Confusion abounds whenever the subject of COBRA arises, especially with smaller employers and owner-operated businesses. The most common misconception I’ve encountered is that an eligible employee simply receives COBRA benefits because he/she is eligible without the employer (or someone designated by the employer) having to actually facilitate COBRA benefits. This is simply wrong.
COBRA isn’t a complicated law, but it doesn’t get the attention it deserves, particularly from smaller employers, who probably (and logically) assume they don’t have any continuing obligations to employees when they’re parting ways at the end of the employment relationship.
To correct this and other misconceptions, some COBRA basics are in order.
What is COBRA?
COBRA (short for the Consolidated Omnibus Budget Reconciliation Act) is a federal law that gives workers and their families who lose their group health benefits under certain circumstances the right to choose to continue their health insurance benefits for a limited period of time. What are those circumstances? Voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. In COBRA speak, these are known as “qualifying events.”
Does COBRA apply to all employers?
No, COBRA does not apply to all employers. COBRA generally only applies to group health plans of employers with 20 or more employees on more than half of its typical business days in the prior calendar year. Both full and part-time employees are counted to determine whether a plan (and thus the employer) is subject to COBRA. Each part-time employee counts as a fraction of a full-time employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.
The above applies to the federal law, COBRA. Some states have their own version of COBRA, which usually apply to group health plans of employers with fewer than 20 employees.
Are all employees eligible for COBRA?
Not all employees are eligible for COBRA. To be eligible for COBRA coverage, the employee must have been enrolled in his/her employer’s health plan when he/she worked and the health plan must continue to be in effect for active employees. COBRA continuation coverage is available upon the occurrence of a qualifying event that would, except for the COBRA continuation coverage, cause an individual to lose his/her health care coverage.
What are COBRA benefits?
The benefit provided by COBRA is the opportunity for an employee (and his/her covered family) to temporarily extend health coverage (called continuation coverage) at group rates when coverage under the plan would otherwise end. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since employers usually pay a part of the premium for active employees while COBRA participants generally pay the entire premium for coverage (and sometimes a 2% administrative charge). COBRA coverage is ordinarily less expensive, though, than individual health coverage.
COBRA benefits are generally available for a maximum of 18 months, although certain qualifying events, or a second qualifying event during the initial period of COBRA coverage, may extend COBRA benefits by up to another 18 months.
Who is responsible for notifying an employee of COBRA coverage when the employee is no longer eligible for health coverage? (This is where most small businesses and owner-operated businesses trip up, so take note.)
Short answer: Employers and “plan administrators,” or just the employers, where no “plan administrator” has been designated.
Long answer: When an employee is no longer eligible for health coverage, the employer has to provide the employee with a specific notice regarding his/her rights to COBRA continuation benefits.
Employers must also notify their “plan administrator” within 30 days after an employee’s termination or after a reduction in hours that causes an employee to lose health benefits. The “plan administrator” is the person (or entity) responsible for the management of the plan, and is specifically designated by the terms of the plan. If the plan does not make such a designation, the employer (as plan sponsor) is generally the plan administrator.
The plan administrator (or employer if no “plan administrator” has been designated) must then provide notice to the employee of his/her right to elect COBRA coverage within 14 days after the administrator (or employer) has received notice from the employer.
Is that all there is to COBRA?
COBRA doesn’t end here. COBRA sets forth a number of other requirements relating to notifications, timing of elections, and payment of premiums, among other topics, all of which may place further obligations on employers.