The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows individuals to continue their group health plan coverage in certain situations. Specifically, COBRA requires group health plans to offer continuation coverage to covered employees and dependents when coverage would otherwise be lost due to certain specific events.
These events include the death of a covered employee, termination or a reduction in the hours of a covered employee’s employment, divorce of a covered employee and spouse, and a child’s loss of dependent status under the plan.
COBRA sets rules for how and when continuation coverage must be offered and provided, how employees and their families may elect continuation coverage and when continuation coverage may be terminated.
Employers may require individuals to pay for COBRA coverage. Group health coverage for COBRA participants is usually more expensive than coverage for active employees, since many employers pay a part of the premium for active employees.
WHEN DOES COBRA APPLY?
Most private-sector employers that maintain group health plans for their employees must comply with COBRA’s continuation coverage requirements. This includes, for example, corporations, partnerships and tax-exempt organizations. However, COBRA does not apply to group health plans maintained by small employers. A “small employer” means an employer that had fewer than 20 employees on typical business days during the preceding calendar year.
COBRA also applies to plans sponsored by state and local governments. It does not apply, however, to plans sponsored by the federal Government or by churches and certain church-related organizations.
Impact of State Continuation Coverage – Many states have laws similar to COBRA that apply to fully insured group health plans, including plans maintained by churches and employers with fewer than 20 employees. These are sometimes called mini-COBRA laws. Even if a plan is not subject to COBRA, it may still be required to provide continuation coverage under state insurance laws.
WHO IS ENTITLED TO COBRA COVERAGE?
A group health plan is required to offer COBRA continuation coverage only to qualified beneficiaries and only after a qualifying event has occurred.
A qualified beneficiary is an individual who was covered by a group health plan on the day before a qualifying event occurred and who is an employee, an employee’s spouse or former spouse, or an employee’s dependent child. In addition, any child born to or placed for adoption with a covered employee during a period of continuation coverage is automatically considered a qualified beneficiary.
An employer must offer COBRA coverage only when group health plan coverage ends (or would end) due to a qualifying event. Not all losses of health coverage are caused by qualifying events. For example, a cancellation of health plan coverage—whether at the employee’s request or because of the employee’s failure to pay premiums—is not, by itself, a qualifying event that triggers the requirement to offer COBRA coverage.
The period of COBRA coverage offered to qualifying beneficiaries is known as the “maximum coverage period.” The length of the maximum coverage period depends on the type of qualifying event that has occurred. There are situations where the maximum coverage period can be extended (due to disability or a second qualifying event) or terminated early (for example, when COBRA premiums are not paid).
HOW LONG DOES COBRA COVERAGE LAST?
COBRA requires that continuation coverage extends from the date of the qualifying event for a limited period of time of 18 or 36 months. A group health plan may terminate continuation coverage earlier than the end of the maximum period for any of the following reasons:
- Premiums are not paid in full on a timely basis;
- The employer ceases to maintain any group health plan;
- A qualified beneficiary begins coverage under another group health plan after electing continuation coverage;
- A qualified beneficiary becomes entitled to Medicare benefits after electing continuation coverage; or
- A qualified beneficiary engages in conduct that would justify the plan in terminating coverage of a similarly situated participant or beneficiary not receiving continuation coverage (such as fraud).
- If continuation coverage is terminated early, the plan must provide the qualified beneficiary with an early termination notice.
Please Contact Kelly Insurance Agency for more information.
This Compliance Overview is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.
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