more than one qualified beneficiary from the same family is affected) for each day a plan fails to comply with COBRA.
- For single employer plans, the overall limit on the liability for excise tax penalties for failures due to reasonable cause (and not willful neglect) is $500,000.
- Qualified beneficiaries may sue to recover statutory penalties of $110 per day for a plan’s failure to provide him or her with the General Notice or the COBRA or Election Notice.
- Qualified beneficiaries can sue to recover COBRA coverage allegedly due under the plan. In these cases, the employer, Plan Administrator or the insurance company can become obligated to provide COBRA coverage.
- Other relief may be available to qualified beneficiaries based on a plan’s failure to provide him or her with the General Notice or COBRA Election Notice.
- The Court is permitted in a COBRA lawsuit to award attorneys’ fees and interest to the prevailing party.
ESP Benefit Design provides COBRA administration to it's clients at no additional charge. If you are not a current client please contact us at 614-882-8535 for a quote on COBRA administration services.