What is Cobra?

Generally, COBRA requires most employers to allow certain persons, called “qualified beneficiaries,” who would otherwise lose their group health coverage due to certain “qualifying events” to continue that coverage for a certain period of time at the group rate. Certain employers are exempt from this rule–mainly employers with fewer than 20 employees.

Who is a qualified beneficiary?

To be eligible for COBRA coverage, a qualified beneficiary must be enrolled in the employer’s group health plan on the day before the qualifying event. A qualified beneficiary can be:

• A covered employee: a current or former employee (including self-employed persons, independent contractors, retirees and other non-traditional “employees”) covered under a group health plan;
• A spouse of a covered employee;
• A dependent child of a covered employee; and
• A child born to, or placed for adoption with, the covered employee during a period of COBRA coverage.

What is a qualifying event?

For a covered employee, a qualifying event can include:

• Voluntary or involuntary termination of employment (except if fired for gross misconduct);
• Reduction in hours of employment; and
• Filing of a bankruptcy proceeding by the employer (retirees and certain dependents only).

For a spouse or dependent child, a qualifying event can include:

• A covered employee’s termination of employment (except if fired for gross misconduct) or reduction in hours of employment;
• A covered employee’s death;
• A spouse’s divorce or legal separation from a covered employee;
• A covered employee’s “entitlement” to Medicare, (that is, the employee is actually covered under Medicare not just eligible for Medicare coverage);
• A dependent child’s loss of dependent status under the plan (usually due to age); and
• An employer’s filing of a bankruptcy proceeding (retirees and certain dependents only).

Notice of COBRA rights

Once plan coverage begins for an individual, that individual and his or her spouse, if any, must be initially notified of their COBRA rights. If a qualifying event occurs, more notices are required. In cases of termination or reduction in hours of employment, death, Medicare entitlement or bankruptcy, the employer has 30 days to notify the plan administrator. Generally, this 30-day period begins on the date of either the qualifying event or loss of coverage, whichever is later. In cases of certain disabilities, divorce, legal separation or loss of dependent-child status, the qualified beneficiary has 60 days to provide notice to the plan administrator.

Once notified of the qualifying event, the plan administrator then has 14 days to notify the qualified beneficiaries of their right to elect continuation coverage.

Election period

Qualified beneficiaries are given a certain period of time (the “election period”) to elect continuation coverage. This period lasts for at least 60 days, and may begin on different dates, depending on when coverage would otherwise be lost and when notices are given.

Duration of coverage

Continuation coverage can last for up to 18 months for a termination or reduction in hours of employment; up to 29 months for certain disabled qualified beneficiaries or up to 36 months for divorce or legal separation; the covered employee’s death or Medicare entitlement; or cessation of dependent status. Under special rules that apply in bankruptcy proceedings, continuation coverage may last for life. Also, a special “multiple qualifying event” rule may extend the 18-month period to 36 months. (For example, if a termination of employment is followed by a divorce while the qualified beneficiaries are still on COBRA coverage.)

These maximum coverage periods may be terminated early if the qualified beneficiary fails to pay the premium on time, becomes covered under another group health plan (subject to pre-existing condition exclusions or limitations) or becomes entitled to Medicare. The maximum period may also end if the employer terminates all of its group health plans.

Premiums

Once coverage is elected, qualified beneficiaries may be required to pay a premium for this continuation coverage. The premium can be as much as 102 percent (or 150 percent for additional disability coverage) of the cost of coverage to the plan for “similarly situated individuals.”

This information is adapted from Mandated Health Benefits–The COBRA Guide, published by Thompson Publishing Group, Inc.