What You Need to Know About COBRA Continuation Coverage

The Consolidated Omnibus Budget Reconciliation Act (COBRA)

Purpose

The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows employees and their dependents to continue receiving employer-provided health insurance coverage that they would otherwise lose due to a job loss, a reduction in work hours or certain family changes.

Covered Employers

Private-sector employers with 20 or more employees on more than 50 percent of their typical business days in the prior year are covered.

Covered Participants

An employee and/or his or her dependents who were on an employer's health plan the day before losing eligibility to participate in that plan due to a "qualifying event" are eligible for COBRA coverage. They and any newborn or newly adopted child added to the plan during COBRA coverage are called "qualified beneficiaries (QBs)" and may remain on the plan until COBRA coverage ends.

Covered Benefits

The law covers group health plans that include many arrangements set up by employers to provide medical care, including medical flexible spending accounts and some employee assistance plans, among others.

Qualifying Events

An event that causes a covered participant to lose eligibility to participate in his or her employer's health plan is known as a "qualifying event." Qualifying events include termination of employment or a reduction in hours for the employee, as well as divorce and loss of dependent status for children, among other things.

Duration of Coverage

The duration of COBRA continuation coverage depends on the qualifying event and can range from 18 to 36 months.

Notifications

Employers must provide several notices, including a general notice to all employees when they join the plan, an election notice after a qualifying event and an early termination notice, if applicable. Timing is important when sending out notices to ensure compliance.

Common Issues

Documentation

It's important to document when notices are sent, when participants elect coverage and any additional events that may occur during COBRA coverage.

Terminating Coverage

Employers need to understand when they may terminate COBRA coverage early, such as when the QB receives coverage under a new health plan or becomes eligible for Medicare. Notices must be sent out in a timely manner.

State Laws

Many states have COBRA-like regulations that apply to employers with fewer than 20 employees, while some states, such as California, extend the duration of coverage for all participants. 

Denying Coverage Due to Misconduct

When a covered employee is terminated for gross misconduct, COBRA does not have to be offered to either the employee or his or her dependents. However, as the regulations do not define "gross misconduct", it is best to reserve this option to deny coverage for cases of extreme misconduct and have your attorney review the situation for compliance.

FMLA Leave

Employees have a right to continue group health coverage while on Family and Medical Leave Act (FMLA) leave, and also have COBRA continuation rights if they fail to return from leave.

Correcting Errors

It is important to understand common COBRA administration errors and how to avoid or correct them.

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