- Defining COBRA Continuation Coverage
- COBRA Implies To Which Industry And Health Plans?
- Who is Qualified for COBRA Continuation Coverage?
- Notice and Election Procedures
- Benefits Obtained Under COBRA Coverage
- Duration of Continuation Coverage
The high prices of medical care in the United States are the reason most employees seek benefits from their employers. Employers are capable of following stringent rules and regulations while integrating the latest technology, such as EDI solutions, for their employees. Employers can quickly prepare a checklist of benefits plans, distribute them among employees and keep track of claim payments as well.
However, employers do use benefits packages, such as dental, health, vision, and other coverages, to attract their employees because, as per ACA (Affordable Care Act) not offering benefits can lead to penalties. Employers who fail to deliver the benefits on time may have to pay a hefty penalty.
The penalty is usually for employers with more than 50 employees and fails to provide health insurance. The penalty any employer will have to pay per employee and per year is $3,860 (2020), which gives a strong incentive for employers to cover their employees.
No wonder, health coverage is one of the essential benefits that employees can have. Employers sponsoring group health plans empower their employees by taking care of essential medical needs while focusing entirely on productive work.
Not just the penalty, other factors such as healthcare coverage rules and compliances must be followed to ensure that employers regulate with Federal Law.
Talking about the health plans sponsored by the employers, they must comply with the Employee Retirement Income Security Act of 1974 (ERISA), a federal law that has set a standard for protecting employee benefits.
ERISA also comprises COBRA continuation coverage. This article is dedicated to COBRA coverage and rules that each employer must follow.
Defining COBRA Continuation Coverage
COBRA is the abbreviation of the Consolidated Omnibus Budget Reconciliation Act. The Act was crafted to offer continuation of coverage offered to the employees. COBRA sets rules defining how and when the continuation of the coverage be offered to the employees and which circumstances or event defines the termination of coverage continuation.
For the continuation of COBRA coverage, employers may require their employees to pay for the continuation. However, the premium must not exceed the full cost of the coverage, including the 2% administration charges.
COBRA Implies To Which Industry And Health Plans?
COBRA is usually applied for any private firm maintaining at least 20 employees (both full-time and part-time employees are counted). Plans sponsored by state and local governments are underlined under COBRA whereas the Federal Government or church-related organization plans are not bound to follow COBRA law.
COBRA is mostly applied to the group health plans offered by the insurance or care providers for the employees. Now, you will ask what a group health plan means?
A group health plan is a kind of arrangement for medical care offered to the employee or its family members by the employer through any medium – be it insurance, by a healthcare organization, employer’s asset, or any other. The purpose of this arrangement is to deliver –
- Physician care
- Inpatient and outpatient hospital care
- Prescription drugs
- Dental and Vision care
- Surgery and other medical (major) benefits
What Does COBRA Not Cover?
- Life Insurance
- Disability Benefits
Any EDI service provider or plan administrator must administer the group health plans that should be added to the system for error-free ben admin solutions for employees.
Who is Qualified for COBRA Continuation Coverage?
A group health plan covering COBRA compliance is entitled only under qualifying events and qualified beneficiaries.
The so-called qualifying events occur when individuals lose group health coverage. The qualifying event also determines who the beneficiaries are and what the plan is and the period of the plan. The plan for continuation coverage must be chosen for longer periods in order to fall under COBRA compliances. The qualifying events are –
- Reduced employees’ hours of employment.
- Termination of covered employees’ employment.
In addition to employees, their spouse and dependent child may fall under qualifying events when –
- A covered employee is entitled to Medicare
- Divorced or have legal separation
- Death of employee
- Loss of dependent child*
*Under Affordable Care Act – the children of the covered parents can be set under coverage until they reach the age of 26.
The Beneficiaries are referred to as individuals that fall under the group health plan on the day before the qualifying event. As aforementioned, for a qualifying event, the individual must have their spouse and child covered. Under certain cases, such as –
- Employee’s Bankruptcy
- Retired Employee
- Retired Spouse
- Retired Dependent Children
- Child Opted for Adoption
Additionally, multiple individuals such as employer’s agents, independent contractors, directors, or any other service provider participating in the group health plan fall under qualifying beneficiaries.
Notice and Election Procedures
Employers must specify COBRA rights to their employees, inclusive of plan rules for the continuation of COBRA coverage.
A summary plan description must be provided explaining all the rights and other important information about the plan. The plan must be shared at least 90 days before or within 120 days.
Additionally, if there are any changes in the plans, the participants must be shared the same which should be no later than 210 days. And if the change is a material reduction in the coverage, the summary plan description must be furnished not less than 60 days after the reduction is effective.
The health plans must be shared with the employee and their spouse who fall under these. The general notice must also be shared within 90 days of coverage. The information included in General Notice is –
- Name of the plan and reliable contact person’s address and number for any COBRA and the plan.
- A general description of continuation coverage.
- Specifying the need for keeping the plan administrator informed about the address of the participants.
- Explanation of what qualified beneficiaries must do to notify about the plan of qualifying events and disabilities.
Qualifying Event Notice
Before offering continuation coverage, a qualifying event must occur. The qualifying event must furnish an appropriate plan and instructions to act appropriately. Furthermore, the qualifying event must be effective and notified by the employer if the qualifying event is –
- Death of employee
- Termination from the employment
- Bankruptcy of employer
- Employee becoming entitled to Medicare
On the other hand, the beneficiary is also bound to inform the employer when under certain qualifying events –
- Child’s loss
- Legal Separation
The following information must be notified at least 60 days beginning from the date of qualifying event occurrence, date of beneficiary loss, and date of the information.
After receiving notice of a qualifying event, the beneficiaries must be provided with the requisite information explaining the rights for the continuation of COBRA coverage. The election notice must be furnished with the following information –
- Name of the plan, COBRA administrator’s telephone and address
- Qualifying event identification
- Name and status of qualified beneficiaries
- Explanation of right to elect
- Date coverage as well as termination policy
- Ways of election
- What happens after the election
- What coverage is included and for how long
- How to terminate the coverage early
- Premium payment requirement
- Importance of statement of keeping plan administrator informed
Group Health plans requests can be denied if the requester is not entitled to receive them. When this scenario occurs, the employer must be notified by the COBRA administrator, and further, the notice must be sent to the employee regarding the same. Additionally, the notice must explain the reason for denying.
Notice of Early Termination
The maximum available period for continuation of coverage is 18, 29, or 36 months. When any health plan (group) is terminated due to any reason, the plan must provide the qualified beneficiary with relevant notice, the date of the termination, the reason for termination, and any rights the beneficiary has under the plans.
Under COBRA, employers, whether they are IT professional services providers or any other service provider, can adopt some rules of COBRA notices and must be set out in the plan’s document.
COBRA offers an election period to its beneficiaries where they can decide whether to elect continuation coverage. The beneficiary is given a minimum of 60 days to choose.
Additionally, each beneficiary is also given specific election rights which means when several employees with their spouse and children become qualified beneficiaries due to qualifying events can make different choices.
The employer must give rights to its employee (beneficiary) to later revoke the waiver of coverage and elect continuation coverage before the end of the election period.
Benefits Obtained Under COBRA Coverage
Like any other standards, COBRA has also set some rules, which are followed for the continuation of coverage and to obtain maximum benefits.
- The continuation coverage must be identical to coverage available under the plan.
- A qualified beneficiary must be provided with the same benefits, choices, and services similar to the plan.
- The qualified beneficiary must be able to receive rights to open enrollment season and choose among available coverage options.
- The beneficiary is subject to the same plan rules and limits applied to any participant, such as co-payments, deductibles, and coverage limits.
- The COBRA continuation coverage also falls under filing benefits claims and appealing for any claims denial.
- Any changes made in the plan’s terms must also be notified to the employees and their families.
- A child born of any qualified beneficiary is automatically considered to be a part of continuation coverage.
Duration of Continuation Coverage
|Qualifying Event||Qualified Beneficiaries||Maximum Period of Continuation Coverage|
|Termination (for reasons other than gross misconduct) or reduction in hours of employment||Employee Spouse Dependent Child||18 months|
|Employee enrollment in Medicare||Spouse Dependent Child||36 months|
|Divorce or legal separation||Spouse Dependent Child||36 months|
|Death of employee||Spouse Dependent Child||36 months|
|Loss of “dependent child” status under the plan||Dependent Child||36 months|
Extension of Coverage
The employer must be aware of the two circumstances under which the individual is entitled to an 18-month maximum period.
A disabled person is given an extension of 11 months for continuation coverage, which makes the total maximum period of 29 months.
Second Qualifying Event
If there is a second event that occurred in the life of the beneficiary, such as death, divorce, legal separation, or other, the individual can have an extension of 18 months more, which makes it 36 months.
COBRA compliance demands the employers to be aware of the extended date for its employees required for continuous coverage. The length of time is defined by the type of event that occurred which gave rise to COBRA rights.
- So, when any qualifying event occurs with a qualified beneficiary (covered employee), the beneficiary is provided with 18 months of extension.
- When the qualifying event is the end of the reduction of employee’s hours and the employee becomes entitled to Medicare, COBRA coverage here lasts until 36 months.
Due to the following reasons, the group health plan can be terminated –
- The employer ceases to maintain group health plan
- Premiums are not fully paid on time
- Beneficiary became entitled to Medicare
- Beneficiary engages in some conduct, such as fraud.
- Beneficiary begins coverage with another group health plan.
The family and medical leave act (FMLA) demands employers to maintain coverage under any group health plan for their employees under some conditions. Entitling to ACA ensures additional protection for coverage underemployment, inclusive of COBRA coverage and compliance.
The changes made must also be checked for compliance while notifying the employees for the same, including termination of the coverage request or period of coverage extension, or others.
To provide complete and accurate information, the employer must be well-versed with the rules and policies of COBRA and furnish the same with its employees to enjoy the complete benefits of continuous coverage.
For more information, employers can check requirements under the ACA or Employee Benefits Security Administration ACA.
Author’s Bio: Alicia works with the editorial team of A3logics, a leading company offering product engineering services. Exploring the latest technologies, reading about them, and writing her views have always been her passion. She seeks new opportunities to express her opinions, explore technological advancements, and document the details. You can always find her enjoying books or articles about varied topics or jotting down her ideas in a notebook.
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