An important federal law imposes certain obligations on many employers to continue providing health care coverage to an employee and dependents, if applicable, in the event of a change of employment or job status.
This law is often referred to as “COBRA” – The Consolidated Omnibus Budget Reconciliation Act of 1985. According to COBRA, if an employer provides health care benefits to an employee and there is a change in that employee’s job status, the employer must afford the ability to continue coverage under their employer’s group health plan, at the employee’s expense. The COBRA continuation requirements apply to all of the “core benefits” provided under any group health plan that furnishes medical benefits to employees and their dependents, regardless of whether the plan is insured or self-funded. COBRA does not apply to employers who have less than 20 employees.
COBRA was designed to address concerns about Health insurance portability during periods of unemployment and labor force withdrawal and in situations in which a worker leaves, or would like to leave a job. Under the rules, employers have important obligations to both apprise the covered employees and other qualified beneficiaries of their rights and to continue to supply the Health insurance coverage upon payment of the appropriate premium amount. The continued coverage must, in most cases, be supplied after the occurrence of a “qualifying event.” The premium charged by the employer can be no more than the employer’s actual cost, plus 2%.
An employee and his beneficiaries are eligible to elect COBRA only if they were covered by the employer’s health care plan immediately prior to a “qualifying event.” A “qualifying event” could be any of the following:
- Termination of employment
- Reduction in work hours
- Employee’s death
- Employee’s divorce
- Loss of dependent status
- Medicare entitlement
- An employer’s filing of a bankruptcy proceeding (retirees and certain dependents only).
The most common qualifying event is the termination of employment. An employer is obligated to provide an employee with COBRA benefits in case of both voluntary and involuntary termination as well as reduction in work hours. Individuals who were covered by an employer’s group health plan are eligible to elect COBRA upon the occurrence of a qualifying event, no matter how long or short a time they were in the employer’s group health plan.
The time period for which continuation coverage must be offered by the employer varies. In the case of termination of employment or reduction of work hours, the employer is obligated to provide COBRA coverage for 18 months after the qualifying event. In case of the other qualifying events listed above, the coverage has to be provided for 36 months.
To fulfill COBRA obligations, it is the employer’s responsibility to notify the plan administrator (of the group health plan) of a qualifying event within 30 days of the actual event or by the date that the employee will lose their coverage, whichever is later. The employer should then see to it that the plan administrator notifies the beneficiary and his/her dependents, within the next 14 days, of their rights to continued coverage under COBRA. If the employer does not have access to COBRA administration services, the employer must ensure that the employee is provided with written notice of their rights within 44 days from the date of the event. Qualified beneficiaries are given a certain period of time (the “election period”) to elect continued coverage. This period lasts for at least 60 days, and may begin on different dates, depending on when coverage would otherwise be lost and when notices are given.
COBRA coverage is considered advantageous to most workers, as it allows them to continue coverage even after leaving or losing a job. Though they can be required to pay the entire entire premium, they can generally realize significant savings compared with the cost of purchasing equivalent insurance from the private insurance market. This is especially true for older workers, particularly those suffering from pre-existing conditions.