Life and Health Insurance · Accident and Health Insurance · 7 min read
COBRA Continuation Rights
- Identify which employers and individuals are subject to federal COBRA requirements.
- Distinguish between different qualifying events and their maximum continuation periods.
- Explain the notification procedures, election timelines, premium payment rules, and early termination conditions under COBRA.
Introduction to COBRA and Employer Applicability
The Consolidated Omnibus Budget Reconciliation Act of 1985, commonly known as COBRA, is a federal law that allows eligible employees and their dependents to temporarily keep their group health insurance after losing coverage. Without COBRA, an unexpected job loss or change in family status could leave individuals immediately without health coverage. When continuation coverage is elected, the benefits provided must be identical to the coverage provided to similarly situated active employees and their dependents.
COBRA applies to private sector employers as well as state and local government employers that normally employed at least 20 full-time equivalent employees on more than 50 percent of their typical business days in the prior calendar year. In calculating this threshold, part-time employees count as a fraction of a full-time employee. For instance, if an employer has 15 full-time workers and 10 part-time workers who each work half-time, those part-time workers count as 5 full-time equivalents, bringing the total to 20.
Certain employers do not have to comply with federal COBRA rules. Churches and church-controlled organizations are generally exempt. The federal government is also exempt from COBRA because its employees are covered under separate federal continuation rules. Federal COBRA generally does not apply if an employer did not meet the 20-employee counting threshold on more than half its typical business days in the prior calendar year; part-time employees count as fractions of full-time employees. However, many states have mini-COBRA laws that apply continuation requirements to smaller group sizes.
Common mistakes
- Believing that COBRA coverage is automatic upon job loss. Qualified beneficiaries must elect coverage within the plan's election period, which must be at least 60 days from the later of the coverage loss or the date the election notice is provided.
- Assuming an employee terminated for gross misconduct can still purchase COBRA coverage. Gross misconduct disqualifies both the employee and their dependents from continuation rights.
- Thinking an employer must continue paying its normal share of the group premium under COBRA. The beneficiary can be charged 100 percent of the total premium plus a 2 percent administrative fee, totaling up to 102 percent.
- Assuming that having another health plan before choosing COBRA terminates continuation rights. Early termination only applies if the beneficiary first becomes covered under the other group plan after electing COBRA.
Key points
- COBRA applies to private employers and state or local government employers with at least 20 full-time equivalent employees, while church employers and the federal government are exempt.
- Qualified beneficiaries include covered employees, covered spouses, covered dependent children, and children born to or adopted by the covered employee during continuation coverage.
- Qualifying events include termination of employment for reasons other than gross misconduct and reduction of hours (18 months of coverage), as well as death, divorce, legal separation, Medicare entitlement, and a child aging out (36 months of coverage).
- An 11-month extension can lengthen an 18-month period to 29 months if the Social Security Administration determines a beneficiary was disabled within the first 60 days of COBRA coverage.
- Beneficiaries have at least 60 days to elect COBRA, coverage is retroactive when chosen, and each qualified beneficiary holds an independent right to elect coverage.
- Beneficiaries can be charged up to 102 percent of the group premium (up to 150 percent during the disability extension), must receive 45 days for the initial payment, and receive a 30-day grace period for ongoing payments.
- Coverage ends early if the employer drops all group health plans, premiums are unpaid, the beneficiary commits fraud, or the beneficiary becomes entitled to Medicare or covered under another group plan after electing COBRA.
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