“The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a landmark federal law, passed in 1985, that provides for continuing group health insurance coverage for some employees and their families after a job loss or other qualifying event.” (Investopedia)
Sounds pretty simple, right?
Employees have the right to extend their health benefits after being laid off, have reduced hours, or have some other event that causes them to lose their health insurance.
But while the general concept of COBRA is simple, the actual practice of COBRA can be confusing and complicated for employers and employees alike.
Over the past year and a half, I have had question after question about COBRA regulations – about the hefty penalties associated with non-compliance, rules about who qualifies for COBRA, how long employers have to provide COBRA benefits, etc.
To answer these common questions, I put together this short guide for you. In it, I cover the top fifteen questions I get about this coverage. They include:
- Do all businesses have to offer COBRA?
- When does an employer have to offer this COBRA coverage?
- Who is eligible to receive COBRA?
- How long do you have to provide your past employees with COBRA benefits?
- What benefits are subject to COBRA regulations?
- Who pays for COBRA benefits?
- Can I pay for my employee’s COBRA costs as part of their severance?
- How much do COBRA benefits cost?
- What is required of the employer in notifying employees of their COBRA rights?
- When can COBRA benefits be terminated early?
- Do your past employees have to agree to pay for these benefits for all 18 to 36 months?
- How long does an employee have to elect for COBRA benefits?
- Can an employee change their mind after they refuse COBRA benefits?
- When can an employee request an extension of benefits?
- What do I do if my employee retroactively requests COBRA benefits?
- What happens if I don’t offer COBRA?
1. Do all businesses have to offer COBRA?
According to the U.S. Department of Labor,
“COBRA generally requires that group health plans sponsored by employers with 20 or more employees in the prior year offer employees and their families the opportunity for a temporary extension of health coverage (called continuation coverage) in certain instances where coverage under the plan would otherwise end.”
If you are an employer with at least twenty employees, the law requires you to offer your employees COBRA health coverage.
In Pennsylvania, if you employ less than twenty employees and offer those employee group health care, you are required by law to provide your employees mini-COBRA.
Group health plans offered by the federal government or by churches and church-related organizations are not subject to COBRA regulations.
2. When does an employer have to offer COBRA coverage?
COBRA is designed to temporarily offer continued group health coverage if an employee’s group health might be terminated.
This could be due to:
- An employee’s death
- The loss of a job
- A reduction in work hours
- Moving from employer group health to Medicare
- An employee’s divorce or legal separation
- Loss of dependent status
3. Who is eligible to receive COBRA benefits?
Beyond the employee who is losing their benefits, spouses, former spouses, and dependents can be eligible for COBRA benefits.
4. How long do you have to provide your past employees COBRA benefits?
Depending on the situation, you will have to offer these benefits for 18 to 36 months.
5. What benefits are subject to COBRA regulations?
Group health benefits that are subject to COBRA are benefits directly related to “medical care.”
These include:
- Inpatient care
- Outpatient care
- Surgery and other major medical procedures
- Prescription medication
- Dental care
- Vision care
Life insurance and disability insurance are not subject to COBRA.
6. Who pays for COBRA benefits?
As an employer, you do not have to pay COBRA benefits. Your past employee will have to pay for the benefits if they elect to take them.
You can also charge a 2% administration fee in addition to the cost of the benefits.
You must give your employee at least 45 days to pay for their benefits after they elect to receive COBRA benefits. If they do not make a payment within those 45 days, you can terminate their COBRA rights.
If an employee does not pay the correct premium amount, but it is not significantly less than their actual premium, you will need to notify them of the discrepancy. Usually, employers will give the employee at least 30 days to correct their mistake in this circumstance.
7. Can I pay for my employee’s COBRA benefits as part of their severance package?
Yes. Employers can pay COBRA benefits in full or subsidize a portion of their premium.
8. How much do COBRA benefits cost?
Because the employer is no longer responsible for paying a portion of the group health benefits, your employee will have to pick up the extra expense. COBRA benefits are expensive.
9. What is required of the employer in notifying employees of their COBRA rights?
In your Summary Plan Document (SPD), you are required to outline your employee’s COBRA rights. Your employees receive a copy of your SPD within the first 90 days of joining your group health plan.
You are required to provide several notices regarding your COBRA benefits to your employees.
COBRA General Notice
Your employees must receive this notice in the first 90 days they enroll in your group health plan. By providing your employees a copy of your Summary Plan Document, you can meet this requirement.
COBRA Qualifying Event Notice
If your employee has a qualifying event that will cause them to lose their group health benefits, you are required to provide them a notice that they are eligible for COBRA benefits.
You must provide this notice within 30 days of the qualifying event.
Your employee will also need to let you know the reason they need COBRA benefits. They must specify if their need is due to a divorce, a legal separation, or a child’s loss of dependent status. They must provide this information within 60 days of these events.
Your employees must inform you of the date of the event, the date they will lose their current coverage, and the date they inform you of their need.
COBRA Election Notice
After a qualifying event, you must notify any beneficiaries that qualify for COBRA benefits.
This may include your employee, their spouse, or their dependent children.
You must provide notice within 14 days of the qualifying event.
COBRA Notice of Unavailability of Continuation Coverage
Sometimes employees will request an extension for their COBRA coverage. If they do so and are denied the extra coverage, you must notify them within 14 days of their initial request.
COBRA Notice of Early Termination of Continuation Coverage
If, for some reason, you need to terminate COBRA coverage early, you need to inform those who will be affected. You will need to provide this notice as soon as that decision is made.
In the notice, you must include:
- The date coverage will be terminated
- The reason for early termination
- Any rights the beneficiary has according to the Summary Plan Document
10. When can COBRA benefits be terminated early?
There are a handful of reasons that you, as the employer, can terminate COBRA benefits early.
These include:
- An employee or past employee’s failure to pay for their benefits
- You discontinue offering any group health plan to your employees
- A beneficiary begins coverage under another group health plan
- A beneficiary qualifies for Medicare
- A beneficiary engages in fraud or other conduct that legitimizes terminating COBRA coverage
11. Do your past employees have to agree to pay for these benefits for all 18 to 36 months?
No. Your past employees can elect to pay for these benefits monthly. At any point, they can choose to end their COBRA benefits.
12. How long does an employee have to elect for COBRA benefits?
When an employee leaves your business, they have 60 days to elect to pay for COBRA benefits.
Currently, there is an exception to this regulation. Since April 1, 2021, employees who have lost benefits due to being furloughed or losing hours and benefits can retroactively ask for COBRA coverage.
13. Can an employee change their mind after they refuse their COBRA benefits?
Yes. As long as the employee changes their mind before the election period ends.
14. When can an employee request an extension of COBRA benefits?
There are only two circumstances that allow an employee to request an extension of their COBRA benefits: Becoming disabled or experiencing a second qualifying event.
Disability
If one of the beneficiaries of COBRA benefits is disabled, they may qualify for an extension of benefits. In this case, the Social Security Administration must determine that the individual is disabled before the 60th day of receiving COBRA benefits.
Second Qualifying Event
If an employee has another qualifying event while they are on COBRA benefits, they can seek an 18-month extension of their benefits.
A qualifying event would include the death of a covered employee, a divorce or legal separation, the ability to receive Medicare benefits, or the loss of dependent child status.
The employee must notify you of the second qualifying event. They will need to let you know:
- The date of the qualifying event
- The date they would lose coverage because of the qualifying event
- The date that they must inform you outlined in the SPD or COBRA general notice
15. What do I do if my employee retroactively requests COBRA benefits?
Because of COVID, employees can retroactively request COBRA coverage. According to the American Rescue Plan, an employee can retroactively seek COBRA coverage if you lost your benefits eligible position involuntarily with the exception of gross misconduct.
The employer is required to fully subsidize these benefits. Later, the employer can write this subsidy off on their taxes for a tax credit.
If you have an employee who is retroactively requesting COBRA benefits, you need to contact your labor attorney or employee benefits broker.
Employees will only have the option to retroactively request these benefits until September 30, 2021.
16. What happens if I don’t offer COBRA?
By law, if you have more than 20 employees, you have to offer COBRA. If you don’t, you could face steep tax penalties – $100 per day per employee or $200 per day per family – while you are out of compliance.
In addition to this, ERISA has additional penalties for businesses out of COBRA compliance. ERISA regulations also give any affected persons and even the Department of Labor the right to file a lawsuit.
You could find yourself paying heavy penalties and extensive court costs if you don’t offer qualifying employees COBRA coverage.
Is your Employee Benefits Broker helping you with COBRA issues?
When I meet with prospective clients, I take them through our strategic process to identify areas of weakness and strengths in their current benefits program. One of the areas we typically evaluate is how their business is handling COBRA benefits.
And those prospects are often surprised to find out that they have been out of compliance.
Most of the time, they have no idea they are not following COBRA regulations.
COBRA is nuanced and complicated. And, with changes in the law, many HR teams and employers aren’t always up to date in knowing what the law requires.
Having a broker who works alongside your organization as an extra “team member” is essential if you want to do everything required.
Your broker should be regularly helping you with your benefits issues.
Working with Baily Insurance
At Baily Insurance, we take a hands-on approach with our benefits clients.
Beyond helping with COBRA, we help educate employees regarding their benefits, proactively manage claims to reduce benefits expenses, investigate alternative solutions for group health benefits, and assist with ERISA, Affordable Care Act, and other compliance requirements.
If you are looking for a broker to roll up their sleeves and help, I would love to talk with you! I’m always interested in working with businesses that want a partnership.
If you’re that kind of organization, let’s get some time on my calendar so we can see if a partnership might make sense. I’m passionate about helping businesses control their benefits costs! Let’s talk!
