The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides that virtually all employers, who sponsor group health plans, must permit covered individuals, who lose coverage under the plan as a result of certain events, to elect to continue their coverage under the plan for a prescribed period of time on a self-pay basis. Individuals who are entitled to COBRA continuation coverage are referred to as “Qualified Beneficiaries”.
Qualified Beneficiaries are employees and their spouses and dependents who are covered under the group health plan, on the day before the Qualifying Event.
A Qualifying Event occurs when an employee experiences loss of coverage under the group health insurance plan due to any of the following conditions:
1. Termination of employment (due to reasons other than the employee’s gross misconduct);
2. Reduction in the employee’s hours of employment;
With respect to an employee’s spouse or dependent child who is a “Qualified Beneficiary”, the Qualifying Events are:
1. Termination of the employee’s employment (due to reasons other than the employee’s gross misconduct);
2. Reduction in the employee’s hours of employment;
3. Death of the employee;
4. Divorce or legal separation from the covered employee;
5. Under certain circumstances, the employee’s entitlement to Medicare;
6. The employer’s commencement of a Bankruptcy proceeding under Chapter 11 of the United States Code and;
7. Child born to or adopted by a covered individual during a period of COBRA continuation
8. The child ceases to be a covered dependent child under the terms of the plan
All employers (with the exception of churches or the Federal Government) who had 20 or more Full-Time employees on a typical business day for 50% of the preceding calendar year must comply with COBRA.
How long must an employer maintain coverage for a COBRA participant?
The COBRA law lists specific periods in which coverage may be terminated. The following Terminating Events are the ONLY situations in which an employer may cancel COBRA coverage:
1. At the end of 18 MONTHS for voluntary termination, involuntary termination or reduction of hours.
2. At the end of 29 MONTHS for voluntary termination, involuntary termination, reduction of hours, with Social Security Disability Determination.
3. At the end of 36 MONTHS for employee death, divorce or legal separation, dependent ceasing to be a dependent, or Medicare entitlement.
4. Failure to make timely premium payments.
5. When covered by a group plan (acquired after election of COBRA) WITHOUT PRE-EXISTING CONDITIONS, LIMITATIONS OR EXCLUSIONS which does not apply to or has been satisfied under HIPAA.
6. Date of Medicare Entitlement (unless entitlement was prior to COBRA election).
7. The date the employer ceases to maintain “ANY” group plan.
8. The month that begins 30 days after the date of being deemed no longer disabled.
Please note that many states have modified COBRA to extend the eligibility period beyond these limits.
Who is responsible?
The COBRA law, though it affects insurance, is AN EMPLOYER LAW. The employer has certain responsibilities under COBRA and the EMPLOYER is liable for COBRA failures. Also the individual who is deemed to be the party responsible for the proper administration of COBRA can be held personally liable for errors or omissions in COBRA administration.
Are there penalties for not complying with COBRA law, and who enforces the law?
There are several different entities that levy penalties for failure to comply with COBRA law. That means that an employer may have to comply with many different “sets of rules” to be protected from all of these entities.
IRS
The Internal Revenue Service penalty is a non-deductible excise tax of $100 per day violation. If there is more than one Qualified Beneficiary in the family, the Internal Revenue Service excise tax is $100 per violation.
ERISA
Since COBRA requirements are part of ERISA, failing to comply with COBRA may subject an employer to an ERISA penalty of up to $100 per day per violation. This penalty may be levied per Qualified Beneficiary with no family maximum.
CLAIM PAYMENT
The employer may be required to pay the Qualified Beneficiaries’ claims. The employer must MAKE THE PERSON WHOLE by placing the Qualified Beneficiary in the “exact financial condition” they would have been in had they elected the most favorable coverage in light of the expenses incurred.
COURT LEVIED DAMAGES
The employer may have ADDITIONAL MONETARY penalties levied against him for failure to comply with COBRA law.
ATTORNEY FEES
The employer may be responsible for any attorney fees incurred by a Qualified Beneficiary for failure to comply with COBRA law.