Employers with 20 or more employees and offering group health coverage must offer a continuation of that coverage under COBRA, to covered individuals who lose that coverage upon the occurrence of a qualifying event. Most employers are well aware of the importance of offering COBRA when required to do so, and of the penalties for not complying with the law. However, it is also important to understand the circumstances under which COBRA need not be offered, because offering COBRA when it is not required can result in unnecessary expense. When an individual is covered under an employer’s group health care plan, and then loses that coverage due to the occurrence of a qualifying event specified in the COBRA statute, COBRA coverage must be offered. Qualifying events include:
For covered employees
- Voluntary or involuntary termination of employment, for reasons other than gross misconduct.
- Reduction in the number of hours of employment.
For spouses covered under the group health plan-
- Divorce or legal separation.
- Death of the covered employee.
- The covered employee becoming entitled to Medicare.
- Plus, the voluntary or involuntary termination of the covered employee’s employment, for reasons other than gross misconduct; or a reduction in the number of hours of the covered employee’s employment.
For dependent children covered under the group health plan-
- Loss of dependent child status under the rules of the group health plan.
- Divorce or legal separation of the covered employee.
- Plus, the voluntary or involuntary termination of the covered employee’s employment, for reasons other than gross misconduct; a reduction in the number of hours of the covered employee’s employment; the covered employee becoming entitled to Medicare; and the death of the covered employee.
Review this list of qualifying events and the other conditions for COBRA eligibility (for example, that coverage loss is a result of the qualifying event, and not from some other reason). It’s clear to see that there are numerous situations under which COBRA coverage need not be offered. For example:
- An employee tenders his or her resignation from employment. Because no termination of employment has yet occurred, an offer of COBRA would be premature.
- The employer changes health plans or insurance carriers, and the new coverage is less generous than before. Though the plan coverage may not be as good, coverage has not been lost, which is one of the requirements for COBRA eligibility.
- The employee voluntarily drops coverage, but does not terminate employment or reduce hours. Later, the employee terminates employment. Though the termination of employment is a qualifying event under the COBRA statute, it did not lead to the loss of coverage. Therefore, this is not a situation for which an offer of COBRA coverage need be made.
- The employee and spouse split up, but do not divorce or legally separate. A divorce or legal separation that results in a loss of coverage under the group health plan is a COBRA qualifying event. If spouses only physically separate, it is not a COBRA qualifying event.
- A COBRA-triggering event occurs that requires notification to the administrator by a covered individual (e.g., divorce/legal separation, loss of child dependent status), and no notification is given within 60 days of the qualifying event. The employer is not required to extend an offer of COBRA coverage.
COBRA is a complex law, and compliance is critical. In the quest to be compliant, it is important not to “over offer”� COBRA, because the potential cost is too high. Review COBRA’s requirements periodically with one of our benefits professionals, to ensure your company is complying, while not offering COBRA in unnecessary situations.