COBRA Continuation Rights

COBRA is intended to ensure that employees and their dependents can maintain their group health care coverage following events that otherwise would result in a termination of coverage. COBRA requires group health insurance policies to permit group members to continue their insurance when they leave the group for any one of a number of reasons. COBRA's protections are temporary and are intended as a stopgap until insurance is obtained from another source, such as a new employer. Employers do not have to pay for any portion of the premiums for COBRA coverage, but the beneficiaries get to maintain their insurance at favorable group rates.

Coverage

COBRA applies only to employers who had 20 or more employees on more than 50 percent of its typical business days during the prior calendar year. In some situations, insured employees have continuation rights under both federal and state law. In such cases, employees may choose the more favorable law. Under both federal and almost all state laws, continuation requires the insured to pay the full premium (including the former employer's share), but the insured does get the advantage of cheaper group rates.

Qualifying Events

The length of time an insured must be allowed to continue coverage depends upon the qualifying event, i.e., the reason the individual has lost group coverage. The following is a list of federal continuation rights for a variety of events. (Remember, in cases where an employer is covered by both state and federal law, the law more favorable to the employee applies.)

"Continuees" can have multiple events that qualify them for continuation, but they are not entitled to coverage beyond 36 months from the date of the first qualifying event, or beyond the date they become covered by another group plan. All continuees are entitled to make their own separate elections (i.e., the departing employee may refuse coverage, the spouse may elect it). Spouses who become divorced or separated and dependents who "age out" have 60 days to notify the plan administrator of these events.

If an individual who is a qualified beneficiary because of termination of employment or a reduction in hours experiences a second qualifying event during the original 18 or 29 month COBRA continuation period, the period of COBRA coverage is generally extended to 36 months from the date of the original qualifying event.

Premiums

With the exception of the rates noted below under "Disabled beneficiaries," continuees may be charged no more than 102 percent of the group rate. For self-insured plans, the charge may be based on actuarial estimates, or in certain cases on the previous year's costs, adjusted for inflation. Premiums from continuees are "timely" if received within 30 days of the due date (or the time allowed by the insurer, if longer).

Disabled Beneficiaries

Qualified beneficiaries become eligible for a disability extension of 11 additional months (to a total of 29 months) if any individual who loses coverage because of the same qualifying event is determined to be disabled for Social Security purposes during the first 60 days following the qualifying event. Thus the employee, his or her spouse, and any dependents who were covered prior to the employee losing his or her job or having a reduction in hours are all separately entitled to the extension if any one of them meets the disability criteria. The extension terminates on the first day of the month that is more than 30 days after the date of a final determination that the disabled, qualified beneficiary whose disability resulted in the extension is no longer determined to be so disabled.

Any of the qualified beneficiaries affected by the termination-of-employment qualifying event may provide notice to the plan administrator of the disability determination. The notice must be provided within 60 days after the date the determination is issued and before the end of the original 18-month maximum coverage period that applies to the termination of employment.

For months 1-18, disabled continuees may be charged 102 percent of the group rate; for months 19-29, employers may charge individuals who are covered by the disability extension up to 150 percent. Internal Revenue Service regulations state that the 150 percent rate may not be charged to nondisabled beneficiaries whose coverage has been extended to 29 months if the disabled beneficiary has not elected coverage. If a disabled beneficiary is affected by a second qualifying event during months 19Ð29 entitling him or her to 36 months of COBRA coverage, the 150 percent premium rate may be charged through month 36.

Coverage of Dependents

A child born or placed for adoption during the COBRA period is a qualified beneficiary. Thus, COBRA participants must be allowed to change their coverage status upon the birth or adoption of a child so that the child is covered for the balance of the continuation period. The length of the child's COBRA coverage is measured from the date of the original qualifying event.

Open Enrollment Rights

A COBRA beneficiary must be given the same open enrollment period rights as similarly situated active employees covered by the plan, including the right to switch to another plan, another benefit package, or to add or eliminate coverage of family members.

Adding Beneficiaries

A qualified beneficiary receiving COBRA coverage has the same special enrollment and open enrollment rights to add coverage for family members as do similarly situated active employees covered by the plan. Children born to or adopted by a qualified beneficiary are qualified beneficiaries, and COBRA coverage may be elected for them. New spouses may be added during special enrollment periods. Spouses and dependents may also be added to coverage during open enrollment periods if the plan allows active employees to do so. News spouses added during special enrollment periods and spouses and dependents added during an open enrollment period are not qualified beneficiaries and are not eligible for extended coverage if the qualified beneficiary experiences a second qualifying event.

Events Cutting Off Continuation Rights

The right to COBRA continuation of coverage can be cut off prematurely by the occurrence of any of the following events:

  1. The covered individual fails to pay the premiums.
  2. The beneficiary (former employee, spouse, or dependent) after electing COBRA becomes covered under another group health plan, through remarriage, or for another reason.
  3. The employer terminates its group health plan for all of its employees.
  4. The beneficiary, after electing COBRA, becomes entitled to Medicare benefits.

Note: The Supreme Court has ruled and IRS regulations provided that group health coverage or Medicare entitlement that existed before the election of COBRA coverage is not grounds for denying COBRA. In addition, coverage obtained after electing COBRA is not grounds for terminating COBRA if it excludes coverage of an individual's pre-existing condition.

Notice Requirements

Initial notice. An initial notice of COBRA rights must be provided to all covered employees and their covered spouses when a plan first becomes subject to COBRA. The notice must also be provided at the time an individual's coverage begins, including when new employees obtain coverage and when spouses are added. DOL has stated that the notice may be provided by first-class mailing of the initial notice to the last known mailing address of the employee and the spouse. If the employer or plan administrator determines that the employee and spouse live at the same address, a single mailing addressed to both is sufficient. DOL proposed regulations on summary plan descriptions (SPDs) require that COBRA information be included in an SPD. The initial notice requirement will be satisfied by distribution of an SPD that includes the required information on COBRA rights.

Notice of a qualifying event. The law places notification responsibilities on employers, employees, and plan administrators. When an employee dies, is terminated, or has his or her hours reduced, the employer has 30 days to notify the plan administrator. (COBRA permits multiemployer plans to provide a longer notification period. If you participate in a multiemployer plan, check the time limit for notifying the plan administrator of death, termination, or reduction in hours.) If an employee is divorced or separated, or a dependent "ages out" of coverage, the employee has 60 days to notify the plan administrator. In either case, within 14 days of receiving that notice, the plan administrator has to notify employees and beneficiaries of their continuation rights. (COBRA permits multiemployer plans to provide a longer notification period in this situation as well.) The employee and/or the beneficiaries then have 60 days to make up their minds about continuing. This 60-day period begins to run on the date of the qualifying event, or when notice of continuation rights is provided, whichever is later.

Coordination with FMLA

Taking FMLA leave is not necessarily a qualifying event setting off COBRA's notice requirements. A qualifying event occurs only if three conditions are met:

  1. The employee (or spouse or dependent) is covered on the day before the first day of FMLA leave (or becomes covered during the FMLA leave) by the employer's group health plan,
  2. The employee does not return to work at the end of FMLA leave, and
  3. The employee would, in the absence of COBRA, lose coverage under the health plan before the end of the maximum coverage period provided by COBRA.

If all three conditions are met, a qualifying event occurs on the last day of FMLA leave. The maximum COBRA coverage period is generally measured from the date of this qualifying event. If coverage would be lost on a later date, the maximum coverage period would be measured from that date.

The IRS also states that:

  • State and local laws that may require group health plan coverage during a leave of absence for more time than required by FMLA do not affect the determination of when a COBRA qualifying event has occurred.
  • A qualifying event still occurs even if an employee fails to pay his or her share of group health plan premiums during the FMLA leave or declined group health plan coverage during the leave.
  • The right to take COBRA continuation may not be conditioned upon repayment by an ex-employee of any premiums paid by the employer for group health coverage during FMLA leave.

Conversion Rights

COBRA requires that if a plan makes conversion options available to any participants, it must offer a qualified beneficiary the option to enroll under an individual health plan at the end of the applicable 18- or 36-month continuation period. The insured must pay the entire premium at the applicable individual rate, but he or she does not have to provide evidence of insurability and may not be required to take a physical examination. (Note that under the continuation privilege, the insured also pays the entire premium, but at lower group rates.)

COBRA Time Lines

Qualifying Event to Initial Premium Payment

  1. Termination of employment, reduction in hours, death of employee, or Medicare entitlement with simultaneous loss of coverage.
    • Day 0 - Qualifying Event.
    • Day 30 - Deadline for Employer to Notify Plan Administrator of Qualifying Event.
    • Day 44 - Deadline for Plan Administrator to Notify Qualified Beneficiaries of COBRA Rights and Beginning of Election Period.
    • Day 104 - Deadline for Qualified Beneficiary to Elect COBRA.
    • Day 149 - Deadline for Making Initial Premium Payment.
  2. Termination of employment, reduction in hours, death of employee, or Medicare entitlement with loss of coverage 60 days after the qualifying event.
    • Day 0 - Qualifying Event.
    • Day 30 - Deadline for Employer to Notify Plan Administrator of Qualifying Event.
    • Day 44 - Deadline for Plan Administrator to Notify Qualified Beneficiaries of COBRA Rights.
    • Day 60 - Termination of Coverage; Beginning of Election Period.
    • Day 120 - Deadline for Qualified Beneficiary to Elect COBRA.
    • Day 165 - Deadline for Making Initial Premium Payment.
  3. Divorce, legal separation, or dependent exceeding plan’s age limitation.
    • Day 0 - Later of Qualifying Event or Loss of Coverage.
    • Day 60 - Deadline for Qualified Beneficiary to Notify Plan Administrator of Qualifying Event.
    • Day 74 - Deadline for Plan Administrator to Notify Qualified Beneficiaries of COBRA Rights and Beginning of Election Period.
    • Day 134 - Deadline for Qualified Beneficiary to Elect COBRA.
    • Day 179 - Deadline for Making Initial Premium Payment.

Qualifying Event to End of COBRA Continuation Period

  1. Termination of employment or reduction in hours.
    • Month 0 - Qualifying Event.
    • Month 18 - End of COBRA Coverage.
  2. Divorce, legal separation, death of employee, employee entitled to Medicare, dependent exceeding plan’s age limitation.
    • Month 0 - Qualifying Event.
    • Month 36 - End of COBRA Coverage.
  3. Disability extension.
    • Month 0 - Qualifying Event. * Disability extension requires that a qualified beneficiary be determined to be disabled by the Social Security Administration during the first 60 days of COBRA coverage.
    • Month 18 - Deadline for Informing Plan Administrator of Disability Determination. **11 Month Disability Extension.
    • Month 29 - End of COBRA Coverage.
  4. Second qualifying event (death of employee, divorce or legal separation, dependent exceeding age limit, or employee entitled to Medicare) at any time during initial 18 months of COBRA coverage.
    • Month 0 - Initial Qualifying Event (termination of employment or reduction in hours).*2nd Qualifying Event; Beginning of 2nd Period of COBRA Coverage.
    • Month 18 - End of Initial Period of COBRA Coverage.
    • Month 36 - End of 2nd Period of COBRA Coverage.