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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.
What is a "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:
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Termination of employment (due to
reasons other than the employee’s gross misconduct);
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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:
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Termination of the employee’s employment (due to reasons other
than the employee’s gross misconduct);
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Reduction in the employee’s hours of employment;
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Death of the employee;
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Divorce or legal separation from the covered employee;
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The employee’s entitlement to Medicare;
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The employer’s commencement of a Bankruptcy proceeding under
Chapter 11 of the United States Code; and
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Child born to or adopted by a covered individual during a period of
COBRA continuation.
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The child’s ceasing to be a covered dependent child under the
terms of the plan.
Who is subject to COBRA law?
All Employers except churches an the
Federal Government who had 20 or more employees "on a typical
business day" during 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:
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At the end of 18 MONTHS for voluntary termination, involuntary
termination or reduction of hours.
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At the end of 29 MONTHS for voluntary termination, involuntary
termination, reduction of hours, with Social Security Disability Determination.
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At the end of 36 MONTHS for employee death, divorce or legal
separation, dependent ceasing to be a dependent, or Medicare entitlement.
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Failure to make timely premium payments.
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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.
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Date of Medicare Entitlement (unless entitlement was prior
to COBRA election).
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The date the employer ceases to maintain "ANY"
group plan.
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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 $200 per day.
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. |
