Many employers are legally required to maintain health care coverage to employees and their dependents when there is a change of employment or job status.
The federal Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires all employers of 20 or more employees to let beneficiaries of a group plan continue coverage at their own expense. The employee must have been covered by the plan immediately before the change in employment status and the coverage must include all “core benefits,” regardless whether the plan is insured or self-funded.
Individuals are eligible to elect COBRA regardless how long they were in the group plan. Generally, employees pay a premium equal to your costs and their original premium, plus a two percent administrative fee.
To fulfill COBRA obligations if required, you must:
1. Inform employees and other qualified beneficiaries of their rights.
2. Notify the plan administrator within 30 days of the actual event or by the date the employee will lose coverage.
3. Ensure that within the next 14 days, the administrator notifies the beneficiary and dependents of their rights to continued coverage under COBRA.
4. Ensure that an eligible employee is given written notice of rights within 44 days of the event if you don’t have access to COBRA administration services.
5. Allow qualified beneficiaries time to choose coverage. The election period must last for at least 60 days and may begin on different dates, depending on when coverage would otherwise be lost and when notices are given.
You must generally provide continued coverage to employees or their dependents after any of the following qualifying events:
- Termination (voluntary and involuntary) of employment for any reason other than gross misconduct.
- A reduction in work hours.
- Death of employee.
- Divorce or legal separation.
- Loss of dependent status.
- Medicare entitlement.
- Employer bankruptcy proceedings (retirees and certain dependents only).
Coverage may be extended beyond the required periods. Some plans allow participants to convert group coverage to an individual policy, in which case the individual must be given the option within 180 days before COBRA coverage ends. However, the new premium may be more expense and the coverage may be less comprehensive.
Duration of Coverage
The length of COBRA coverage depends on the qualifying event: 18 months in the case of termination or reduction in hours and 36 months for other qualifying events. However, the coverage may end earlier if:
- Premiums aren’t paid.
- The employer stops offering a group health plan.
- Coverage is switched to another group plan that does not contain any exclusion or limitation with respect to any preexisting conditions.
- A beneficiary becomes entitled to Medicare during COBRA coverage.