The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) is a federal law that requires employers to offer employees and their dependents the opportunity to continue the employer's group health insurance plan at the employee's expense for a limited period of time if a qualifying event occurs. COBRA amends the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code and the Public Health Service Act.

Once health and medical benefits are provided to employees, the employer becomes subject to the requirements regarding the continuation of such benefits upon the termination of an employee's employment. COBRA was enacted in response to a growing concern that many people were being cut off from affordable medical insurance when they are most in need of it, particularly upon loss of employment or loss of the provider of such benefits.

Coverage. COBRA applies to employers with twenty or more employees for fifty percent of the working days during the preceding calendar year. Employees benefit from COBRA coverage if they are covered under the group health insurance plan as an employee, spouse or dependent child of the employee at the time the qualifying event occurs. In some cases it may also include a retired employee, the retired employee's spouse and dependent children. However, it should be noted that COBRA is a federal law and there are also many state laws which contain continuation coverage provisions. These state laws either parallel COBRA's requirements or supplement them. You should discuss the requirements in your state with a qualified attorney.

Group health plan. A group health plan under COBRA is defined as a plan that provides medical benefits for the employer's own employees, as defined by the Act, and their dependents through insurance or otherwise. Medical benefits may include inpatient and outpatient care, physician care, surgery and other major medical benefits, drugs, and other medical benefits such as dental and vision care.

Qualifying events. An employer's obligation to offer COBRA coverage is triggered by the occurrence of a qualifying event. Specifically, COBRA recognizes that a qualifying event is a loss of employer-provided health coverage due to one of the following reasons:
1. The death of a covered employee.

2. The employee's change in employment status (the employee's termination (voluntary or involuntary) for reasons other than gross misconduct, or reduction in working hours for reasons such as strike, layoff, leave of absence).

3. Divorce or legal separation of the employee and his/her spouse.

4. The employee's entitlement to Medicare.

5. Bankruptcy of the employer.

6. A dependent child ceases to be a dependent under the terms of the plan.

Note: The above event must result in loss of coverage.

Continuation period. The normal COBRA coverage continuation period is either eighteen or thirty six months, depending upon the type of qualifying event. However, special coverage periods are available to qualified beneficiaries who are disabled at the time of a qualifying event or are retirees and would lose their health plan coverage due to the bankruptcy of the sponsoring employer. The continuation coverage time period is eighteen months if the qualifying event is voluntary termination of employment, involuntary termination of employment or reduction of hours. The time period is thirty six months if the qualifying event is the employee's death, divorce or legal separation of the employee and spouse, employee's entitlement to Medicare, or if a dependent child ceases to be a dependent under the terms specified in the insurance plan.

Initial information notice. When an employee first becomes covered under a group health plan, he/she and spouse must be provided with an explanation concerning their rights under COBRA. In addition, COBRA information also is required to be contained in the summary plan description (SPD) which participants receive. ERISA requires that SPD's containing certain plan information and summaries of material changes in plan requirements be furnished to participants in modified and updated SPDs. Plan administrators must automatically furnish the SPD booklet 90 days after a person becomes a participant or beneficiary or within 120 days after the plan is subject to the reporting and disclosure provisions of the law. A sample information notice is at the end of this chapter.

Notice to plan administrator. Certain notices must be given to the plan administrator when a qualifying event occurs:

1. An employer has 30 days from the qualifying event to notify the plan administrator in the case of a covered employee's death, termination of employment, reduction of hours, Medicare eligibility, or bankruptcy.

2. A covered employee or qualified beneficiary must notify the plan administrator within 60 days of the qualifying event in the case of a divorce, legal separation, or when a dependent becomes ineligible for coverage under the terms of the plan.

3. Disabled beneficiaries must notify plan administrators of Social Security disability determinations. A notice must be provided within 60 days of a disability determination and prior to expiration of the 18-month period of COBRA coverage. These beneficiaries also must notify the plan administrator within 30 days of a final determination that they are no longer disabled.

Election notice. Plan administrators, upon notification of a qualifying event, must automatically provide a notice to employees and family members of their election rights. The notice must be provided in person or by first-class mail within fourteen days of receiving information that a qualifying event has occurred. Your insurance carrier or administrator will usually supply you with sample information and election notices.

Department of Labor Issues Final COBRA Notice Regulations - Effective for Most on Jan. 1, 2005

On May 26, 2004, the Employee Benefits Security Administration (formerly the Pension and Welfare Benefits Administration) of the U.S. Department of Labor issued final regulations regarding the timing and content requirements of various notices that must be furnished by employers, plan administrators, workers and their families in connection with group health continuation coverage - commonly referred to as COBRA coverage.

Effect of Regulations on General COBRA Notice
The required content of the general notice is essentially unchanged by the final regulations -- it should contain the basic information about COBRA that employees and their families need to know to protect their rights before a Qualifying Event occurs. The final regulations contain a model general notice that will be deemed to be in compliance with the content requirements of the regulations.

The final regulations make two significant changes regarding distribution of the general notice:

  • The notice must generally be provided to a covered employee and a covered spouse no later than 90 days after coverage begins. (NOTE: This is the same period during which a summary plan description (SPD) is generally required to be provided to new enrollees).
  • The general notice may be included in the SPD, provided the SPD is furnished to the covered employee and any covered spouse within the 90-day time limit.

Notice of Qualifying Event: Employers and Plan Administrators
In general, the time frames within which (i) employers must notify plan administrators of Qualifying Events, and (ii) plan administrators must notify Qualified Beneficiaries of Qualifying Events remain unchanged, but have been clarified as follows:
  • Employers have 30 days to notify plan administrators of a covered employee's termination of employment, reduction of hours, or death that is a Qualifying Event.
  • Plan administrators have 14 days following receipt of the notice of the Qualifying Event from the employer to notify Qualified Beneficiaries.
  • Where the employer is also the plan administrator, and the Qualifying Event is a termination of employment, reduction of hours, or death, the notice must be provided to Qualified Beneficiaries no later than 44 days after the Qualifying Event.
  • If the Qualifying Event requires a Qualified Beneficiary to provide notice to the Plan Administrator (such as divorce or legal separation, or a loss of dependent status), the 14-day notice period applies from the date the notice of the Qualifying Event is received from the Qualified Beneficiary. The final regulations clarify that the combined 44-day notice period (30 days plus 14 days) described above does not apply to these types of Qualifying Events.

Notice for Election of COBRA Continuation
The final regulations contain extensive provisions describing the required content for a COBRA election notice. The election notice should contain all of the information individuals need to decide whether to elect COBRA coverage.

The final regulations include both a model election notice and a model election form that will be deemed to comply with the content requirements of the regulation. The model notices are generic forms that may not be appropriate or desirable for use with all plans. Employers and their advisors should carefully review both the content of their plan documents and that of the model forms before implementing use of the model forms. The EBSA has made these forms available for download on their website at

Additional Required Notices
The final regulations add the following required notices:
  • Notice of Unavailability of Coverage.
  • Notice of Early Termination of COBRA Coverage.

Election period. The election period is the time frame during which each qualified beneficiary may choose whether to continue health care coverage under an employer's group health plan. Qualified beneficiaries have a 60 day period to elect whether to continue coverage. This period is measured from the later of the coverage loss date or the date the notice to elect COBRA coverage is sent. COBRA coverage is retroactive if elected and paid for by the qualified beneficiary.

Termination of coverage. Coverage begins on the date that coverage would otherwise have been lost by reason of a qualifying event and can end when:
1. The last day maximum continuation coverage is reached.

2. Premiums are not paid on a timely basis.

3. The employer ceases to maintain any group health plan.

4. 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.

5. A beneficiary is entitled to Medicare benefits.

Disabled individuals. Special rules for disabled individuals may extend the maximum periods of coverage. If a qualified beneficiary is determined under Title II or XXVI of the Social Security Act to have been disabled at the time of a termination of employment or reduction in hours of employment and the qualified beneficiary properly notifies the plan administrator of the disability determination, the eighteen month period is expanded to twenty nine months.

Conversion. Some plans allow beneficiaries to convert group health coverage to an individual policy. In this case, you must be give the option to enroll in a conversion health plan. State law may affect your rights and obligations concerning conversion.

Paying for COBRA coverage. Beneficiaries may be required to pay the entire premium for coverage. It cannot exceed 102% of the cost to the plan for similarly situated individuals who have not incurred a qualifying event.

For disabled beneficiaries, the premium may be increased after eighteen months to 150% of the plan's total cost of coverage for the last eleven months of continuation coverage.

Premiums due may be increased if the costs to the plan increase but generally must be fixed in advance of each twelve month premium cycle. The plan must allow employees to elect to pay premiums on a monthly basis if requested by the employee.

The initial premium payment must be within 45 days after the date of the COBRA election by the qualified beneficiary. Payment must cover the period of coverage from the date of COBRA election retroactive to the date of the qualifying events. Premiums for successive periods of coverage are due on the dates stated in the plan with a minimum 30 day grace period for payments. No payment, however, need be made earlier than 40 days after the date of the election.

Premiums for the rest of the COBRA period must be made within 30 days of the due date for each such premium or such longer period as provided by the plan.

Claims procedures. Health plan rules must explain how to obtain benefits and must include written procedures for processing claims. Claims procedures should be included in the SPD booklet.

Continuation coverage laws are administered by several agencies. The Departments of Labor and the Treasury have jurisdiction over private sector health plans. The United States Public Health Services administers the continuation coverage law as it effects public sector health plans. The Labor Department's interpretive and regulatory responsibility is limited to the disclosure and notification requirements. The Internal Revenue Service, which is in the Department of the Treasury, is responsible for publishing regulations on COBRA provisions relating to eligibility and premiums. Both the Department of Labor and the Department of Treasury share jurisdiction for enforcement.

The U.S. Public Health Services, located in the Department of Health and Human Services, has published Title XXII of the Public Health Service Act entitled "Requirements for Certain Group Health Plans for Certain State and Local Employees."

COBRA applies to plans in the private sector and those sponsored by state and local governments. The law does not, however, apply to plans sponsored by the federal government and certain church-related organizations.

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