Cobra Benefits: Everything You Need to Know
Cobra benefits are benefits that were enacted by the United States Congress in 1985 as part of the Consolidated Omnibus Budget Reconciliation Act (COBRA). 6 min read
Cobra benefits are benefits that were enacted by the United States Congress in 1985 as part of the Consolidated Omnibus Budget Reconciliation Act (COBRA). It requires employers enrolled in group health care insurance plans to provide employees the temporary option of continued group health coverage, if the coverage would otherwise end due to layoff or termination. COBRA requires that three (3) requirements be met before an insured can qualify for coverage: (i) an employer is obligated to COBRA coverage of employees; (ii) that the employee was a Qualified Beneficiary; and (iii) that a Qualifying Event has occurred. COBRA insurance coverage is in effect for up to 18 months; although some insured retain coverage a few months longer.
COBRA time-period for coverage
Insured are eligible for COBRA coverage if enrolled under the group health care insurance plan on the day before a qualifying event. COBRA continuation coverage is available up to:
- Eighteen-months for employees and dependents.
- Twenty-nine months for employees deemed disabled during the initial 60 days. COBRA coverage applies to a disabled employee’s qualified beneficiaries.
- Thirty-six months for beneficiaries facing end of group insurance coverage on basis of death, divorce or separation from an employee, or other “qualifying events.”
COBRA insurance coverage applies to individuals covered by an employer's existing group health care insurance plan. COBRA applies to dental, medical, vision, and other specialized insurance plans. Employers must notice the health care plan administrator within 30 to 60 days after a "qualifying event" is reported. An employee and dependents have 60 days to elect COBRA continuation of health coverages under law.
Employers failing to notice a qualifying beneficiary COBRA rights and entitlements may face monetary penalties. Employers not offering health insurance coverage or are undergoing business default, are not required to offer COBRA continuing health coverage under law.
COBRA Qualifying events
The conditional criteria to a COBRA “qualifying event” is met if the event is:
- Termination or reduced hours
- Divorce or separation from the employee
- Entitlement to Medicare accorded by Title XVIII
- A child no longer a dependent
COBRA Non-qualifying event
Qualifying Events for COBRA are events that affect employment status. Events solely affecting the type of health insurance plan offered by an employer offers are not Qualifying Events. Fully employed employees are non-qualifying COBRA applicants. Employer changes or conclusion of a sponsored health insurance plan may make an employee ineligible.
Cobra Eligibility and Qualified Beneficiary
Both part-time and full-time employees are eligible for COBRA continuation health care insurance coverage. Former employees must be qualified beneficiaries and meet the criteria for qualifying events. The U.S. Department of Labor (DOL) rules to COBRA provide that an employer must have 20 or more employees within a group health care insurance plan who spend at least 50 percent of the previous calendar year working to offer COBRA coverage to employees.
An employee must have been a "qualifying beneficiary" or a dependent covered by the original membership in a group health care insurance plan before the record of termination or discharge of the eligible employee. There must also be a "qualifying event" (i.e., termination, layoff, schedule reductions, divorce, or separation from a covered employee) for a member(s) to lose their standard health care insurance coverage. Under COBRA rules a qualified beneficiary is covered by the plan:
- Immediately before a qualifying event of an employee or dependent.
- Immediately before the qualifying event of an employee in the form of schedule reduction or termination.
- When a child is adopted or born and enrolled during the continuation period.
Definition of a Covered Employee
A covered employee is an individual beneficiary who has (or was) coverage under an employer group health insurance plan resultant from one or more beneficiaries maintaining the insurance plan. A covered employee definition also describes self-employed individuals, independent contractors, retirees, and the partners of a partnership.
Plans that are subject to COBRA
Nearly all group health care plans held by employers abide by COBRA guidelines to the managed care memberships of corporations, tax-exempt nonprofit organizations, partnerships, and state, county, and municipal governments.
Small employer plan exemptions under COBRA
The “small employer plan exception” applies to employers with less than 20 employees. The Federal government’s group health care insurance program does not fall under the guidelines of COBRA. Some church organization health insurance coverages are not bound by the rules of COBRA.
Definition of Group Health Plan
Under COBRA, “group health insurance plan” allowances provide that employer, employee organization, or sole proprietorship can contribute to COBRA to cover beneficiaries and their dependents.
COBRA payment, cost, and deadlines
Qualifying individuals are obliged to pay premiums on COBRA health care insurance during the coverage period. The premium for COBRA insurance coverage is equal to the full cost of a group health care insurance plan membership – including the employee and employer share – and an additional 2 percent for administrative costs. COBRA premiums are more expensive than premium rates on the original group plan membership during employment.
Some employers offer an opt out of “non-traditional” health care insurance plans. Vision and dental coverage may be eliminated to reduce total overall cost. If previously signed on for an 18 month standard COBRA plan, and have already begun the 11 month extension, premium payments may be higher than expected. An employer can charge a former employee up to 150 percent of the group insurance membership cost.
The Affordable Care Act changes coverage
Before the new health care law known as the Affordable Care Act (ACA) was put into force, patients with pre-existing health conditions like cancer were charged significantly more or denied insurance coverage on their own. As result, COBRA was the single health care coverage option available to patients and survivors of cancer undergoing work transition.
The ACA made health care insurance more affordable for patients with cancer. ACA was designed to ensure that cancer patients and survivors would be covered. The state insurance marketplaces launched by the ACA now offer more in the way of health insurance options to patients not having access through their employers.
ACA also provides insurance options to those leaving their jobs, or already termination from their former employer’s group insurance plan. Buying health care insurance through a state marketplace can cost less than paying for extended COBRA coverage.
When to consider buying COBRA plan?
Employees can consider buying a COBRA plan when they:
- Are pregnant or will be pregnant during the coverage period.
- Have a medical record of a pre-existing condition.
- Are under doctor supervision taking pharmaceutical prescriptions, and require medical treatment or a medical procedure.
- Have been rejected by private health insurance carrier(s), recently.
When to consider buying individual and family plan?
Employees can consider purchasing an individual or family if:
- They are good health.
- COBRA is too costly.
- They require health insurance coverage beyond the eighteen-month COBRA term.
- They require short-term, low-cost insurance.
COBRA Triggering Events
COBRA requires employers to offer a COBRA election to qualified beneficiaries when there is a triggering event. A COBRA “qualifying event” resulting in a loss of coverage by a “qualified beneficiary.” The statute specifies six (6) qualifying events: (1) death of insured; (2) termination due to gross misconduct; (3) reduction in hours; (4) divorce or legal separation from insured; (5) child no longer dependent; and (6) employer bankruptcy.
Initial COBRA Notice
The Initial COBRA notice informs new employees of their COBRA rights at time of hire. The initial notice is sent by the group health insurance plan to the insured and dependents when they join the group health plan as members.
What is a Qualifying Event Notice about COBRA?
Qualifying events must be noticed, informing the plan administrator that a change has taken place. The qualifying event notice must be sent by the plan administration to each beneficiary advising of their rights and entitlements under COBRA.
Qualified Beneficiary Independent Election Rights under COBRA
COBRA rules require that all qualified beneficiaries be eligible to select COBRA coverage. In cases where insured have an option of different coverages under an employer health care insurance plan, qualified beneficiaries are entitled to elect from those options at time of open enrollment.
COBRA continuation coverage requirements to Cafeteria Plans and Flexible Benefit arrangements
A cafeteria plan provides that an employer has the option of offering a range of insurance benefits under the same group health care insurance plan. COBRA continuation coverage rules, section 162(k) apply to medical insurance benefits described to be part of a cafeteria plan, or other coverage arrangement an insured employee has elected. Moreover, exceptions are those plans not bound by HIPAA. COBRA is solely offered to members with eligible accounts reflecting premium payment at end of employment at the end of the year.
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