COBRA, the Consolidated Omnibus Budget Reconciliation Act, ensures individuals covered by employer group health coverage are able to continue that coverage upon the occurrence of certain life events. COBRA qualifying events include:
- The death of a covered employee.
- Termination or reduction in the hours of a covered employee's employment for reasons other than gross misconduct.
- A covered employee becoming entitled to Medicare.
- Divorce or legal separation of a covered employee and spouse.
- A child's loss of dependent status (and therefore eligibility for coverage) under the plan.
Employers are subject to COBRA if they have 20 or more employees on more than 50% of typical business days in the previous year. Even part-time employees count towards this threshold, with the calculation threshold counting a part-time employee as a fraction of a full-time equivalent based on work hours. Additionally, multiemployer group health plans are covered if any contributing employer typically employed 20 or more individuals in the preceding year.
COBRA continuation coverage must be identical to the coverage currently available under the plan to similarly situated individuals who are not receiving continuation coverage. This is the same coverage that the qualified beneficiary had immediately before the qualifying event. A qualified beneficiary receiving COBRA coverage must receive the same benefits, choices, and services that a similarly situated participant or beneficiary currently receives under the plan. The qualified beneficiary is also subject to the same plan rules and limits that would apply to a similarly situated participant or beneficiary.
The maximum amount a qualified beneficiary can be charged for COBRA coverage cannot exceed 102 percent of the cost to the plan for similarly situated individuals covered under the plan who have not incurred a qualifying event. In calculating premiums for continuation coverage, a plan can include the costs paid by both the employee and the employer, plus an additional 2 percent for administrative costs. For qualified beneficiaries receiving a 11-month disability extension of continuation coverage, the premium for those additional months may be increased to 150 percent of the plan's cost of coverage.
The length of COBRA continuation coverage depends on whether the coverage is for the employee or the covered dependents and the type of qualifying event.
- 18 months due to termination of employment or a reduction in hours; or
- 29 months if a qualified beneficiary on the plan is eligible for a disability extension.
Dependents who are qualified beneficiaries may extend the length of COBRA coverage in certain circumstances, as follows:
- 36 months when losing dependent-child status under the plan;
- Up to 36 months of coverage, when the qualifying event is termination of employment or a reduction in hours and the employee became entitled to Medicare less than 18 months before the qualifying event; or
- Up to 36 months of coverage, when there is a second qualifying event duringcontinuation coverage.
It is important for HR professionals to be familiar with COBRA requirements to ensure plan and employer compliance.
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