COBRA Coverage: Inside and Out

COBRA is a scary word, and unless you’re a snake charmer there’s a good chance the word causes at least some mild anxiety for even the most strong-willed HR professionals. Nature buffs and HR directors alike can both attest: COBRA isn’t something to mess around with.

                                                                                                                                 

So what is COBRA in the HR context? It’s an acronym for the Consolidated Omnibus Budget Reconciliation Act of 1986, which set requirements for employers to offer continuation of health benefits after an employee’s termination from a group health plan. The intent of the law is noble—to prevent sudden loss of health benefits for ex-employees and their dependents as a result of employment ending—but administration of COBRA can be downright onerous for employers.

 

Which employers are subject to COBRA?

Generally, if you’re an employer with more than 20 employees, your company is subject to federal COBRA rules. There are some exceptions (for example, churches don’t need to comply with COBRA regulations), but for the most part growth and expansion above 20 employees means you’ll also need to make sure you are prepared to comply with COBRA rules.

 

What benefits need to be offered?

The health benefits offered to a COBRA participant should be the same health benefits in which he or she was enrolled as an active employee. If the employee was enrolled only in medical at the time of termination, then the employee only needs to be offered medical under COBRA; conversely, if the employee was enrolled in medical, dental, and vision as an active employee, all three must be offered under COBRA. COBRA benefits also need to be the same group benefits offered to the group of similarly situated active employees—so if plans or rates change, COBRA participants must be allowed to make equivalent changes. Said differently, COBRA participants should be offered an open enrollment once per year just as active employees are offered an open enrollment once per year.

 

How long does COBRA coverage last?

In general, COBRA coverage allows an employee and his or her dependents to stay enrolled on the employer’s group health plan for an additional 18 months if:

 

a.  the employee and/or dependent terminates from the plan

b.  the termination counts as a COBRA qualifying event

 

There are circumstances in which the 18-month coverage period can be extended. For example, if the COBRA participant experiences a disability, or if a second COBRA qualifying event occurs for dependents within the first 18 months of COBRA coverage, the coverage period can be extended. Additionally, there are state-specific requirements that can extend the 18-month period as well.  Is your head spinning yet?

 

So, what do I have to do?

If your company and the health plan you offer is subject to COBRA, your responsibilities begin with making sure that you have policies and procedures in place to administer it correctly. You then have a handful of notice requirements, the two most common of which are:

 

  • General Rights Notice: When an employee enrolls in your benefits plan for the first time, you have an obligation to give them a General Rights Notice. This tells the employee of his or her COBRA rights if they ever terminate from the plan.
  • Qualifying Event Notice: When an employee terminates from the plan, you need to send the employee another notice reminding the employee of their right to continue group benefits coverage under COBRA. This notice also should contain information about the benefits and rates available to that individual at the time of termination.

 

So, what if I don’t do all this correctly?

Potential penalties for administering COBRA incorrectly can add up quickly. For example, the penalties for failure to distribute the above notices in a timely manner can be $110 per day, per participant. It is really important to have an airtight seal on your COBRA process management.

 

Do people actually sign up for COBRA?

Yes, but the number is likely to decrease in the future. COBRA coverage is expensive. Employees who enroll are typically responsible for paying 102% of the active employee premium rate, and due to its cost, those who enroll are typically only the ones who need it the most.

 

Prior to the Affordable Care Act’s establishment of subsidized public insurance marketplaces, COBRA was one of the few ways an individual and their dependents could obtain relatively affordable healthcare coverage outside of the employment relationship (keyword here is relatively, referring to an ex-employee’s access to group insurance rates vs. individual insurance rates).  Now that these other subsidized coverage options exist, we’re likely to see a bit of a drop-off in COBRA coverage enrollment, but that still doesn’t exempt an employer from complying with COBRA requirements and making continuation coverage available.

 

The bottom line here is that if you’re an employer with more than 20 employees, there’s little you can do to charm your way out of COBRA compliance.  Therefore, it’s best to have a conversation with your broker today to make sure you’re managing your COBRA obligations as effectively and efficiently as possible. Broker services vary greatly and while some administer COBRA in-house, others are well-prepared to connect your company with an affordable outsourced solution that is well worth the price.

 

Check out these DOL resources to learn more:

An Employee’s Guide to Health Benefits Under COBRA

An Employer's Guide to Group Health Continuation Coverage Under COBRA

Employer FAQ on COBRA Continuation Health Coverage

 

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