What is COBRA insurance?
The termination of your worker’s employment doesn’t automatically mean that they will lose the health coverage provided by your group health plan. Where certain conditions are met under COBRA insurance provisions, your previous worker and their family have the option to continue coverage offered by your group health plan.
So what exactly is COBRA insurance?
Here are 15 FAQs for a better understanding of what COBRA insurance means for you and your ex-employees.
1. What does COBRA stand for?
COBRA stands for The Consolidated Omnibus Budget Reconciliation Act 1985.
2. What exactly does COBRA do?
COBRA is a federal law that gives some workers the right to maintain healthcare coverage for themselves, spouses, dependent children and former spouses under a group health plan. COBRA relates to you if you have 20 or more employees. Full-time and part-time workers are taken into account when determining the number of employees a business employs. Part-time employees are counted as a fraction of a full-time employee. This fraction equals the number of hours the part-time employee works divided by the hours this employee must work to be regarded as full-time.
3. What type of group health plans are covered by COBRA?
A group health plan is an agreement you make with your employees to provide them and their families with medical care, either by:
- A health maintenance organization
- Employer assets
For the purposes of COBRA, medical care includes:
- Outpatient inpatient and hospital care
- Physician care
- Surgery and other major medical benefits
- Prescription drugs
- Dental and vision care
Life insurance and disability benefits are not considered medical care under COBRA.
The law is relevant to all group health plans that are managed by state or local governments as well as private-sector businesses that employ 20 or more people.
4. What type of group health plans are not subject to COBRA?
- This law is not applicable to certain church and church-related organizations. The IRS has found that a health plan covering a higher learning institution which is under church sponsorship qualifies as a church plan. Therefore, such higher learning institutes aren’t subject to COBRA.
- Small employer plans are also exempt from COBRA. For the purposes of COBRA, small employers are those that have employed less than 20 employees on a normal business day during the previous calendar year.
- COBRA doesn’t apply to the federal government’s group health plan. The Federal Employees Health Benefits Amendments Act of 1988 governs how the federal government offers continuous health coverage to its employees.
5. Which workers are eligible to continuation coverage under COBRA?
Workers are entitled to continuation health coverage under COBRA if:
- Their group health plan is covered by COBRA
- A qualifying event has happened; and,
- They are a qualified beneficiary for the event that has happened
Qualifying events are defined as events that lead to an employee losing their group health coverage. The nature of the qualifying event establishes who the qualified beneficiaries will be and how long a plan must provide continuation coverage. A plan can choose to provide continuation coverage for a term that is longer than what has been mandated under COBRA.
The following are qualifying events for eligible employees:
- Voluntary or involuntary termination of employment. This doesn’t apply if an employee has been terminated for gross misconduct
- A reduction in the number hours of employment
Here are the qualifying events for spouses:
- Voluntary or involuntary termination of the covered employee’s employment. This doesn’t apply if an employee has been terminated for gross misconduct.
- A reduction in the number of hours of employment worked by the covered employee.
- Where the covered employee has become eligible for Medicare.
- Death of the covered employee.
- Legal separation or divorce of the covered employee.
The qualifying events for dependent children and for spouses are the same.
However, the following is an addition for dependent children:
- Where a child is no longer classified as a dependent under the rules of the plan. The Affordable Care Act states that, where children are covered on their parents’ plan, coverage must be available until the child is 26 years old.
Qualified beneficiaries are usually people covered by a group health plan on the day before a qualifying event happens. Qualifying beneficiaries can be an:
- Employee’s spouse
- Employee’s dependent child
A retired employee, the retired employee’s spouse, and the retired employee’s dependent children could be qualified beneficiaries in certain cases.
Additionally, where a covered employee has a child through birth or adoption during the COBRA coverage, this child will be considered as a qualified beneficiary. Independent contractors, agents, and directors who take part in the group health plan could also be considered qualified beneficiaries.
6. How do employees become eligible for COBRA continuation coverage?
Employees become entitled for COBRA continuation coverage if:
- They are enrolled in your health plan.
- The health plan is still in effect after they have left; and
- You’re an eligible employer under COBRA.
7. How long do employees have to elect COBRA coverage?
If your employees are eligible for COBRA coverage, you must give them at least a 60-day election period. If employees give up their COBRA coverage within the election period, you must allow them to withdraw their waiver as long as they change their minds within the election period.
8. What notices do my employees need to receive under COBRA?
COBRA requires group health plans to provide covered employees and their families with notices that explain their entitlements. Within the first 90 days of coverage, your employees and their spouse must be given a general notice with a description of their rights under COBRA. The general notice must include:
- The name of the plan and the contact name and details (address and phone number) of a person who can provide more information about the plan and COBRA.
- A description of the continuation coverage that the plan provides.
- The process that must be followed by qualified beneficiaries to inform the plan that there has been a qualifying event or disability.
- An explanation of why it’s important to let the plan administrator know about the employee’s and beneficiary’s address.
- A declaration that the general notice doesn’t provide a full description of COBRA or the plan and further information can be obtained from the plan administrator and in the summary plan description.
9. When does an employee start to get coverage?
Your employee’s COBRA coverage starts on the date that their health insurance policy comes to end because of a qualifying event.
10. What benefits are covered under COBRA?
The continuation coverage must be the same as the coverage available to the employee and their family under the plan. This is normally the same coverage that the qualifying employee had before the qualifying event.
A qualified beneficiary must get identical benefits, services, and choices that an employee in a similar situation is receiving under the plan. A qualified beneficiary is also subject to the exact plan limits and rules that are applicable to an employee or beneficiary in the same position – for example, deductibles and co-payment requirements.
The same plan rules for the filing of benefit claims and making appeals also are applicable under COBRA. Changes made to the plan’s terms and conditions that apply to active employees will also affect beneficiaries under COBRA. When an employee under COBRA adopts or gives birth to a child under COBRA’s continuation coverage, the child automatically qualifies as a beneficiary and will get continuation coverage. The plan must permit the child to be included in the continuation coverage.
11. How long does COBRA coverage last?
Continuation coverage under COBRA starts from the date of the qualifying event and lasts for 18 or 36 months. The type of qualifying event that triggered an employee’s rights under COBRA will determine the length of the continuation coverage. A plan is free to extend the coverage period specified by the law.
If the qualifying event is employee termination (for anything other than gross misconduct) or reduction in hours worked, qualified beneficiaries must be given continuation coverage for 18 months.
In the event that:
- The employment has come to an end; or
- There has been a reduction in hours; and
- The employee is eligible for Medicare less than 18 months before the qualifying event.
The employee’s spouse and dependents can get COBRA coverage for up to 36 months after the date the employee first became eligible for Medicare. For instance, if your covered employee is entitled to Medicare nine months before their employment ends, COBRA coverage for their spouse will last for 27 months.
Qualified beneficiaries have to be provided 36 months of continuation coverage for all other qualifying events.
12. Can continuation coverage under COBRA be extended?
Someone who is entitled to a maximum of 18 months of continuation coverage can get an extension under the following circumstances:
- Disability – Where a qualified beneficiary in a family is disabled and also meets specific conditions, every qualified beneficiary in that family is allowed an 11-month extension of the maximum time of continuation coverage. The plan is allowed to charge the qualified beneficiaries up to 150% for the premium to cover the 11-month disability extension.
- Second qualifying event – Qualified beneficiaries could receive an 18-month extension to the existing 18-month continuous coverage where there’s a second qualifying event. This event could be:
- The death of the qualified employee.
- Legal separation or divorce of the covered employee and spouse.
- Medicare entitlement (in some situations).
- The loss of a dependent child status according to the plan.
- The second event can only be qualifying if it would cause the qualified beneficiary to lose coverage under the plan without the first qualifying event.
13. Can continuation coverage under COBRA be terminated?
Continuation cover can be stopped by a group health plan earlier than the maximum time for the following reasons:
- Premiums aren’t paid promptly and in full.
- You stop maintaining a group health plan in your business.
- A qualified beneficiary starts to get coverage under another group health plan after choosing continuation coverage.
- A qualified beneficiary is eligible for Medicare benefits after choosing continuation coverage; or
- A qualified beneficiary’s actions provide good reason for the plan terminating coverage.
The group health plan must give the qualified beneficiary notice if the plan is terminated early. The early termination notice must be given as soon as possible after the decision to stop the plan is made.
14. How much does COBRA insurance cost and who pays?
The cost of COBRA will be dependent on the employee’s health plan before they switched to COBRA. The monthly cost under COBRA will be 100% of the employee’s health plan plus a 2% administration charge.
Where qualified beneficiaries are entitled to an 11-month disability extension, they will need to pay 150% for the extra 11 months.
Qualified beneficiaries will have to pay more if the cost of the plan goes up, however, the cost is normally fixed in 12-month cycles. Under COBRA, qualified beneficiaries must be allowed to pay at different intervals, such as quarterly or weekly.
An employee’s group health plan can require ex-employees to pay for COBRA coverage. As an employer, you do not have to make any contributions under COBRA. Your ex-employee will need to pay the amount you used to pay towards healthcare while they were in your employ.
15. How to sign-up for COBRA
In order for your employees to sign up for COBRA, you should speak to your group health plan provider to let them know that the employee is eligible. The employee gets a notice of continuation coverage, which they have to accept or deny. The employee has 60 days to decide and to make a payment towards the COBRA premium.
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