COBRA Administration
Even though COBRA has been around since 1986, complicated issues can escalate quickly.
With this primer for employers you’ll learn the basics of COBRA compliance from a company that’s been doing this for more than 30 years.
What is COBRA?
The Consolidated Omnibus Budget Reconciliation Act of 1986 (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.
However, when your COBRA compliance program isn’t managed properly, you may become exposed to possible IRS excise tax issues, Employee Retirement Income Security Act (ERISA) penalties, litigation and becoming self- insured for claims. COBRA errors have severe consequences, some of which could put a well-intentioned employer out of business.
Continuing legislative changes make COBRA harder to administer, not easier, but with the right solutions on your side, you can spend your precious time managing your workforce, not administering COBRA.
Which employers must comply with COBRA and who is eligible?
The law generally applies to all group health plans maintained by private-sector employers with 20 or more employees, and state or local governments. Plans sponsored by the Federal Government or by churches and certain church-related organizations do not have to comply with COBRA.
Many states have laws similar to COBRA, and those laws may include employers with less than 20 employees. Be sure to check with your state insurance department to determine if your state has additional requirements.
If you are a private sector employer, have more than 20 employees, and offer health care benefits, you must provide COBRA benefits to qualified beneficiaries. A qualified beneficiary includes anyone covered under your group health plan on the day before an event that causes loss of coverage. Common types beneficiaries are:
- Employees, including part-time employees, if they are participants in your plan the day before a qualifying event
- A spouse or former spouse of the employee
- Dependents of the employee
- Retired employees (unless they are eligible for Medicare)
- Partners in a partnership
Employers do not have to offer COBRA to:
- An employee who is not yet eligible for your group health plan
- An eligible employee who declined to participate in your group health plan
- An individual who is enrolled for benefits under Medicare
COBRA Overview
What benefits are covered under COBRA?
Generally, the following plan types need to be offered when COBRA is triggered, but only if you already offer them to employees:
- Health care plans
- Medical spending accounts (FSA, HRA)
- Dental Plans
- Vision Plans
- Hearing Plans
- Prescription Drug Plans
- Alcohol and Substance Abuse Plans
- Mental Health Plans
Plans that are not entitled to COBRA coverage include life insurance, disability insurance, retirement plans, and vacation plans.
What is a qualifying event that triggers COBRA and how long does coverage last?
An event that triggers COBRA coverage is known as a qualifying event (QE). The type of QE determines who the qualified beneficiaries are for that event and the period of time that a plan must offer continuation coverage. The following are qualifying events:
- Termination of the employee’s employment for any reason other than gross misconduct
- Reduction in the number of hours (i.e. from full-time to part-time)
- Death of the employee
- Covered employee becomes entitled to Medicare (dependent eligibility)
- A covered dependent’s change in status (i.e. reaching an age that no longer qualifies the dependent for coverage)
- Active military duty when you don’t voluntarily maintain health coverage
- Failure to return to work at the end of family and medical leave where coverage was in effect at the beginning of the leave but was lost during the leave
COBRA requires that continuation coverage extend from the date of the QE for a limited period of between 18 to 36 months depending on the facts and circumstances.
What do employers need to communicate about COBRA coverage and when?
COBRA dictates what type of notifications you need to provide employees and when. Communication requirements include the following:
- Notifying covered employees and covered dependents of their initial rights under COBRA when they first join the plan
- Notifying covered participants of their election rights to continue coverage after a qualifying event occurs
You must provide notification to the plan administrator within 30 days of a qualifying event, except for divorce and change of status by a dependent. In those cases, you have 60 days to notify the administrator. Then the administrator has 14 days after notice from the employer to notify the person entitled to COBRA coverage.
After the employer sends out the notice to the employee following a QE, the employee has 60 days to notify you if he or she wants coverage. The employee can write you a letter, call you or tell you in person. If you don’t hear from them within 60 days after your notification or 60 days after the event took place (whichever is later), the employee is no longer eligible to enroll.
Who pays for COBRA coverage?
Usually, the employee pays the full cost of the insurance premiums. In fact, the law allows the participants to be charged 102 percent of the premium to cover administrative costs.
The timing of payments is also important. The law states that COBRA coverage can be terminated if premium payments are late. Initial premium payments are due within 45 days after the date of the COBRA election. Premiums payments are expected by the first day of the month, but participants are given a 30 day grace period for making ongoing payments. Failure to make the required payment before the end of the grace period can also result in termination of COBRA.
Some employers may subsidize or pay the entire cost of health coverage, including COBRA coverage, for terminating employees as part of a severance agreement. You should talk to both your plan administrator and your employer about how this impacts the coverage and special enrollment rights.
How to manage your COBRA administration
Complying with COBRA is not simple. It’s easy to miss notification deadlines, and it’s a burden to keep track of enrollment and payments. Organizations of all sizes save time and money by outsourcing administration to companies that have expertise in doing it. The complicated issues involved with COBRA can escalate quickly, so talk to your benefits broker about outsourcing your administration duties or reach out to isolved for help or you can learn more about isolved’s COBRA solution here.