Employers with 20 or more employees subject to the Consolidated Omnibus Budget Reconciliation Act (COBRA) must offer employees and their families who lose health coverage the right to continue that coverage for a limited period of time upon certain circumstances when coverage would otherwise end. Qualified individuals may be charged the entire cost of coverage, plus an additional 2%.
In order to be eligible for COBRA continuation coverage, the plan must be covered by COBRA, a qualifying event must occur, and the person must be a qualified beneficiary for that event.
The following are COBRA qualifying events if they cause a covered individual to lose health coverage:
For an employee:
- Termination of the employee's employment for any reason other than gross misconduct; or
- Reduction in the number of hours of employment.
For an employee’s dependent:
- Termination of the covered employee's employment for any reason other than gross misconduct;
- Reduction in the hours worked by the covered employee;
- Covered employee becomes entitled to Medicare;
- Divorce or legal separation of the spouse from the covered employee; or
- Death of the covered employee.
- Loss of dependent child status under the plan rules. Under the Patient Protection and Affordable Care Act, plans that offer coverage to children on their parents' plan must make the coverage available until the adult child reaches the age of 26.
There must be a loss of group health coverage for a qualifying event to occur.
A trial court recently held in Green v. Baltimore City Board of School Commissioners that a premium increase may be considered a loss of coverage for COBRA purposes. The plaintiffs in the case were suspended without pay and then terminated from employment. Their health coverage continued during the suspension, but they were required to pay the full amount (employer plus employee contributions) for coverage. The individuals sued claiming that they should have been given a COBRA election because they had a loss of coverage when they were required to pay both the employer and employee premium for coverage.
The court agreed with the employees and found that the employees encountered a loss of coverage when their premium increased. This, along with the reduction of hours, created a COBRA qualifying event.
Employers should pay careful attention to their COBRA obligations, even when they voluntarily continue an employee’s coverage. Some coverage continuation may still create a loss of coverage for COBRA purposes.