What Is Cobra Continuation Coverage?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage gives employees the right to continue receiving the same health care coverage they had the day before they officially lost their coverage. If an employee decides to take advantage of COBRA continuation coverage, the employee cannot be denied their right to receive coverage based on their medical history. Also, the employee does not need to show proof of insurability.

COBRA of 1985 forces employers who have group health plans to provide their employees with the opportunity extend the duration of the group health care coverage under the plan of their employer. COBRA is applicable whenever an employee is in danger of losing their coverage due to layoff, termination, and other changes in the employee's employment status. 

In some cases, employees cannot get coverage from the marketplace for health insurance or via the job benefits of their spouse. COBRA grants employees the right to keep their workplace health insurance for a longer period, so they have more time to find adequate health insurance coverage as a replacement for the coverage they lost.

If an employee elects to take advantage of their right to COBRA coverage, the employee will still have to pay for the premiums associated with the coverage. Some employees struggle to do this after losing their coverage due to termination, resignation, or reduced work hours.

One of the most ideal things about COBRA coverage is that little changes about the policy except the price. All employee coverage limits, co-pays, and deductible amounts remain the same.

What Is the Duration of COBRA Continuation Coverage for a Qualified Beneficiary?

COBRA coverage will cover an employee for 18 additional months if the employer terminated the employee or reduced their hours, leading to the loss of coverage. Spouses and dependents of the employee can also take advantage of COBRA coverage. If the employee is found to be disabled during their first two months of receiving COBRA coverage, the duration of the COBRA coverage will be extended to up to 29 months. The extension of COBRA coverage will also apply to the nondisabled spouse and dependents of the disabled employee. If an employee's death, divorce, or legal separation led to the loss of coverage, the dependents and spouse of the employee can enjoy COBRA coverage for up to three years.

Qualifying Events

An event is considered a qualifying event if the following is true:

  • the employer terminated the employee for reasons other than gross misconduct
  • the employee who is covered died
  • the employee who is covered had their hours of employment reduced
  • the employee who is covered divorced or legally separated from their spouse
  • the employee who is covered is enjoying Medicare benefits thanks to the Title XVIII of the Social Security Act
  • A dependent child ceases to be the dependent of the employee who is covered 

Qualified Beneficiary

A qualified beneficiary is a person who is a beneficiary under the plan of the employee who is covered after the occurrence of a qualifying event. The individual needs to be a spouse, child, or dependent of the employee who is covered. An employee who is covered is also a qualified beneficiary in the event that the qualifying event is termination, resignation, or a reduction when it comes to employment hours.

Can a Newborn Be a Qualified Beneficiary? What About Adopted Children?

If an employee who is covered adopts a child or has a newborn during COBRA's continuation coverage period, the child becomes a qualified beneficiary. The time the qualifying event took place does not matter. However, the employee who is covered must enroll the child within one month of birth or adoption.

Covered Employees

An employee who is covered is a person who gets group health plan coverage due to their performance of services for the employer maintaining the plan. The definition of a "covered employee" includes independent contractors, retirees, self-employed persons, and partners of a partnership.

Dependent Child

COBRA does not offer a definition of "dependent child." In order to find a definition for "dependent child," the employee needs to look at the terms for their group health plan.

COBRA Applies to Which Plans?

Most of the group health plans maintained by employers for their workers are subject to COBRA's provisions. This includes the group health plans of state and local governments, partnerships, tax exempt organizations, and corporations. Health Care Spending Accounts are also subject to COBRA's provisions.

COBRA Does Not Apply to Which Plans?

The definition of a "group health plan" according to the COBRA statute is a plan that an employer or employee organization provides to employees and former employees. A group health plan provides health care to these workers. In many cases, the families of these workers also receive health care. Other entities associated with the employer may also enjoy health care under the group health plan. The employee and the group health plan can be self-insured.

If an Employee Quits Voluntarily, Is This a Qualifying Event?

Other than gross misconduct, COBRA does not consider the context surrounding termination or a reduction of hours. When it comes to qualifying event results, it does not matter whether the employee who is covered voluntarily quit or was terminated by the employer.

What Leads to the Obligation of an Employer to Offer COBRA Continuation Coverage?

Employees and other qualified beneficiaries must be able to take advantage of their right to COBRA if the following is true:

  • A triggering event has occurred
  • Loss of coverage is a result, or will be a result, of the triggering event during said event's maximum coverage period

An event is a qualifying event if both requirements are met. The COBRA statute states that a qualifying event is essentially a triggering event that can lead to the qualified beneficiary losing their coverage. The employee who is covered, their spouse, and their dependent child are all considered qualified beneficiaries.

If the qualified beneficiary experiences a triggering event but the triggering event does not lead to coverage loss, then the triggering event cannot be classified as a qualifying event. The employer is not required to offer COBRA coverage if the triggering event is not considered a qualifying event.

Which Specific Events or Triggering Events Are Also Qualifying Events?

According to the COBRA statute, here are the six triggering events that are considered qualifying events as they often lead to the loss of coverage:

  • The employee who is covered dies
  • The employer terminates the employee who is covered for reasons other than gross misconduct, or the employee who is covered quits voluntarily
  • The hours of the employee who is covered are reduced substantially
  • Divorce of the employee who is covered and their spouse or legal separation
  • A child ceasing to be a dependent based on the terms of the plan
  • The employer becomes bankrupt and will no longer provide health insurance coverage for retirees and their families

What Events Are Not Viewed as Triggering Events for COBRA Continuation Coverage?

If the employer reduces coverage or terminates the group health plan entirely, then it is not seen as a qualifying event under COBRA. These events are not triggering events under the COBRA statute:

  • Changing insurance carriers or providers
  • Filing for divorce or separation
  • Offering the option for resignation
  • Employee decides to drop the health care coverage
  • Employee decides to leave the union
  • The employee is terminated after the insurer gets rid of the group health plan

Initial Notice and the Qualifying Notice

The initial notice and the qualifying notice are the two main notices when it comes to COBRA continuation coverage. The purpose of the initial notice and the qualifying notice is to provide information to participants and qualified beneficiaries about the plan. The initial notice also offers information about COBRA rights and obligations. The qualifying notice consists of information about COBRA obligations and rights pertaining to the qualifying event.

Liability and litigation for COBRA continuation coverage is almost always related to the mishandling of the notices. Sometimes, employers fail to provide a sufficient amount of information in the notices. In other cases, the employers don't deliver the notices at all.

When Must Employers Send Initial Notices to Covered Spouses or Employees?

The manager of the group health plan needs to send the qualified beneficiaries the initial notice as soon as they receive health insurance coverage by the plan.

Why Are Initial Notices for COBRA Continuation Coverage Important?

The initial COBRA notice is intended to provide the qualifying beneficiaries information about COBRA and their rights at the time when their coverage starts under the group health plan.

Who Must Provide the Qualified Beneficiary With the Initial Notice?

According to the COBRA statute, the group health plan must give qualifying beneficiaries initial notice. However, the COBRA statute does not define the term "group health plan." It is usually assumed that the plan administrator is responsible for providing qualifying beneficiaries with the initial notice. The reason for this assumption is that the plan administrator is liable to pay about $110 for every day the qualifying beneficiaries do not have the initial notice. The Department of Labor believes that it is the responsibility of the plan administrator to provide qualifying beneficiaries with the initial notice.

Qualifying Event Notice

The plan administrator gets a notice every time a qualifying event happens. The plan administrator needs to send a qualifying event notice to all qualified beneficiaries. The purpose of the qualifying event notice is to inform qualified beneficiaries of their rights under the COBRA statute. The plan administrator also needs to give the qualified beneficiaries the right to COBRA election.

What Will Employees Find in the Qualifying Event Notice?

Qualifying event notices consist of the following:

  • A premium schedule
  • An ACH notice
  • An election form
  • Info about notice deadlines, payment, and election
  • A cover letter detailing the COBRA obligations and rights

When Must the Plan Administrator Be Notified of Triggering Events? 

Within two months of the occurrence of the triggering event, the employee who is covered or qualified beneficiaries need to notify the plan administrator.

The employer must notify the plan administrator within 30 days of the occurrence of the qualifying event. Death, termination, resignation, reduction of hours, bankruptcy commencement, and Medicare coverage commencement are all considered qualifying events. 

Qualifying event is a reference to the triggering event's date rather than the date when the employee who is covered or the qualified beneficiary lost coverage.

When Must the Qualified Beneficiary Receive a Qualifying Event Notice About Their Right to Elect COBRA Continuation Coverage? 

The plan administrator must inform all qualified beneficiaries if a qualifying event leads to their right to elect COBRA. The plan administrator has two weeks to do this after receiving a qualifying event notice. However, if the plan administrator does not receive notification of the qualifying event, the plan administrator does not have to provide a notice to the qualified beneficiaries about their rights to elect COBRA.

How Much Time Does the Qualified Beneficiary Have to Elect COBRA Continuation Coverage?

A qualified beneficiary must elect COBRA coverage within two months after their coverage was terminated. Sometimes, the qualified beneficiary will have until two months after receiving the notice to elect COBRA coverage. In some cases, qualified beneficiaries adopt the wait-and-see approach during the two-month period to determine whether they need to continue their coverage. If medical care is needed, the individual may choose COBRA coverage during the election period.

The election period remains open if the plan administrator has failed to send a notice of a qualifying event to the qualified beneficiary. The minimum length of the election period is two months.

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