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COBRA Benefits: What You Need to Know

COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1985, allows workers and family members who would otherwise lose their benefits to temporarily continue health coverage at group rates. If you had 20 or more employees in the prior year and offer a group health plan, COBRA applies to your company. Here’s what you need to know about COBRA’s requirements. 

Employee count. Your employee count must include part-time employees; add part-timers’ hours together to determine the number of full-time equivalents. 

Qualified beneficiaries. Eligibility is limited to those covered by a group health plan on the day before a qualifying event (see below). 

Qualifying events. Certain events will trigger the right to coverage under COBRA, including termination of employment (voluntary or involuntary), unless it is for gross misconduct, and reduction in hours worked (e.g., from full-time to part-time). An employee’s death, divorce, legal separation or eligibility for Medicare are all considered qualifying events, as is a change in status of a covered dependent or spouse. Being called up for active military duty also triggers COBRA eligibility when an employer doesn’t voluntarily maintain a reservist’s health coverage. 

Types of coverage. Employers must offer COBRA beneficiaries the same coverage as they do to non-COBRA beneficiaries — usually the same plan that was in place immediately before the qualifying event. Any benefit changes for active employees will also apply to COBRA beneficiaries, who are entitled to the same coverage choices as all other employees, such as during periods of open enrollment. 

Length of coverage. COBRA provides for up to 18 months’ coverage for qualifying events such as job termination or a reduced work schedule. Certain qualifying events, or a second qualifying event during the initial coverage period, may extend coverage to a maximum of 36 months. Employers may also provide coverage beyond COBRA maximums. Coverage begins on the date that benefits would otherwise have been lost because of a qualifying event. It may end earlier than the maximum period if the beneficiary does not pay premiums on time or if the employer stops offering any group health plan. 

Notification and election. Group health plans must notify covered employees and their spouses of their COBRA rights when they first join the plan. Be sure to keep track of the various COBRA deadlines: Employers must inform plan administrators of a qualifying event within 30 days after an employee’s death, termination, reduction in hours or entitlement to Medicare.

In the case of divorce, legal separation or a dependent’s change of status, a qualified beneficiary has 60 days to notify the plan’s administrator. The administrator then has two weeks to notify the person entitled to COBRA benefits, who has 60 days to decide whether to elect coverage. Keep in mind that though an employee may choose coverage on behalf of all other qualified beneficiaries, each beneficiary has the right to independently elect COBRA coverage. For example, if an employee has a family member with an illness at the time he is terminated, that person alone can elect coverage, should he choose. 

Cost of coverage. Some companies subsidize COBRA coverage, but in most cases, the employee pays the full premiums. In fact, employers may charge up to 102 percent of the premium and keep the additional two percent to cover administrative costs. COBRA premiums may increase if costs to the plan increase but generally must be fixed before each yearly premium cycle. The beneficiary must make the initial premium payment within 45 days after the election date, and employers can terminate 

COBRA coverage if payments are late. The fact that employers usually must pay their group medical insurance premiums in advance gives COBRA insureds a 30-day grace period from the time the employer’s payment is due.

 Special rules apply to reservists called up for military service. If military service is for 30 or fewer days, the employee and dependents can continue coverage at the same cost as before their short service. If military service is longer, you can require the employee and dependents to pay as much as 102 percent of the full premium for coverage. However, military health benefits should cover these employees and their dependents. 

State law. Most states have laws concerning the continuation of benefits. Some cover all employers, including small employers, so a state law might apply even if your company is exempt under the federal COBRA law. We can help you determine your COBRA obligations and assist with compliance. For more information, please contact Rhodes-Warden Insurance Agency, Lebanon (541) 258-2131, Albany (541) 967-8062, Stayton (503) 769-7105.

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