Understanding your New & Pre-existing COBRA Requirements

Michael J. Pires
March 11, 2009 — 2,213 views  
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The Consolidated Omnibus Budget & Reconciliation Act (COBRA) is designed to permit individuals who would otherwise lose their health insurance coverage to continue coverage through their employer, or former employer, at group rates. Employees electing COBRA coverage are responsible for paying the full premium themselves and may be required to pay a 2% administrative fee.

COBRA applies to employers with 20 or more employees who offer group health insurance. However, many states have enacted their own COBRA requirements which cover employers with less than 20 employees. Download our COBRA Continuation by State form to determine whether or not your state has specific guidelines on the issue.

...And as if general COBRA requirements aren't already confusing enough, the American Recovery & Reinvestment Act (ARRA) - signed into law on February 17, 2009 - has added another element to COBRA: subsidized premiums. Below is a break-down of existing COBRA requirements as well as new COBRA provisions under the ARRA:

General COBRA Requirements (pre-ARRA enactment):

1. Covered employers. Employers must comply with federal COBRA requirements if they have 20 or more employees and offer group health insurance. However, as mentioned above, many states have enacted their own COBRA regulations that cover employers with less than 20 or more employees. Check your state requirements here.

2. Qualifying events. An individual is entitled to COBRA coverage when certain "qualifying events" would otherwise trigger him or her to lose health insurance coverage under their employer's group plan. Such events include: termination or reduction in hours; divorce or legal separation of a covered employee from his or her spouse; death of a covered employee; change in dependent status; eligibility for Medicare; and the bankruptcy of an employer from which a covered employee has retired.

3. Employer notice requirements. An Initial Notice of COBRA Rights must be provided to all covered employees and their covered spouses when a plan first becomes subject to COBRA. This notice must also be provided at the time an individual's coverage begins, including when new employees obtain coverage and when spouses are added. When certain qualifying events occur (including the death of a covered employee, termination or reduction in hours, and the employee becoming entitled to Medicare), the employer must notify the plan administrator within 30 days. The plan administrator then has 14 days from the date of receiving notification of the qualifying event in which to advise the qualified beneficiary of COBRA rights.

4. Employee notice requirements. A covered employee or qualified beneficiary is required to notify the plan administrator of a qualifying event that is a divorce or legal separation of the covered employee or when a dependent child ceases to be a covered dependent under the plan terms. When one of these events occur, the employee has 60 days to notify the plan administrator.

5. Premiums. Under COBRA, qualified beneficiaries are responsible for 100% of the premiums as well as a 2% administrative fee, if the employer chooses to charge such a fee. The initial payment for COBRA continuation coverage is due 45 days after the date on which the election of COBRA continuation coverage is made.Timely payment for subsequent periods of coverage is due 30 days after the first day of that period. A group health plan must allow payment for COBRA continuation coverage in monthly installments. A plan is permitted to also allow payment at other intervals (i.e., weekly, quarterly, or semiannually).

6. Duration of coverage. The maximum COBRA coverage period extends from 18-36 months, depending on the type of qualifying event.In the case of a termination in employment or reduction of hours, the maximum coverage period ends 18 months after the qualifying event. In the case of a qualifying event that is the death of the covered employee, the divorce or legal separation of the covered employee, or a dependent child exceeding the plan's age limit for coverage, the maximum coverage period ends 36 months after the qualifying event. For a COBRA coverage timeline depicting maximum coverage periods based on each type of qualifying event, click here.

7. End of coverage. COBRA coverage ends when the qualified beneficiary exceeds the maximum coverage period or upon the occurrence of one of the following events: the qualified beneficiary becomes enrolled under another group health plan; premium payments are late; the employer no longer provides any group plan; or the qualified beneficiary, after electing COBRA coverage, becomes entitled to Medicare benefits.

New COBRA Provisions (post-ARRA enactment):

The American Recovery & Reinvestment Act (ARRA) grants individuals involuntarily terminated between September 1, 2008 and December 31, 2009 a subsidy toward their COBRA premium payments. Under the ARRA, employers are still required to follow the above guidelines, while keeping in mind the following:

1. Assistance eligible individuals (AEIs). Assistance eligible individuals are those individuals that are entitled to receive a subsidy toward their COBRA premiums. Although COBRA covers other qualifying events, subsidy eligible individuals only include those involuntarily terminated between September 1, 2008 and December 31, 2009. For purposes of the ARRA, an involuntarily terminated individual is one who is terminated for reasons other than gross misconduct, and does not include those who resign or abandon their jobs.It's important for employers to identify assistance eligible individuals now so that they can easily prepare and send COBRA notices by the April 18th deadline.

2. Amount of subsidy. Assistance eligible individuals who elect COBRA coverage will receive a 65% subsidy toward their applicable COBRA premium for a period of nine months. For example, if an individual's monthly COBRA premium is $1,000, the individual would only be required to $350 for nine months (or until their COBRA coverage ends). The remaining $650 is subsidized and would be paid by the employer. Although employers must provide 65% of the COBRA premium up-front, they are reimbursed in the form of a tax credit. Assistance eligible individuals may start receiving the subsidy as early as March 1, 2009.

3. Premiums for March & April. Although subsidized premiums began March 1, 2009, the ARRA permits assistance eligible individuals to be charged for the full premiums for the months of March & April. However, if assistance eligible individuals pay the full premiums for these months, they are entitled to a credit toward future COBRA premiums. If this credit is not used within 180 days, the employer must send assistance eligible individuals a reimbursement check.

4. Compliance timeline. Immediate notification to assistance eligible individuals is not necessary. The Department of Labor (DOL) plans to release a model notice by mid-March. Employers will then have until April 18th to send notices to assistance eligible individuals. It's recommended that employers use the DOL approved notice, and therefore wait until it is issued, rather than attempt to draft the notice themselves. This will ensure all appropriate information is included and that assistance eligible individuals are fully aware of their rights under the ARRA.

5. Loss of the subsidy. An assistance eligible individual loses their right to subsidized premiums once they have received the subsidy for nine months, once he or she exceeds their maximum COBRA coverage period, or once he or she becomes eligible under another group health plan. Whether the individual chooses to enroll in the plan for which they became eligible doesn't matter; they will still lose their eligibility for the premium subsidy. However, this does not mean the individual is no longer covered under COBRA.

6. AEIs that declined COBRA. Individuals involuntarily terminated since September 1, 2008 (but before ARRA enactment) that failed to elect COBRA coverage during their initial election period are entitled to an additional opportunity to elect COBRA. These individuals have 60 days from the date notices are sent in which to do so. If the individual choose to elect coverage, their length of total COBRA coverage starts from the date in which they were terminated, not the date from which they elected coverage.

7. AEIs already on COBRA. Assistance eligible individuals that elected COBRA coverage prior to ARRA enactment must receive notice of the premium subsidy by April 18, 2009 and their premium payments must be reduced by 65%. As mentioned above, the Act does permit assistance eligible individuals to be charged for the full premiums for the months of March & April; however, they must be reimbursed.

8. Employer reimbursement. Employers are responsible for paying 65% of applicable premium payments; however, they will receive reimbursement for their share of the payments in the form of a tax credit. Employers may request reimbursement by filing IRS Form 941, which is filed quarterly by all employers in order to report their payroll taxes.

Understanding your requirements as they pertain to COBRA as well as your state-specific health insurance continuation laws is essential for ensuring legal compliance. With the ARRA already in effect, employers need to take action now in order to prepare for administering the COBRA subsidy and ensuring COBRA notice deadlines are met.

Chances are you have questions about how COBRA affects you and how to implement the proper changes and administrative steps in your company. Not to worry-HR411 is here to help!We've developed an all-in-one solution to help you easily meet your requirements: The Complete COBRA Compliance Kit.This comprehensive kit provides all the guidance, tools and resources you need to get and stay in compliance, PLUS unlimited email support for all your COBRA questions from a team of HR Experts!

About the Author

Michael Pires is the President of HR411.com, an award-winning online human resources support and information portal providing on-demand access to downloadable forms, online background checking tools, plain-English State and Federal employment laws, Employee Handbooks and much more. Visit http://www.HR411.com today.

Michael J. Pires