COBRA Q & A
Q. Which employers are covered under COBRA?
Any employer with 20 or more employees is bound by the law. Small employers that normally employ fewer than 20 employees on a "typical business day" are excluded from the requirements. For those employers whose employee headcount fluctuates under and over 20, the regulations required that an employer look at its level of employment during more than 50 percent of its business days of the preceding calendar year.
Q. Which events trigger COBRA?
Events that trigger coverage are called qualifying events. The following are qualifying events:
- an employee's voluntary or involuntary termination of employment, unless it is for gross misconduct. COBRA does not define misconduct, but some criteria to use if you are thinking of denying COBRA benefits on the basis of misconduct are:
- There must be a connection between the offense and the employee's job.
- The employee must be able to understand the gravity of the misconduct.
- The offense must be willful.
- If the departing employee decides to challenge your determination, you're probably going to end up in federal court. Balance the estimated costs of fighting the enforcement suit against the estimated costs of the COBRA coverage.
- an employee's reduction in hours of employment (e.g., from full time to part time)
- a covered spouse's divorce or legal separation from an employee
- an employee's death
- an employee's entitlement to Medicare
- a covered dependent's change in status (for example, reaching an age that no longer qualifies the dependent for coverage under the parent's health plan)
- active military duty when you don't voluntarily maintain health coverage
- failure to return to work at the end of family and medical leave where coverage was in effect at the beginning of the leave but was lost during the leave
- your business's bankruptcy
If you're subject to COBRA, and if you have a group health plan, you have to provide COBRA benefits to qualified beneficiaries. A qualified beneficiary is anyone covered under your group health plan on the day before an event that causes loss of coverage, and it includes:
You do not have to offer COBRA coverage to any of the following:
- employees, including part-time employees, if they are eligible to participate in your plan
- their spouses
- their dependents
- retirees (unless they are eligible for Medicare)
- partners in a partnership
- an employee who is not yet eligible for your group health plan
- an eligible employee who declined to participate in your group health plan
- an individual who is enrolled for benefits under Medicare
Q. Which benefits are covered?
The following types of plans are generally offered to employees when COBRA is triggered (but only if you already offer them to employees):
- health care insurance plans
- medical spending accounts
- dental insurance plans
- hearing plans
- vision plans
- prescription drug plans
- alcohol and substance abuse plans
- mental health plans
Q. Which benefits are NOT covered?
The following types of plans are NOT generally offered to employees when COBRA is triggered.
- Life insurance
- Disability insurance,
- Vacation
- Retirement
Q. How long does COBRA coverage last?
- For termination of employment or reduction in hours -- 18 months for the employee and any covered dependents
- For an individual previously entitled to 18 months of coverage who is determined to be disabled -- 29 months of coverage
- For an individual previously entitled to 18 months of coverage who experiences a second qualifying event -- 36 months of coverage
- For qualifying events for reasons other than termination of employment or reduction in hours -- 36 months of coverage
Q. When must the Employer
notify the plan administrator?
- voluntary termination
- involuntary termination
- reduction of hours
- death of an employee
- Medicare entitlement.
Q. When must the Employee or Other
Qualified Beneficiary notify the plan administrator?
- divorce or legal separation
- dependent child no longer a dependent
Q. Who pays for COBRA Coverage?
The employee must pay the full cost of the insurance premiums. Actually, the law allows you to charge 102 percent of the premium, and to keep the 2 percent to cover your administrative costs. When an employee gets extended COBRA coverage due to disability, you can charge 150 percent of the premium for months 18 through 29.
Federal law states that COBRA coverage can be terminated if premium payments are late. The law states that, payment of any premium is considered to be timely if it is made within 30 days after the due date or within a longer period set out under the plan. The due date must not begin before the first day of the coverage period. And, when someone chooses to take COBRA coverage, they still have 45 days to make the first payment.
The fact that most insurers want you to pay in advance for coverage complicates this process because you have to pay in advance for the coverage under the policy, but the law states that you have to give COBRA insureds a 30-day grace period from the time the payment is due.
Q. When does COBRA apply for someone on FMLA leave?
The new regulations set forth rules regarding the interaction of COBRA continuation coverage requirements with the provisions of the Family and Medical Leave Act of 1993 (FMLA). The rules under the new proposed regulations are substantially the same as those set forth in IRS Notice 94-103. The qualifying event is deemed to occur on the last day of the employee's FMLA leave, and COBRA coverage begins on that day.