COBRA Provisions

COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates.

COBRA establishes three specific criteria to qualify for continuation of health coverage:

• Covered plans
• Qualified beneficiaries
• Qualifying events

Employers Subject to COBRA

COBRA applies to group health plans subject to ERISA or the Public Health Services Act (PHSA) if the employer sponsoring the plan has 20 or more employees on more than 50 percent of its typical business days in the previous calendar year.  All commonly-owned businesses (as determined under the control group and affiliated service group rules of Internal Revenue Code Section 414) must be included in determining the number of employees for purposes of COBRA.

An employer may determine the number of its employees on a daily basis or a pay period basis which must be consistent throughout the year.  If an employer has part-time employees, it must determine the full-time equivalent employees for those employees. If an employer determines the number of its employees on a daily basis each part-time employee counts as a fraction, with the numerator of the fraction equal to the number of hours worked by that employee and the denominator equal to the number of hours that must be worked on a typical business day in order to be considered a full-time employee.

If an employer determines the number of its employees on a pay period basis, each part-time employee counts as a fraction, with the numerator of the fraction equal to the number of hours worked by that employee during that pay period and the denominator equal to the number of hours that must be worked during that pay period in order to be considered a full-time employee. The determination of the number of hours required to be considered a full-time employee is based upon the employer’s employment practices, except that in no event may the hours required to be considered a full-time employee exceed eight hours for any day or 40 hours for any week.

Plans Subject to COBRA

Under COBRA, a group health plan is any arrangement that an employer establishes or maintains to provide employees or their families with medical care, whether it is provided through insurance, by a health maintenance organization, out of the employer’s assets on a pay-as-you-go basis, or otherwise.

“Medical care” for this purpose includes:

• Inpatient and outpatient hospital care;
• Physician care;
• Surgery and other major medical benefits;
• Prescription drugs;
• Dental and vision care.

Life insurance is not considered “medical care,” nor are disability benefits; and COBRA does not cover plans that provide only life insurance or disability benefits.

Public Sector COBRA: The Centers for Medicare & Medicaid Services (CMS), U.S. Department of Health and Human Services, has advisory jurisdiction with respect to COBRA as it applies to state and local government employers and their group health plans.  The public sector COBRA law provides for a private cause of action if an individual is denied a COBRA right under such a group health plan.

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 continuation of 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 employee’s 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.

Qualified Beneficiaries

A qualified beneficiary is an individual covered by a group health plan on the day before a qualifying event occurred that caused him or her to lose coverage.

A qualified beneficiary must be:

• a covered employee
• the employee’s spouse or former spouse
• the employee’s dependent child; or a child born to or placed for adoption with a covered employee during the period of COBRA coverage

In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is automatically considered a qualified beneficiary if the employee enrolls the child in the plan.

In certain cases involving the bankruptcy of the employer sponsoring the plan, a retired employee, the retired employee’s spouse (or former spouse), and the retired employee’s dependent children may be qualified beneficiaries.

Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.

Under COBRA, continued coverage must be made available to qualified beneficiaries for a limited period of time of 18, 29, or 36 months.  The length of time is determined by the qualifying event.

Qualifying Event and Duration of Coverage

• If health insurance is lost due to the employee’s termination or reduction in hours of employment, qualified beneficiaries are eligible for a maximum of 18 months of continued coverage.
• If, in addition to an employee’s termination or reduction in hours, the covered employee became entitled to Medicare within 18 months of such qualifying event, then the covered employee’s spouse and dependents are entitled to continued coverage until 36 months after the date the covered employee became entitled to Medicare.
• For all other qualifying events (such as death, divorce or legal separation, the employee’s entitlement to Medicare, the employee’s bankruptcy, or a child ceasing to be a dependent as defined by the plan see qualifying events above), the maximum period of continued coverage for the employee’s spouse or dependents is generally 36 months.

Although COBRA specifies certain periods of time that continued health coverage must be offered to qualified beneficiaries, COBRA does not prohibit plans from offering continuation health coverage that goes beyond the COBRA periods.  You must review your SPD for the continuation time period.

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.

The Disability Extension allows someone who has elected COBRA to extend their continuation coverage for an additional 11 months after the initial 18 month period is over if:
1) They apply for Social Security Disability (SSDI) and are awarded benefits during the first 18 months of COBRA; and
2) Social Security determines that the date of onset of the disability was within 60 days of losing coverage; and
3) The Plan Administrator is informed by the participant within 60 days of receipt of the Notice of Award letter from Social Security.

Please note the additional cost of coverage that a plan may charge during a disability extension in the COBRA Cost section.

COBRA Premiums

Qualified Beneficiaries may be required to pay for COBRA coverage.

• The premium cannot exceed 102 percent of the cost to the plan for similarly situated individuals who have not incurred a qualifying event, including both the portion paid by employees and any portion paid by the employer before the qualifying event, plus 2 percent for administrative costs.
• For qualified beneficiaries receiving the 11-month disability extension of coverage, the premium for those additional months may be increased to 150 percent of the plan’s total cost of coverage.
• 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.
• COBRA beneficiaries remain subject to the rules of the plan and therefore must satisfy all costs related to co-payments and deductibles, and are subject to catastrophic and other benefit limits.

Premium Payments

The plan must allow COBRA participants to pay premiums on a monthly basis and may allow payments at other intervals (weekly or quarterly).

• Initial premium payment must be made within 45 days after the date of the COBRA election by the qualified beneficiary.
• Payment generally must cover the period of coverage from the date of COBRA election retroactive to the date of the loss of coverage due to the qualifying event.
• Premiums for successive periods of coverage are due on the date stated in the plan with a minimum 30-day grace period for payments.
• Payment is considered to be made on the date it is sent to the plan.
• If premiums are not paid by the first day of the period of coverage, the plan has the option to cancel coverage until payment is received and then reinstate coverage retroactively to the beginning of the period of coverage.
• If the amount of the payment made to the plan is made in error but is not significantly less than the amount due, the plan is required to 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.

Employer Responsibilities

Most employers outsource COBRA administration to their Third Party Administrator (“TPA”) or other COBRA administrator; or it is handled by their insurer. Please note that use of the term “Plan Administrator” is a reference to the named Plan Administrator for purposes of ERISA, which is the employer in most cases, and not the TPA or COBRA administrator. Rarely will the TPA or COBRA administrator assume the ERISA Plan Administrator role due to the fiduciary obligations associated with it. To review the notices that must be provided to plan participants and COBRA qualified beneficiaries, see COBRA Notices.

For this reason, even if COBRA Administration is outsourced, the Plan Administrator retains the ultimate responsibility for ensuring compliance with this law.

Employers also retain the following ADMINISTRATION and EDUCATION responsibilities:

Notifying the Plan Administrator within 30 days of a qualifying event, such as an employment termination/reduction in hours, death of the employee, or the employer’s bankruptcy. The Plan Administrator then has 14 days to send out the COBRA election notice. Again, since the employer is typically the Plan Administrator, as a practical matter this becomes a 44 day timeframe to send out a COBRA election notice after the occurrence of a qualifying event, whether the Plan Administrator sends out the election notice or uses an outside TPA, COBRA administrator or insurer to send out the COBRA election notice.

Educating employees as to their responsibility to notify the Plan Administrator (or the designee of the Plan Administrator, if one has been named in the initial COBRA notice and SPD) within 60 days of a qualifying event, in situations where the Plan Administrator would not have notice of such an event. These events include:

• divorce or legal separation of the employee
• a dependent losing eligibility for coverage
• receipt of a disability determination from the Social Security Administration (if disability extension of COBRA sought)

Obtaining up-to-date mailing addresses from departing employees and forwarding them to the insurer, TPA, or COBRA Administrator.

For an employee who has elected COBRA under an employer’s health FSA, coordinating health FSA deposits and withdrawals (if the account is not overspent) from a qualified account until the end of the plan year, at which time the employer’s limited COBRA obligation ends.

For an employee who has elected COBRA under an employer’s health reimbursement arrangement, contributing required amounts to a qualified HRA during COBRA continuation.

If you do not outsource COBRA administration:

• Seek legal assistance to assure legal compliance;
• Become familiar with the employer obligations under COBRA by reviewing the information in this education presentation, and the COBRA Notices education presentation; and
• Review the Department of Labor web site.

Noncompliance

Potential Risk and Penalties

Internal Revenue Service Code Penalties

• Employer is subject to assessment of an excise tax penalty of $110 per day per violation for each qualified beneficiary (QB).
  • Penalty is not tax deductible.
• Maximum noncompliance period ends six months after maximum COBRA period (i.e., 42 month max. = $127,800 per QB).
• Corrections to notice failures generally require that a QB is placed in a financial position as good as he/she would have been if the violation had not occurred.  This means the employer may have to cover claims incurred during the period during which COBRA coverage would have been available if the required notices had been given.

ERISA Penalties

• Employers that fail to provide compliant COBRA notices are liable up to $110 per day per violation until provided, which penalty assessment is discretionary by the court adjudicating the claim.
• Penalty is separate from any other judgments, costs, or damages imposed by the courts against employer.
• The employer’s plan could be subject to an audit and/or enforcement action by the Department of Labor.
• Lawsuits can be filed against the employer and employees administering COBRA benefits can also be personally named in such suits.
• Attorneys’ fees may be awarded to the prevailing party as well as any court costs.

Additional Resources

An Employee’s Guide to Health Benefits under COBRA

American Rescue Plan Act of 2021 (ARPA) – EXPIRED

Provides for payment of COBRA premiums for Assistance Eligible Individuals (AEIs)Individuals who are eligible for COBRA due to involuntary termination of employment or reduction in hours for any reason and are eligible for COBRA during the premium payment period from April 1, 2021 through September 30, 2021.Or for as long as the AEI remains eligible for COBRA during this period

• An extended election period will be available for AEIs whose termination of employment or reduction in hours occurred before April 1, 2021 and who did not elect COBRA or who discontinued COBRA coverage prior to April 1, 2021.
• Employers that are subject to federal COBRA requirements must initially cover the cost of the COBRA premium assistance, including the 2% administrative fee, but will be fully reimbursed via tax credits.Insurance companies will cover this cost for state-required mini-COBRA coverage for small fully insured employers (<20 employees)
• Notice must be given to employees/former employees who may benefit from the extended election period by May 31, 2021Within 60 days after April 1, 2021 and to most AEIs prior to the expiration of their premium assistance.Notice of termination is not required for persons who cease being an AEI because they have become eligible for other group health plan coverage

Model Notices Under ARPA
There are multiple Model Notices:

• General notice to all qualified beneficiaries. MS Word | PDF
• Notice of extended COBRA election period to any AEI (or anyone who would have been an AEI) who had a qualifying event before April 1, 2021. This notification must be completed by May 31, 2021, with 60 days to elect coverage. AEIs may choose to begin coverage from election date or retroactively from April 1, 2021. MS Word | PDF
• Alternative notice that insured plans subject to state continuation requirements must provide. MS Word | PDF
• Notice of expiration of periods of premium assistance to be provided 15-45 days before an AEI’s Subsidy expires. MS Word | PDF
• Summary of the Subsidy provisions, to be attached to the general notice with a form for the AEI to complete re: alternative coverage. MS Word | PDF

These notices and additional information are also available on the DOL web site.