In 1985, Congress passed the Consolidated Omnibus Budget Reconciliation Act, known to employers as COBRA. COBRA requires employers, who meet a particular group size, to offer employees and their families the right to continue group health plan coverage if coverage is lost due to certain qualifying events. An employee pays for COBRA coverage at the employer’s group health plan rate plus an additional 2% administrative fee, the coverage provided to COBRA participants must be identical to the benefits offered to the employed population of employees. If employee benefits change, COBRA coverage changes as well.
In-house COBRA administration can be a painstaking task for employers. The employer must record all COBRA-related dates for each participant, maintain proof of mailing for all required notifications and retain all COBRA records for up to seven years. Fortunately, Benefit Design Specialists is here to help, we can relieve the burden of COBRA administration and ensure your business is compliant with the latest regulations.
Employers subject to COBRA
Employers who maintain group health insurance plan(s) for their employees are subject to comply with the provisions of the law. Exempt are employers who employed less than 20 full or part time employees in 50% of the previous calendar year. (Each part time employee counts as a fraction of an employee, with the fraction equal to the number of hours that a part time employee worked divided by the hours an employee must work to be considered full time.)
Health Plans Subject to COBRA
In most cases, Medical, Dental, Vision, and General & Limited Purpose FSA Plans are covered by COBRA. The employer is required to notify employees and their families with an initial COBRA rights notification when they first become covered under a group health plan subject to COBRA. COBRA rights are required to be included in the summary plan description (SPD) which employees are given once they receive group health plan coverage.
Pension plans and other welfare plans such as life insurance, Dependent Care Assistance Plans (DCAPs), disability, severance pay, profit sharing and 401(k) plans are not subject to COBRA.
A COBRA Qualifying Event is the event that causes a loss in coverage under the group health plan. The type of Qualifying Event determines the length of continuation coverage for which the Qualified Beneficiary is eligible.
|Event||Length of COBRA|
|Termination of employment (except for term of gross misconduct)||18 months *|
|Reduction in hours worked||18 months *|
|Death of the Employee||36 months|
|Medicare Entitlement of the Employee||36 months|
|Divorce or Legal Separation||36 months|
|Dependent Child losing eligibility under the Plan||36 months|
*Disability Extension – The 18 months may be extended to 29 months if a Qualified Beneficiary is Certified Disabled by the Social Security Administration (SSA) and the date of disability is prior to or within the first 60 days of COBRA coverage. The administrator must be notified of the disability during a period of COBRA coverage and within 60 days from the date of SSA’s disability certification letter.
* Multiple Qualifying Event – The 18 months may be extended to 36 months for a Qualified Beneficiary who encounters, during a period of COBRA coverage, a second COBRA Qualifying Event (such as divorce, legal separation, death of the employee, Medicare entitlement of the employee, and dependent loosing dependent status under the plan).
If COBRA continuation of coverage is elected, the coverage provided, during a period of COBRA coverage, is identical to the coverage provided to similarly situated beneficiaries to whom the Qualifying Event has not occurred.
A COBRA Qualified Beneficiary is a person who is covered under the group health plan on the day before the Qualifying Event who is either an employee, spouse of an employee, or dependent child of an employee. Retirees, spouses of retirees, or a dependent child of a retiree can in certain circumstances be a Qualified Beneficiary. In addition, a child born to or placed in the home for adoption of the former employee during a period of COBRA continuation coverage, is also a Qualified Beneficiary.
After an employee (and other qualified beneficiaries, if applicable) receives their second notice of COBRA rights and election form, they have a 60 day election period to choose whether or not to elect COBRA coverage. Qualified beneficiaries may elect COBRA coverage independently, and the employee or employee’s spouse may elect coverage on behalf of a minor child. It COBRA is elected, the coverage is reinstated, retroactively, back to the date which the employee or qualified beneficiary lost coverage.
COBRA coverage may be terminated early for any the following reasons:
- Premiums are not paid on a timely basis by the participant
- The employer ceases to maintain any group health plan
- The participant obtains coverage under another employer’s group health plan which does not contain any pre-existing condition limitations which impact the participant
- The participant elects Medicare benefits
Depending on the group health plan the employer offers, state law may require the insurance carrier to offer COBRA participants individual health plan policies, known as conversion coverage, if they exhaust the maximum COBRA coverage period. The employer must make this information available to employees in the initial COBRA rights notice if it applies to their group health plan. Conversion coverage is generally not available in situations where the participant terminates COBRA coverage before reaching the maximum coverage period. In many cases, once an individual has exhausted their COBRA benefit, they will receive notification from the carrier letting them know their conversion options.
Penalties for non-compliance with COBRA can result in :
- IRS excise tax penalty of $100 per day for each violation. This fine can be increased to $200 for each day in which there was more than one Qualified Beneficiary per family.
- An ERISA penalty of $110 per day payable to each Qualified Beneficiary for each day the employer was not in compliance.
- The employer can be held liable for payment of legal fees, court costs and even for medical claims incurred by a Qualified Beneficiary.
Full Service Administration
Benefit Design Specialists is here to relieve the stress and burden associated with COBRA Administration. Our COBRA system is administered through our online resources, so the only duties an employer must fulfill are notifying BDS of the termination and effectively terminating or reinstating the employee with the proper carriers. All other responsibilities under COBRA are handled by our expert staff.
Implementation of COBRA Services
- Client prospect completes the COBRA Request for Services worksheet (attached to our COBRA proposal) and returns the document to us
- Upon receipt of the Request for Services, our COBRA team prepares and sends the following items to the client and broker via email:
- Services Agreement
- Notification of Qualifying Event Form
- Spreadsheet to gather information on current and pending COBRA continuants
- Employer Authorization Form for Direct Deposit
- Template for future mailings of Initial Notices
- Upon receipt of the completed spreadsheet, we notify current Qualified Beneficiaries of the transfer of COBRA services and provide payment coupons.
- We process all qualifying events as notified by the client and track applicable COBRA timeframes. Initial COBRA Rights Notices are mailed to all Qualified Beneficiaries upon receipt of a copy of the completed carrier enrollment form or via the Initial Notice template.
- Monthly reports are made available online or sent to the client informing them of:
- Enrollees to whom Initial Notices were sent.
- Individuals to whom COBRA Enrollment Rights Notices were mailed.
- Payments received from COBRA participants. We will remit premiums to the client less the 2% administration fee.
- COBRA termination notices that were sent to applicable Qualified Beneficiaries.
- Individuals currently on COBRA.
- We notify the client via email 45 days in advance of each insurance plan’s renewal date as a reminder to provide updated rates/carrier information to us and the need to notify COBRA continuants of their open enrollment rights. We will subsequently distribute rate change letters to current and pending Qualified Beneficiaries along with client-provided Open Enrollment Packets. New payment coupons are sent to current COBRA participants at this time as well.
Contact us if you are interested in learning more about our COBRA Administration Services.