Overview of COBRA Health Insurance Continuation Rights

posted by Neil Klingshirn  |  Jul 28, 2009 6:13 PM [EST]  |  applies to Ohio

COBRA is a federal law that requires group health plans to continue covering an employee after the employee's employment has ended.  COBRA stands for the Consolidated Omnibus Budget Reconciliation Act, which amended ERISA. and related Internal Revenue Code provisions to require continuation of group health coverage.

COBRA Rights

COBRA requires employers or their group health plan to offer employees who lose coverage the right to continue health coverage at the employee's expense.  With COBRA, a separated employee has a guaranteed source for health insurance, at least as long as the employer offers health insurance to its employees.

In addition, the employee can purchase that insurance at the employer's group rates, which is ordinarily less expensive than individual health coverage. Retirees, spouses, former spouses and dependent children of the employee also have the right to elect continuation coverage. COBRA coverage is available to employees who voluntarily quit, but is not available to employees terminated for gross misconduct.

Who is entitled to COBRA benefits

COBRA coverage requires 1) a covered plan, 2) a qualified beneficiary and 3) a qualifying event.

  • Plan Coverage - Group health plans for employers with 20 or more employees.
  • Qualified Beneficiaries - An individual covered by a group health plan on the day before a qualifying event who is either an employee, the employee's spouse, or an employee's dependent child. In certain cases, a retired employee, the retired employee's spouse, the retired employee's dependent children may be qualified beneficiaries and a child born to or placed for adoption with a covered employee may be a qualified beneficiary.
  • Qualifying Events - Qualifying events generally occur when an individual loses health coverage. 
COBRA coverage begins on the date that health care coverage would otherwise have been lost by reason of a qualifying event.

Qualifying Events for Employees:

  • Voluntary or involuntary termination of employment for reasons other than gross misconduct; or

  • Reduction in the number of hours of employment that causes a loss of coverage.

Qualifying Events for Spouses

  • Voluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct

  • Reduction in the hours worked by the covered employee

  • Covered employee's becoming entitled to Medicare

  • Divorce or legal separation of the covered employee

  • Death of the covered employee

Qualifying Events for Dependent Children

  • Loss of dependent child status under the plan rules

  • Voluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct

  • Reduction in the hours worked by the covered employee

  • Covered employee's becoming entitled to Medicare

  • Divorce or legal separation of the covered employee

  • Death of the covered employee

COBRA Notice and Electing COBRA coverage

COBRA coverage is an option that employers with group health plans must offer.  Although the employee has no obligation to elect COBRA coverage, an employer that fails to provide proper notice to the employee of his or her COBRA right could be liable for penalties and fines levied by the IRS, as well as the costs of an employee's medical bills that the insurer would have paid if the employee had received proper notice of his or her rights.

COBRA notice typically involves three parties: the employer, the employer's group health plan administrator and the employee or other beneficiary.  Employers must notify plan administrators of an employee's qualifying event (e.g., an employee's death, termination, reduced hours or entitlement to Medicare) within 30 days of the qualifying event..

The Plan Administrator must send the employee or eligible beneficiary an election notice not later than 14 days after the employer notifies the plan administrator. The  employee or beneficiary then has 60 days to decide whether to elect COBRA continuation coverage. If the employee or beneficiary elects coverage, he or she has an additional 45 days after electing coverage to pay the initial premium.

Health plan rules must explain how to obtain benefits and must include written procedures for processing claims. Summary Plan Descriptions of the group health plan, which employers must provide to employees, must describe the election procedures.

Extended COBRA coverage

Employees ruled to be disabled by the Social Security Administration can elect up to11 additional months of group health care coverage. The employee must:

  • Have a ruling from the Social Security Administration that he or she was disabled within the first 60 days of COBRA continuation coverage; and

  • Send the plan administrator a copy of the Social Security ruling letter determining that he or she was disabled within 60 days of continuation coverage, but prior to expiration of the 18-month period of coverage

If these requirements are met, the entire family qualifies for an additional 11 months of COBRA continuation coverage. Plans are allowed to charge up to150% of the premium cost 

A divorced spouse is entitled to COBRA coverage from their former spouses’ group health plan for a limited time when they would otherwise lose coverage due to a particular event, such as divorce or legal separation. 

Identical Coverage

Group health plans must offer coverage identical to that available to covered employees. This is usually the same coverage that the employee had before loss of coverage. A change in the benefits under the plan for the active employees will apply to COBRA  beneficiaries. Qualified beneficiaries must be allowed to make the same choices given to non-COBRA beneficiaries under the plan, such as during periods of open enrollment by the plan.

Length of Coverage

COBRA beneficiaries generally are eligible for group coverage during a maximum of 18 months for qualifying events due to employment termination or reduction of hours of work. Certain qualifying events, or a second qualifying event during the initial period of coverage, may permit a beneficiary to receive a maximum of 36 months of coverage.

Coverage begins on the date that coverage would otherwise have been lost by reason of a qualifying event and will end at the end of the maximum period. It may end earlier if:

  • Premiums are not paid on a timely basis

  • The employer ceases to maintain any group health plan

  • After the COBRA election, coverage is obtained with another employer group health plan that does not contain any exclusion or limitation with respect to any pre-existing condition of such beneficiary. However, if other group health coverage is obtained prior to the COBRA election, COBRA coverage may not be discontinued, even if the other coverage continues after the COBRA election.

  • After the COBRA election, a beneficiary becomes entitled to Medicare benefits. However, if Medicare is obtained prior to COBRA election, COBRA coverage may not be discontinued, even if the other coverage continues after the COBRA election.

Although COBRA specifies certain periods of time that continued health coverage must be offered to qualified beneficiaries, COBRA does not prohibit plans from offering continuation health coverage that goes beyond the COBRA periods.

Some plans allow participants and beneficiaries to convert group health coverage to an individual policy. If this option is generally available from the plan, a qualified beneficiary who pays for COBRA coverage should have the option of converting to an individual policy at the end of the COBRA continuation coverage period.

Paying for COBRA coverage

Employers are not required to pay for COBRA coverage. Rather, the employee must pay the costs of coverage. That cost cannot, however, exceed 102 percent of  the premium that the employer pays for other, covered employees. The cost may increase to 150% of the premium for employees receiving the 11 month disability extension of coverage.

COBRA premiums can go up, if the costs to the plan increase, but generally the group health plan must fix its premiums in advance of each 12-month premium cycle.

Effect of a Late COBRA Payment

Since the employee must pay for COBRA coverage, he or she can lose coverage by failing to pay the premium on time.

The initial premium payment can be as late as 45 days after the date of the COBRA election. If the employee does not pay the initial premium within 30 days, however, a plan can cancel coverage until payment is received and then reinstate coverage retroactively to the beginning of the period of coverage. For insufficient payment, if the amount of the payment made to the plan is made in error but is not significantly less than the amount due, the plan must notify the employee of the deficiency and allow a reasonable period  of 30 days or more to pay the difference.

The group health plan sets the due date for premiums after the initial election and the extent of any grace periods.  If an employee does not make a premium payment after the due date and any grace period, the administrator is generally within its rights to terminate coverage and refuse reinstatement.

The American Recovery and Reinvestment Act of 2009 (ARRA)

The ARRA, which is better known as the 2009 economic stimulus package, provides a premium reduction to certain qualified individuals and expanded eligibility for COBRA.

Individuals who are eligible for COBRA coverage because of their own or a family member’s involuntary termination of employment that occurred from September 1, 2008 through December 31, 2009 and who elect COBRA may be eligible to pay a reduced premium amount that is only 35% of the premium costs for your COBRA coverage for up to 9 months.

For more information on the ARRA premium reduction:

COBRA premium subsidy under the Economic Stimulus Package

COBRA coverage with a bankrupt Employer

If a company goes bankrupt, it almost certainly has stopped paying its health insurance provider. In that event, the provider will terminate the  plan.  If there is no longer a health plan, then there is no COBRA coverage available.

Union members who are covered by a collective bargaining agreement that provides for a medical plan may be entitled to continued coverage under that plan.

Electing COBRA coverage

Employers or health plan administrators must provide an initial general notice if you are entitled to COBRA benefits, typically at the time of hire.

Employees must respond to this notice and elect COBRA coverage by the 60th day after the written notice is sent or the day health care coverage ceased, whichever is later. Otherwise, they will generally lose all rights to COBRA benefits.

Spouses and dependent children covered under a health plan have an independent right to elect COBRA coverage upon the termination or reduction in hours of the covered employee. If, for instance, an employee has a family member with an illness at the time he or she is laid off, the family member with an illness alone can elect coverage.

External Links

Links to external sites with additional information about this topic.

Revision History

posted by Neil Klingshirn  |  Jul 28, 2009 6:13 PM [EST]  |  applies to Ohio

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Neil Klingshirn

Neil Klingshirn
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