COBRA Still Flourishes as a Choice for Continuation Health Insurance
Some people seem to believe that the Affordable Care Act (ACA) has replaced the Consolidated Omnibus Budget Reconciliation Act (COBRA). That’s wrong, although the ACA has changed COBRA and the health insurance landscape in recent years.
Obtaining health insurance through an exchange is an alternative to COBRA, but that old workhorse legislation remains viable for employees leaving a company who still want to retain their coverage,
COBRA, along with the Internal Revenue Code and other pieces of legislation, may require employers with a group health insurance plan to offer continued health insurance coverage to a departing employee. The law, administered by the Department of Labor (DOL), applies to private employers with 20 or more employees and state and local government entities. It doesn’t apply to the federal government. As well, many states have enacted comparable laws.
Coverage under COBRA generally is extended to an employee’s spouse, ex-spouse and dependent children when group coverage is lost for certain reasons. To be eligible, employees must have been enrolled in an employer’s health plan that’s still active.
Although employers are required to notify employees of their COBRA rights and to offer continued coverage, the cost may be shifted to the departing employee. COBRA premiums can be expensive. COBRA coverage is triggered by one of these qualifying events:
- Employment ends for any reason other than gross misconduct.
- Working hours are reduced.
- The employee becomes entitled to Medicare.
- The employee becomes divorced or legally separated.
- The employee dies.
- A child loses dependent status under the plan’s rules.
Note: Under the ACA, plans that offer coverage to children on their parents’ plan must make the coverage available until the adult child reaches age 26. Also, ACA offers subsidies to some to help lower their monthly premiums.
COBRA requires coverage to last for 18 or 36 months. The length of time depends on the qualifying event and the plan may provide longer periods of coverage. The rules generally are:
- 18 months when the qualifying event is termination of employment or a reduction of working hours,
- 36 months for a spouse and dependents when the event is termination or reduction of hours and the employee became entitled to Medicare less than 18 months before the event, and
- 36 months for the other qualifying events.
In certain circumstances, following a single event, if any one of the beneficiaries is disabled and meets certain requirements, all qualified beneficiaries are entitled to an 11-month extension for a total 29 months. The plan can charge qualified beneficiaries an increased premium of as much as 150% of the cost of coverage during the extension.
If your business has a group plan, it must notify covered employees and their families of their COBRA rights within 90 days of becoming a plan participant. In addition, group health plans must furnish covered employees and their spouses with a general notice describing their COBRA rights — also within the first 90 days of coverage.
As an employer, you must inform the plan within 30 days of termination or reduction of hours, death, entitlement to Medicare, or bankruptcy of your business. Covered employees must notify the plan in the event of divorce, legal separation or a child’s loss of dependent status.
When the plan receives notice, it will give the beneficiaries a notice within 14 days describing the rights to continued coverage and how to make the election for coverage.
Employees have at least 60 days to choose the continued coverage. Generally, the qualified beneficiary must pay for the extended coverage, although your business may choose to do so. The amount charged can’t exceed the regular cost to the plan plus a 2% fee for administrative costs.
This is just a brief overview of COBRA as it pertains to both employers and employees. For more information about the rights and responsibilities under this important and still relevant law, consult with your employee benefits adviser.
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Losing COBRA Coverage
COBRA continuation coverage may be terminated before the end of the maximum period under the following circumstances:
- Premiums aren’t 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 in termination of coverage of a similarly situated participant or beneficiary not receiving continuation coverage (for example an employee commits fraud).
If continuation coverage is terminated early, the plan must provide the beneficiary with an early termination notice.