COBRA Facts

WHAT IS COBRA?

The Consolidated Omnibus Reconciliation Act of 1985 established standard regulations regarding continuation of health care coverage for qualified employees and their dependents. It allows a qualified beneficiary to maintain coverage under the employer's group health plan, at their own expense, for a specified amount of time after the occurrence of a qualifying event that would otherwise cause a loss of coverage.

Like many Federal regulations, the laws governing COBRA compliance are explicit and subject to frequent revision. Compliance becomes increasingly complicated in conjunction with other Federal regulations, such as the Family Medical Leave Act and the Health Insurance Portability and Accountability Act. Failure to comply with just ONE COBRA regulation can result in serious financial penalties for the employer. The following information provides a general overview of the maze of COBRA regulations. It is not intended to be used in lieu of Federal COBRA regulations, which must be strictly adhered to in order to achieve 100% compliance.

WHO IS SUBJECT TO COBRA?

All employers, (except state, federal, government or church plans) who:

1. Offer a group health plan AND
2. Employed 20 or more employees during 50% of the business days of the preceding calendar year.

WHAT IS A QUALIFYING EVENT?

The following events qualify employees and their dependents for COBRA coverage, IF occurrence of the event would result in a loss of coverage under the group health plan. The maximum term of COBRA coverage for each qualifying event is also indicated.

QUALIFYING EVENT	MONTHS OF COVERAGE
Reduction in hours or termination of employment for reasons other than gross misconduct	18 MONTHS *
The death of a covered employee	36 MONTHS
A covered employee's divorce or legal separation	36 MONTHS
A covered employee becomes entitled to Medicare	36 MONTHS
A child's loss of dependent status	36 MONTHS
Employer Bankruptcy (Retiree Plans Only)	Up to the date of the qualified beneficiary's death

*This period is extended to 29 months if Social Security determines that any qualified beneficiary was disabled during the first 60 days of continuation coverage.

SECONDARY EVENTS- If a beneficiary qualifies for coverage due to a reduction in hours or termination of employment and a second qualifying event is experienced within the 18 -month maximum coverage period, then the beneficiary's coverage is extended to meet the maximum allowable period for the second qualifying event. Second qualifying events apply only to the spouse or dependent of a covered employee. Secondary events that result in extension are:

• The death of a covered employee
• A covered employee's divorce or legal separation
• A covered employee becomes entitled to Medicare
• A child's loss of dependent status.

In the event of a second qualifying event, the maximum coverage period is calculated from the date of the first qualifying event.

WHO IS A QUALIFIED BENEFICIARY?

A qualified beneficiary is an employee, or the spouse or child of a covered employee, who was covered by a group health plan on the day before the qualifying event.OR

A child born to or placed for adoption with a covered employee who has COBRA coverage.

For more details try the 'Determining COBRA Qualification' worksheet in the TOOLS section

WHAT ARE THE EMPLOYER'S RESPONSIBILITIES REGARDING COBRA?

NOTIFICATION RESPONSIBILITIES

An employer has very specific legal obligations. As mentioned earlier, failure to comply with just ONE of these can result in serious financial penalties for the employer. All notifications must contain proper verbiage and be delivered in a manner compliant with Federal regulations. Proof of compliance must be retained.

General Notice-The employer or plan administrator has the legal responsibility to notify the employee, spouse and his or her dependents of their COBRA rights when they first become covered under a qualifying health plan.

Qualifying Event-The employer must notify the plan administrator that a qualifying event has occurred within 30 days of the following qualifying events:

• Covered employee's termination or reduction in hours
• Covered employee's death
• Covered employee becomes entitled to Medicare
• Employer commences Chapter 11 bankruptcy that would result in loss of coverage for a retiree or covered retiree's dependent within one year before or after filing.

Specific Notice-The employer or plan administrator must notify covered employees and their dependents of their rights to continued coverage under COBRA within 14 days of notification that a qualifying event has taken place. If the employer is also the plan administrator this notification period is extended to 44 days.

ELECTION RIGHTS

Following a qualifying event, the employer must allow a qualified beneficiary to continue coverage under the group plan for up to 18-36 months, depending on the event.

The qualified beneficiary has the option of electing continued coverage for up to 60 days from the later of:

1. The day that coverage is lost due to the qualifying event OR
2. The date that the qualified beneficiary is informed of his or her right to elect COBRA coverage.

Each qualified beneficiary has the right to elect COBRA coverage independently of other eligible family members.

CONTINUATION COVERAGE

A beneficiary may initially reject COBRA coverage, but if he or she reconsiders at any point during the 60-day election period coverage MUST be provided, so long as the beneficiary remits the required premium within 45 days of electing COBRA coverage.

The employer must provide a qualified beneficiary with coverage equivalent to that provided to similarly situated active employees. In general, this is interpreted as the coverage that was held prior to the qualifying event. The privileges that an active employee would experience in regard to the plan must be offered to those who elect COBRA coverage, i.e. the option to change coverage during open enrollment periods.

The premium necessary to continue coverage under COBRA is not to exceed 102% of the amount of the applicable premium, which is defined as the amount of premium for active employees of equivalent status.

CONVERSION RIGHTS

The beneficiary must be offered the right to convert from the group health plan to an individual plan without proof of insurability within 180 days of the date that COBRA coverage ended, IF the plan allows conversion rights.

WHAT ARE THE EMPLOYEE'S RESPONSIBILITIES REGARDING COBRA?

The covered employee or qualified beneficiary who wishes to elect COBRA coverage must follow specified guidelines to implement and continue such coverage.

NOTIFICATION RESPONSIBILITIES

Qualifying Event-It is the covered employee or qualified beneficiary's responsibility to notify the plan administrator of the following qualifying events within 60 days of the event:

• The divorce or separation of a covered employee
• A child's loss of dependent status

Notice of Disability-In order to receive the disability extension (to 29 months), the qualified beneficiary must notify the plan administrator within 60 days of Social Security's disability determination.

Notice of Disability Cessation-In the event that a qualified beneficiary ceases to meet Social Security's definition of disability, the beneficiary must notify the plan administrator within 30 days of Social Security's final determination.

COBRA ELECTION

If a qualified beneficiary elects COBRA coverage then he or she must pay the premiums within 45 days of the date that coverage was elected. The initial payment is calculated from the date that coverage would have been terminated. Following the initial premium a grace period of 30 days from the first day of the coverage period is allowed for premium payment.

CAN COBRA COVERAGE BE TERMINATED PRIOR TO THE END OF THE MAXIMUM COVERAGE PERIOD?

An employer may cancel a qualified beneficiary's COBRA coverage for the following reasons:

Group Health Coverage Terminated- if the employer ceases to provide health coverage for all covered employees COBRA coverage can be terminated. In the event that the employer ceases to offer a particular plan, but provides an alternative to covered employees, those with COBRA coverage must also be allowed to enroll in the new plan.

Failure to Pay Premiums- If the qualified beneficiary fails to pay the necessary premium within the 30-day grace period, COBRA coverage can be terminated.

Coverage Under Another Plan- If a qualified beneficiary becomes covered under comparable group health plan COBRA coverage MAY be terminated. However, what constitutes a comparable plan is open to interpretation, so care should be taken before terminating coverage for this reason.

Medicare Entitlement- If a qualified beneficiary becomes entitled to Medicare AFTER COBRA is elected he or she may be terminated from COBRA. Dependents of the Medicare entitled person remain eligible for COBRA, and in fact experience a second qualifying event, which extends their maximum coverage period to 36 months.

Leaves Coverage Area- If a plan provides coverage only to subscribers within a particular region and the beneficiary leaves this area coverage may be terminated.

COBRA Term Ends- At the end of the maximum coverage period COBRA may be terminated.

TOOLS

MAXIMUM ALLOWABLE COVERAGE PERIODS

QUALIFYING EVENT	MONTHS OF COVERAGE
Reduction in hours or termination of employment for reasons other than gross misconduct	18 MONTHS *
The death of a covered employee	36 MONTHS
A covered employee's divorce or legal separation	36 MONTHS
A covered employee becomes entitled to Medicare	36 MONTHS
A child's loss of dependent status	36 MONTHS
Employer Bankruptcy (Retiree Plans Only)	Up to the date of the qualified beneficiary's death

*This period is extended to 29 months if Social Security determines that any qualified beneficiary was disabled during the first 60 days of continuation coverage.

DETERMINING COBRA QUALIFICATION

If the answer to all of the questions below is 'Yes,' or 'Does Not Apply,' then the individual is eligible for COBRA.

1. Is the individual covered by a group health plan sponsored by an employer who had more than 20 employees for 50% of the days of the last calendar year?
2. Is the individual one of the following:
   • A covered employee
   • The spouse of a covered employee
   • The child of a covered employee
3. Is the individual an U.S. citizen who receives income from an U.S. source?
4. If the individual is a covered employee or the spouse of a covered employee was he or she covered by the group health plan the day before the qualifying event?
5. If the individual is the child of a covered employee, was this child covered by the health plan on the day preceding the qualifying event OR
6. Was the child born or placed for adoption with the covered employee during a period of COBRA coverage and enrolled in the plan at that time?
7. Did the individual experience a qualifying event?

NOTIFICATION TIMETABLE