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The Consolidated Omnibus Budget Reconciliation Act of 1985, commonly known as COBRA, is a federal law that requires employers of 20 or more employees with group health plans to offer employees, their spouses and dependents a temporary period of continued health care coverage if they lose coverage through the employer’s group health plan.
Health Plans Covered by COBRA
COBRA generally applies to all private-sector group health plans maintained by employers that have at least 20 employees on more than 50 percent of the typical business days in the previous calendar year.
Both full- and part-time employees are counted to determine whether a plan is subject to COBRA.
Each part-time employee counts as a fraction of a full-time employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.
COBRA also applies to plans sponsored by state and local governments. The law does not apply, however, to plans sponsored by the Federal government or by churches and certain church-related organizations.
What COBRA Requires
COBRA requires group health plans to offer continuation coverage to covered employees, former employees, spouses, former spouses, and dependent children (known as “qualified beneficiaries”) when they lose eligibility for group health coverage due to certain specific events.
Those “qualifying events” include:
- Voluntary or involuntary termination of an employee (for reasons other than gross misconduct)
- Reduction in the hours of a covered employee’s employment which result in loss of coverage,
- A covered employee’s becoming entitled to Medicare,
- Divorce or legal separation of a covered employee and spouse,
- A child’s loss of dependent status (and therefore coverage) under the plan, and
- The death of a covered employee
The COBRA regulations govern:
- How and when continuation coverage must be offered and provided,
- How and when employees and their families may elect continuation coverage, and
- In what circumstances plans may be required to extend continuation coverage, or permitted to terminate continuation coverage.
Individuals Pay Premiums
Employers have no obligation to pay for COBRA continuation coverage. Employees are responsible for the entire premium, even if the employer contributed to that premium prior to the qualifying event. The employer may charge the employee up to 102% of the total premium in order to cover administrative costs. Employers may voluntarily pay part of the COBRA premium during part or all of the period of COBRA continuation coverage.
Who Is Entitled To COBRA Continuing Coverage
A qualified beneficiary is an individual who was covered by a group health plan on the day before a qualifying event occurred. The following are qualified beneficiaries:
- An employee,
- The employee’s spouse or former spouse, or
- The employee’s dependent child
In certain cases involving the bankruptcy of the employer, a retired employee, the retired employee’s spouse (or former spouse), and the retired employee’s dependent children may be qualified beneficiaries.
Born or Adopted Child
Any child born to or placed for adoption with a covered employee during a period of continuation coverage is automatically considered a qualified beneficiary.
Others Entitled to COBRA
Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.
“Qualifying events” under the COBRA law are events defined in the law that cause an individual to lose group health coverage. When one or more these qualifying events occur, qualified beneficiaries may choose to elect COBRA continuing coverage.
The type of qualifying event determines who may elect continuing coverage, and the length of that continuing coverage.
The following are qualifying events for a covered employee if they cause the covered employee to lose coverage:
- Termination of the covered employee’s employment for any reason other than “gross misconduct”; or
- Reduction in the covered employee’s hours of employment.
The following are qualifying events for a spouse and dependent child of a covered employee, if any of these events cause the spouse or dependent child to lose coverage:
- Termination of employment (for any reason other than “gross misconduct”)
- Reduction in hours worked
- The employee becoming entitled to Medicare
- Divorce or legal separation of the spouse from the employee
- Death of the employee
Loss of Dependent Child Status
In addition to the above, a dependent child may be entitled to COBRA if the child loses his or her dependent child status under a plan’s rules.
Maximum Coverage Periods
The length of continuing coverage depends on what type of event triggers the coverage.