Overview

The Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") is a detailed and complex federal law with many exceptions and special rules. This overview briefly summarizes our understanding of COBRA and is not a legal opinion. You should consult your legal counsel for advice on your specific situation and how COBRA affects you. Failure to comply with COBRA can lead to significant financial consequences for the employer, plan, or plan administrator.

Generally, COBRA allows a qualified beneficiary (covered employees, spouses, and/or dependents), who loses group health coverage due to a qualifying event, to elect, within the election period, to continue group health coverage for a period of time on a self-pay basis.

Applicability

COBRA applies to virtually all "group health plans." Generally, a "group health plan" provides medical care and is maintained by an employer. Medical care includes medical, dental, vision, and prescription drug treatments and coverage. COBRA doesn't apply to any plan whose substantial coverage is long-term care services. All employers who had 20 or more employees (including part-time employees) for at least 50% of working days during the previous calendar year are required to provide COBRA continuation coverage under their health care plans. The coverage that must be offered to a qualified beneficiary is generally, the same coverage that the qualified beneficiary had on the day before the qualifying event.

The following employers are exempt from the COBRA requirements:

• An employer with fewer than 20 employees (may be subject to state continuation laws)
• Employers maintaining church plans
• The federal government
• The District of Columbia
• Territories, possessions, agencies, or instrumentalities of the United States

Qualifying Events

COBRA continuation coverage must be offered to all qualified beneficiaries who are covered under a group health plan and who lose that coverage because of a qualifying event. COBRA qualifying events are:

• An employee's death
• Voluntary or involuntary termination of employment, other than for gross misconduct (if an employee is terminated for gross misconduct, no one in the family is offered continuation coverage)
• A reduction in the employee's hours of employment
• Divorce or legal separation from the covered employee
• The employee becomes entitled to Medicare
• A child ceases to meet the definition of dependent under the group health plan
• For retired employees, the employer filing for bankruptcy

Length of COBRA Coverage

Maximum Coverage Period. The maximum coverage period defines the longest possible period of COBRA coverage available in varying circumstances.

18 Months for:

• An employee who voluntarily or involuntarily terminates employment (other than for gross misconduct)
• An employee who has a reduction in hours

36 Months for:

• A spouse whose health coverage terminates due to divorce or legal separation of employee
• A dependent child and/or spouse of a deceased employee
• A dependent child who loses dependent status
• A dependent child and/or spouse who loses coverage because the employee enrolls in Medicare

Extension Periods. COBRA allows for extensions of the COBRA maximum coverage period in the following narrowly-defined situations:

• Extended Notice. If the employer sends its notice of the qualifying event to the plan administrator within 30 days after the loss of coverage instead of 30 days after the triggering event, COBRA allows the maximum coverage period to start from the date of the loss of coverage.
• Disability Extension. The 18-month maximum COBRA period may be extended by 11 months for a total of 29 months under the disability extension if all of the following conditions are met:
  • the qualifying event must be termination of employment or reduction in hours
  • a qualified beneficiary must be determined under the Social Security Act to have been disabled at any time during the first 60 days of COBRA coverage, and
  • the plan administrator must be notified by the qualified beneficiary within 60 days after the date of the disability determination and before the end of the original 18-month period
• Multiple Qualifying Event Extension. When the first qualifying event is termination of employment or reduction in hours and is followed by a second qualifying event such as death, divorce, dependent child ceasing to be a dependent, etc., then the 18 month period is extended to 36 months. (The maximum coverage period cannot be longer than a total of 36 months.)
• Medicare Entitlement Extension. When the qualifying event is termination of employment or reduction of hours and the employee is entitled to Medicare at the time that he or she terminates employment/reduces hours and has had the Medicare coverage for less than 18 months, then the spouse and/or dependent child may extend the COBRA coverage for a total of 36 months.
• Employer Bankruptcy Extension (for Retiree Plan Only). If an employer files a Chapter 11 bankruptcy petition, certain retirees and their related qualified beneficiaries are eligible for lifetime COBRA continuation. (Upon the retiree's death, the spouse and dependent children are eligible for up to an additional 36 months of COBRA continuation.)

Termination of COBRA Continuation Coverage

COBRA continuation coverage can be terminated before the expiration of the maximum coverage period for the following reasons:

• The employer ceases to maintain a group health plan
• The individual fails to make timely payment of COBRA premiums
• The qualified beneficiary becomes covered under another group health plan that does not include a pre-existing conditions clause after electing COBRA coverage
• The qualified beneficiary becomes covered under Medicare after electing COBRA coverage
• The disabled qualified beneficiary whose maximum coverage period has been extended to 29 months and is determined not to be disabled anymore
• The qualified beneficiary's COBRA coverage is terminated for cause (on the same basis as would apply to a similarly-situated active employee)

COBRA Notice Requirements

Employers must notify all covered employees and their spouses of their COBRA rights when they are first covered under the plan. This notice should be sent by first class mail or certified mail to the employee's home address. In addition, the right to continuation coverage must be included in the Certificate of Insurance or the Summary Plan Description for all health care plans.

Qualifying Event Notice/COBRA Election Notice

When a qualifying event occurs and the participant loses coverage, a notice explaining COBRA rights along with a COBRA election form must be sent to the participant. The employer has 30 days to notify its' COBRA plan administrator, if applicable, of the following qualifying events:

• Termination, or reduction in hours
• Death of the covered employee
• The covered employee becomes entitled to Medicare, or
• The employer's bankruptcy

After notification by the employer, the plan administrator has 14 days to send out the qualifying event notice.

The employee or qualified beneficiary must notify the plan administrator within 60 days of the following qualifying events:

• Divorce or legal separation
• Child loses dependent status
• Qualified beneficiary meeting the conditions for extension of coverage because of a determination of disability under Social Security

COBRA Election

The employee or qualified participant must affirmatively elect to continue his or her group health plan coverage and notify the employer or the plan administrator within the election period. The COBRA election period is 60 days from the later of:

• The date the group health plan coverage is lost; or
• The date the plan administrator provides the COBRA election notice to a qualified beneficiary

Premium

A qualified participant who wishes to be covered by COBRA must pay the premium for coverage. COBRA coverage may cease if premium payments are not made. The COBRA premium for a month's coverage cannot be more than 102% of the plan's cost for other similarly situated employees, with one exception: For qualified beneficiaries who extend COBRA coverage to 29 months because of entitlement to Social Security disability benefits, the premium for months 19 through 29 may be 150% of the plan's cost.

Qualified participants have a 45-day grace period for the first COBRA premium, and a 30-day grace period for all other premium payments. COBRA premiums can only be raised once a year. The date when premiums can be raised must be consistent from year to year.

Changes in Coverage

The following changes must be allowed for qualified participants enrolled in COBRA continuation coverage:

• If an employee or spouse drops COBRA family coverage, other participants covered under the family policy must be allowed to switch to single coverage
• If plan provisions are changed for active employees, those same changes must also apply for the COBRA participants
• If the plan provides for dependent coverage and a COBRA participant gains a new dependent child through birth, adoption, or placement for adoption, the COBRA participant may add the child within 30 days of the event
• If the plan provides for dependent coverage and a COBRA participant get married, the spouse may be added
• If the plan has an open-enrollment period for active employees, a COBRA participant must be allowed to participate in the open enrollment