COBRA and Your Business

Updated: Apr 12

What exactly is COBRA?

COBRA is also referred to as Consolidated Omnibus Budget Reconciliation Act of 1985 and it is nothing but a federal law, which needs employers employing either 20 or more employees and offering benefits related to health care to also provide the alternative of ensuring that this coverage continues in the case of individuals who would end up losing access to such benefits because of employment termination, decrease in the overall number of hours or certain other scenarios. Different states might have laws similar to COBRA that are applicable.

In case you are an employer who is covered by the COBRA laws, then there is a need for you to learn fundamental aspects of the law, such as the employees who are eligible for COBRA and the benefits that are included under COBRA, the scenarios that fall under the COBRA coverage, and the various aspects of communication that must be facilitated by you. You can outsource certain administrative duties, such as signing up employees who are eligible.


What Employers Must Provide COBRA Benefits?

In case COBRA is applicable in your case, and there is a group health plan in place, you must offer COBRA-based benefits to people who qualify for it. Any person who is covered under the group health plan one day prior to the scenario resulting in the loss of coverage is considered to be a qualified beneficiary, which includes:

  • Employees (part-time employees included) in case they were a part of your plan one day prior to the event that triggered the loss of coverage

  • Spouses of such employees

  • Dependents of such employees

  • Retirees, if they are qualified under Medicare

  • Partners within a partnership

COBRA coverage need not be offered to those who fall under the following category:

  • any employee who still does not qualify for your group health plan

  • an employee who is eligible but has denied participation in the company’s group health plan

  • a person who enrolls for benefits under Medicare


Which Benefits Are Covered?

Typically, the following kinds of plans must be offered to employees upon the triggering of COBRA. However, this is only the case in case you already offer them to employees:


  • health care plans

  • medical spending accounts

  • dental plans

  • vision plans

  • hearing plans

  • prescription drug plans

  • alcohol and substance abuse plans

  • mental health plans


For people who are covered by COBRA, life insurance, disability insurance, retirement plans, and vacation plans need not be extended.


Which Events Trigger COBRA?

Any event that triggers coverage is also called a qualifying event. Some of the qualifying events are:

  • Voluntary or involuntary termination of an employee, only if the cause is not due to gross misconduct. Misconduct is not defined by COBRA. However, if you want to deny COBRA benefits, some types of misconduct that can be considered are:

  • A connection must be present between the offense and the job of the employee.

  • There is a need for the employee to comprehend the misconduct’s gravity.

  • The offense has to be willful.

  • In case the employee who is departing chooses to challenge your decision, the issue may be moved to federal court. It is best to gauge the potential costs of dealing with the enforcement suit and the overall costs of the COBRA coverage.

  • The decrease in the working hours of the employee, such as full time to part-time

  • The divorce of a spouse who is covered or their legal separation from an employee

  • Death of an employee

  • The entitlement of the employee to Medicare

  • The change in status of the dependent who is covered (such as attaining an age following which They are no longer covered under the health plan of a parent

  • Active military duty when health coverage is voluntarily not maintained

  • Failing to go back to work when family and medical leave end, in cases where coverage was applied when the leave was applied, but it was lost during the period of leave

  • The bankruptcy of your business

How long does COBRA coverage last? Based on the kind of event as well as the beneficiary, the coverage may remain effective for 18 or 36 months following the date of the event or the loss of coverage:

  • due to employment termination or decrease in working hours — 18 months for both the employee and dependents who are covered

  • any other reasons — 36 months of coverage


Employer COBRA Communication Duties

COBRA emphasizes that it is important that the employee learns about their right to continue enjoying benefits even when a qualifying event emerges, which is only possible through effective communication, inclusive of the following notifications:

  • You must notify employees and their spouses who are covered regarding their initial rights applicable under COBRA during their joining into the plan.

  • The covered persons must be notified of their election rights for continuing coverage following a qualifying event occurs.

  • You will have 30 days for notifying the plan administrator (which is typically the insurance company) in case a loss occurs due to any of the aforementioned reasons, barring divorce and the alteration of a dependent’s status when there is 60 days’ time to inform the administrator. Following your notice, the administrator has 14 days to inform the person who is covered under COBRA.

Once you notify an employee after a qualifying event, they have 60 days to notify you if they are interested in coverage. This can be communicated via a letter, a phone call, or even in person. In case the employee does not contact you within 60 days following your notification or 60 days following the occurrence of the event (whatever comes later), they become ineligible for signing up.


Health exchange information to be included under COBRA election notice. An election notice that explains the employee’s right to enjoy continued coverage must be offered by a group health plan to individuals who are eligible within 14 days following the reception of the notice of a qualifying event by the plan administrator.


The Department of Labor (DOL) has formulated a model COBRA election that is altered for the inclusion of the health care exchange coverage alternatives present under health care reform.

The DOL guidance states nothing regarding the requirement of exchange information for a COBRA election notice. But do note that the guidance highlights that using the model notice that is revised will be construed as good faith adherence to COBRA’s election notice requirements.


Making Payments for COBRA Coverage

Who exactly pays the money required for COBRA coverage? Typically, the employee ends up paying the complete cost of the insurance premiums. Moreover, the law permits employers to charge 102 percent of the premium, wherein the extra 2 percent is useful for taking care of administrative costs. Upon the extension of COBRA coverage to an employee because of disability, employers can also seek 150 percent of the premium starting during month 18, till month 29.


One important aspect is the timing of payments. According to federal law, COBRA coverage can cease in case premium payments are late. Moreover, the law states that any premium’s payment is considered to be timely in case it is made within 30 days following the due date or even a longer period if it is determined under the plan. It is only on the first day of the coverage period that the due date can begin. In case someone opts for COBRA coverage, they can make the first payment within the first 45 days.


The process becomes more complex as the majority of insurers seek advance payments for coverage. However, according to the law, those who are insured under COBRA must be provided with a 30-day grace period from the moment the payment becomes due.

Example

Let us say Ricky quits his job as well as his group health plan coverage on August 1, and COBRA coverage is elected on September 1. He chooses to pay his premiums on a monthly basis.

The first premium payment of Ricky is due on October 16, when he must pay for both August and September, while for October, he must make the payment by October 30.

Following that, Ricky must pay within 30 days following the first day of each month.


Complying With State COBRA-Like Laws

Each state could also have laws similar to COBRA, associated with the continuation of benefits. A few cover every employer, which includes small employers, and thus, you may be subject to state law in cases where the federal law doesn’t apply. The laws are quite complicated and may be different in each state. Get in touch with your state labor agency or your attorney to learn about the laws of your state.

When you are learning about your state law, ask the following questions:

  • What are the benefit plans that are covered

  • Who are the employers and benefit providers who must comply with this law

  • Which employees qualify to continue enjoying benefits under the law

  • What are the events triggering continuation coverage (qualifying events)

  • What are the notification requirements you must adhere to

  • What is the time period of continuation coverage

  • When can coverage be terminated

Outsourcing Your COBRA Administration

It can be exhausting to adhere to COBRA, and thus, many big companies save a lot of time and money when they decide to outsource administration to specialized entities. Since there are many complex issues involved, especially when there are many employees, it is best to outsource your administration duties.


Have any questions about COBRA benefits? Contact us at (212) 365-4553 or info@bentonoakfield.com to learn more.