COBRA
STATUS
On
February 17, 2009, the President signed H.R. 1, the American
Recovery and Reinvestment Act into law as Public Law 111-5.
It included provisions to enhance COBRA including a
temporary premium subsidy.
THE AMERICAN
RECOVERY AND REINVESTMENT ACT (ARRA)
The ARRA provides a 65 percent subsidy for COBRA
continuation premiums for up to 9 months for workers who
have been involuntarily terminated (and their families).
This subsidy also applies to health care continuation
coverage if required by states for small employers.
To qualify for premium assistance, a worker must be
involuntarily terminated between September 1, 2008 and
December 31, 2009. The subsidy would terminate upon offer of
any new employer-sponsored health care coverage. Workers
who were involuntarily terminated between September 1, 2008
and enactment, but failed to initially elect COBRA within 60
days as required by law, would be given an additional 60
days to elect COBRA and receive the subsidy. In these
instances, benefits would be prospective only.
This will have at least some administrative impact on
employers. New notices to employees will also be required.
If the employee pays the employer for COBRA premiums, the
employer will be “reimbursed” for the amount of premium
subsidy by the federal government. Such amount will be
treated as a credit against the employer’s requirement to
make deposits of payroll taxes. To the extent that such
amount exceeds the amount of such taxes, the Department of
the Treasury will pay the employer the amount of such
excess. It will be up to the Treasury Department to fill in
the details of how the employer would take the credit
against payroll tax deposits, how to request payment when it
exceeds the tax liability (probably not often, given the
employee size threshold), and when it would be paid.
COBRA
Congress passed the Consolidated Omnibus Budget
Reconciliation Act (COBRA) health benefit provisions in
1986. The law amended the Employee Retirement Income
Security Act, the Internal Revenue Code and the Public
Health Service Act to provide continuation of group health
coverage that otherwise might be terminated.
COBRA provides certain former employees, retirees, spouses,
former spouses, and dependent children the right to
temporary continuation of health coverage at group rates.
This coverage, however, is only available when coverage is
lost due to certain specific events. Group health coverage
for COBRA participants is usually more expensive than health
coverage for active employees, since usually the employer
pays a part of the premium for active employees while COBRA
participants generally pay the entire premium themselves.
It is ordinarily less expensive, though, than individual
health coverage.
There are three elements to qualifying for COBRA benefits.
COBRA establishes specific criteria for plans, qualified
beneficiaries, and qualifying events:
Plan
Coverage - Group health plans
for employers with 20 or more employees on more than 50
percent of its typical business days in the previous
calendar year are subject to COBRA. Both full and part-time
employees are counted to determine whether a plan is subject
to COBRA. Each part-time employee counts as a fraction of
an 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.
Qualified
Beneficiaries - A qualified
beneficiary generally is an individual covered by a group
health plan on the day before a qualifying event who is
either an employee, the employee's spouse, or an employee's
dependent child. In certain cases, a retired employee, the
retired employee's spouse, and the retired employee's
dependent children may be qualified beneficiaries. In
addition, any child born to or placed for adoption with a
covered employee during the period of COBRA coverage is
considered a qualified beneficiary. Agents, independent
contractors, and directors who participate in the group
health plan may also be qualified beneficiaries.
Qualifying Events
- Qualifying events are certain events that would cause an
individual to lose health coverage. The type of qualifying
event will determine who the qualified beneficiaries are and
the amount of time that a plan must offer the health
coverage to them under COBRA. A plan, at its discretion,
may provide longer periods of continuation coverage.
Qualifying Events for Employees:
- Voluntary or
involuntary termination of employment for reasons other
than gross misconduct
- Reduction in the
number of hours of employment
Qualifying Events for Spouses:
- Voluntary or
involuntary termination of the covered employee's
employment for any reason other than gross misconduct
- Reduction in the
hours worked by the covered employee
- Covered employee's
becoming entitled to Medicare
- Divorce or legal
separation of the covered employee
- Death of the
covered employee
Qualifying Events for Dependent Children:
- Loss of dependent
child status under the plan rules
- Voluntary or
involuntary termination of the covered employee's
employment for any reason other than gross misconduct
- Reduction in the
hours worked by the covered employee
- Covered employee's
becoming entitled to Medicare
- Divorce or legal
separation of the covered employee
- Death of the
covered employee
Notice
Requirements
Employers must notify plan administrators of a qualifying
event within 30 days after an employee's death, termination,
reduced hours of employment or entitlement to Medicare.
A
qualified beneficiary must notify the plan administrator of
a qualifying event within 60 days after divorce or legal
separation or a child's ceasing to be covered as a dependent
under plan rules.
Plan participants and beneficiaries generally must be sent
an election notice not later than 14 days after the plan
administrator receives notice that a qualifying event has
occurred. The individual then has 60 days to decide whether
to elect COBRA continuation coverage. The person has 45
days after electing coverage to pay the initial premium.
Qualified beneficiaries must be given an election period
during which each qualified beneficiary may choose whether
to elect COBRA coverage. Each qualified beneficiary may
independently elect COBRA coverage. A covered employee or
the covered employee's spouse may elect COBRA coverage on
behalf of all other qualified beneficiaries. A parent or
legal guardian may elect on behalf of a minor child.
Qualified beneficiaries must be given at least 60 days for
the election. This period is measured from the later of the
coverage loss date or the date the COBRA election notice is
provided by the employer or plan administrator. The
election notice must be provided in person or by first class
mail within 14 days after the plan administrator receives
notice that a qualifying event has occurred.
Basic Continuation
Benefits
COBRA beneficiaries generally are eligible for group
coverage during a maximum of 18 months for qualifying events
due to employment termination or reduction of hours of
work. Certain qualifying events, or a second qualifying
event during the initial period of coverage, may permit a
beneficiary to receive a maximum of 36 months of coverage.
Coverage begins on the date that coverage would otherwise
have been lost by reason of a qualifying event and will end
at the end of the maximum period. It may end earlier if:
- Premiums are not
paid on a timely basis
- The employer ceases
to maintain any group health plan
- After the COBRA
election, coverage is obtained with another employer
group health plan that does not contain any exclusion or
limitation with respect to any pre-existing condition of
such beneficiary. However, if other group health
coverage is obtained prior to the COBRA election, COBRA
coverage may not be discontinued, even if the other
coverage continues after the COBRA election.
- After the COBRA
election, a beneficiary becomes entitled to Medicare
benefits. However, if Medicare is obtained prior to
COBRA election, COBRA coverage may not be discontinued,
even if the other coverage continues after the COBRA
election.
Disability
extension
Disability can extend the 18-month period of continuation
coverage for a qualifying event that is a termination of
employment or reduction of hours. To qualify for additional
months of COBRA continuation coverage, the qualified
beneficiary must:
- Have a ruling from
the Social Security Administration that he or she became
disabled within the first 60 days of COBRA continuation
coverage
- Send the plan a
copy of the Social Security ruling letter within 60 days
of receipt, but prior to expiration of the 18-month
period of coverage
- If these
requirements are met, the entire family qualifies for an
additional 11 months of COBRA continuation coverage.
Plans can charge 150 percent of the premium cost for the
extended period of coverage.
Premium Payment
Group health plans (i.e. the employer) can require qualified
beneficiaries to pay for COBRA continuation coverage. The
maximum amount charged to qualified beneficiaries cannot
exceed 102 percent of the cost to the plan for similarly
situated individuals covered under the plan who have not
incurred a qualifying event. In calculating premiums for
continuation coverage, a plan can include the costs paid by
both the employee and the employer, plus an additional 2
percent for administrative costs.
Qualified beneficiaries cannot be required to pay a premium
in connection with making the COBRA election. Plans must
provide at least 45 days after the election (that is the
date the qualified beneficiary mails the election form if
using first-class mail), for making an initial premium
payment. If a qualified beneficiary fails to make any
payment before the end of the initial 45-day period, the
plan can terminate the qualified beneficiary’s COBRA
rights. The plan may establish due dates for any premiums
for subsequent periods of coverage, but must provide a
minimum 30-day grace period for each payment.
Plans are permitted to terminate continuation coverage if
full payment is not received before the end of a grace
period. If the amount of a payment made to the plan is
wrong, but is not significantly less than the amount due,
the plan must notify the qualified beneficiary of the
deficiency and grant a reasonable period (for this purpose,
30 days is considered reasonable) to pay the difference.
The plan is not obligated to send monthly premium notices,
but is required to provide a notice of early termination if
continuation coverage is terminated early due to failure to
make a timely payment.
COBRA premiums may be increased if the costs to the plan
increase but generally must be fixed in advance of each
12-month premium cycle. The plan must allow you to pay
premiums on a monthly basis if you ask to do so, and the
plan may allow you to make payments at other intervals
(weekly or quarterly).
/I31100209
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