COBRA Basics

If you offer health insurance benefits and have 20 or more employees on your payroll for more than 50 percent of your working days in the previous calendar year, you are required to provide COBRA benefits.

What is COBRA?
COBRA is the abbreviation for Consolidated Omnibus Budget Reconciliation Act of 1985. COBRA allows individuals (employees and beneficiaries) to continue health coverage if, due to a qualifying event, they or their dependents are at risk of losing such coverage. Beneficiaries are individuals covered on your health plan at the time a qualifying event takes place. This includes the employee, their spouses, former spouses, and dependent children.

What is a COBRA qualifying event?
Generally, events that can trigger COBRA include, but are not limited to:

  • the employee’s termination
  • reduction of employee’s hours that takes the employee below your provider’s required minimum
  • divorce or separation (for dependents)
  • an employee’s death (for dependents)
  • employee becomes eligible for Medicare (employee and dependents)

What type of coverage is included in COBRA?
COBRA coverage includes all health benefits offered to employees at the time of the qualifying event. Plans can include:

  • General Healthcare Plan
  • Dental/Vision/Hearing Plans
  • Prescription Drug Plans
  • Mental Health Plans
  • Employee Assistance Programs (EAPs)
  • Medical Spending Accounts

When is COBRA elected?
It is the responsibility of the employer to notify covered individuals about their right to elect COBRA. Employees must be notified of COBRA when they initially sign up for the employer-sponsored health plan. At the time a qualifying event occurs, the employer has 30 days to notify their plan administrator. The administrator then has 14 days to notify the qualified individual(s) that they may elect COBRA coverage.

An eligible participant must be given a period of 60 days to decide to elect COBRA coverage. Coverage starts on the date the individual would lose coverage or the later of the date they receive the election notice. If the individual chooses not to elect COBRA initially, they can change their mind and revoke their decision, as long as the decision occurs within the 60 day election period.

Individuals may also choose to be added to their spouse’s health care plan, even if the time is outside of the company’s open enrollment period. Better rates may also be found by enrolling in a Marketplace plan. However, the employee must opt for this type of coverage within 30 days from the loss of initial coverage.

How long does COBRA continue health coverage?
Beneficiaries can continue health coverage through COBRA for 18 to 36 months depending on the qualifying event. Again…keep in mind, COBRA continuation only applies if the employee and their dependents were actively enrolled on the employer’s health plan at the time of the qualifying event. Typically, termination or reduction of hours allows for 18 months of coverage, however a plan may provide for longer periods of time if certain requirements are met.

How is COBRA paid?
The company’s group health plan may require the beneficiary to pay for COBRA. This amount cannot exceed 102 percent of the cost of the plan for other individuals. Premiums may include costs incurred by the employee and the company, plus an additional 2 percent for administration fees. If an 11-month COBRA extension is granted, employers can charge 150 percent of the premium for months 18 through 29.

The first payment for COBRA does not have to be sent in with the election notice. Individuals have 45 days to pay the required premiums and then at least make a payment every month during coverage. A 30-day grace period must be granted for the payment of a premium. Failure to make a full payment within the grace period could result in cancellation of COBRA coverage.

State Coverage
A number of states have adopted “Mini-COBRA” plans. These plans are generally geared toward companies with 20 or fewer employees who would not be covered by federal COBRA. You should check with your state Department of Insurance for specific rules, regulations and more detailed guidelines.

The Department of Labor (DOL) publishes a guide for employers and employees outlining the basics of COBRA coverage. Click a link below to review these booklets.

Outsourcing Administration
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires employers to provide the option of uninterrupted healthcare benefits to qualifying terminated employees. EAF’s associates at Medcom can assist you with your COBRA administration. CLICK HERE for more information about what Medcom can do for you. EAF members receive preferred pricing on all Medcom services. (EAF members can also access our COBRA toolkit available on the member’s only website and download sample checklists and model notices.)

EAF responds to hundreds of hotline calls and emails monthly. We would be happy to answer any interesting questions you may have too! Contacts us at [email protected] or 407.260.6556

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EAF provides information about current developments in labor and employment law. This information is intended for educational purposes only and should not be considered legal advice. Questions requiring legal advice should be addressed to the attorney of your choice. EAF members may be able to obtain a legal interpretation through our FREE Legal Hotline.