| COBRA
Questions & Answers
How
long must COBRA continuation coverage be available to a qualified
beneficiary?
What is a qualifying event?
Who is a qualified
beneficiary?
Are
newborns and adopted children considered "qualified
beneficiaries"?
What is the
definition of a covered employee?
What is the
definition of dependent child?
What
plans are subject to COBRA?
What plans are not
subject to COBRA?
What is the
definition of a group health plan?
Can
a qualifying event result from a voluntary termination of employment?
What
triggers the obligation to offer COBRA coverage?
What
specific events ("triggering events") can be qualifying
events?
What events
are not considered triggering events?
What
are the two mandatory items that must be sent to an employer to its
employees regarding COBRA?
When
must the initial notice be sent to covered employees and spouses?
What is the
purpose of the initial COBRA notice?
Who must provide the
initial notice?
What is
the qualifying event notice regarding COBRA?
What is
contained in the qualifying event notice?
When
must the employee or qualified beneficiary notify the plan administrator
of any triggering events?
When
must the employer notify the plan administrator of COBRA qualifying
events?
When
must the qualifying event notice be sent to the qualified beneficiaries
notifying them of their right to elect COBRA?
Within
what time period does the qualified beneficiary have the option of
electing COBRA?
Does
each qualified beneficiary have independent election rights under COBRA?
What
are the premium payment deadlines regarding COBRA coverage?
How
does the COBRA continuation coverage requirements apply to cafeteria
plans and other flexible benefit arrangements?
How
long must COBRA continuation coverage be available to a qualified
beneficiary?
- Up to 18 months for covered employees,
as well as their spouses and their dependents, when workers
otherwise would lose coverage because of a termination or reduction
of hours.
- Up to 29 months is available to
employees who are determined to have been disabled at any time
during the first 60 days of COBRA coverage and applies as well to
the disabled employee's nondisabled qualified beneficiaries.
- Up to 36 months for spouses and
dependents facing a loss of employer-provided coverage due to an
employee's death, a divorce or legal separation, or certain other
"qualifying events".
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What
is a qualifying event?
The qualifying event requirement is
satisfied if the event is (1) the death of a covered employee; (2) the
termination (other than by reason of the employee's gross misconduct),
or a reduction of hours, of a covered employee's employment; (3) the
divorce or legal separation of a covered employee from the employee's
spouse; (4) a covered employee becoming entitled to Medicare benefits
under Title XVIII of the Social Security Act; or (5) a dependent child
ceasing to be a dependent child of the covered employee under the
generally applicable requirements of the plan and a loss of coverage
occurs.
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Who
is a qualified beneficiary?
Under the statute, a qualified
beneficiary is someone who "is a beneficiary under the plan"
(i.e., is covered under the plan) immediately prior to the qualifying
event and who is:
- The spouse or dependent child of a
covered employee.
- A covered employee, but only if the
qualifying event is a termination or reduction in hours of the
covered employee's employment.
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Are
newborns and adopted children considered "qualified
beneficiaries"?
Yes. A child who is "born to or
placed for adoption with the covered employee during the period of
continuation coverage under [Code §4980B, the Code's COBRA
provisions]" is also a qualified beneficiary regardless of
whether the qualifying event occurred before, on, or after such date
if they are enrolled within 30 days of birth or adoption.
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What
is the definition of a covered employee?
Covered employee means an individual
who is (or was) provided coverage under a group health plan by virtue
of the performance of services by the individual for 1 or more persons
maintaining the plan. This definition is expansive and includes
retirees, independent contractors, self-employed persons and partners
of a partnership.
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What
is the definition of dependent child?
COBRA does not define "dependent
child." Who is a dependent child is determined by the terms of
the group health plan.
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What
plans are subject to COBRA?
Virtually all group health plans
maintained by employers for their employees are subject to COBRA's
provisions, including group health plans of corporations,
partnerships, tax exempt organizations, state and local governments.
Health Care Spending Accounts are also subject to COBRA's provisions..
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What
plans are not subject to COBRA?
Small Employer Plans:
Small employer plans are entirely exempt from COBRA. If all employers
maintaining the plan normally employed fewer than 20 employees on a
typical business day during the preceding calendar year, the plan
falls within the "small employer plan exception"
The Federal Government's Group Health Plan:
The Federal government's group health plan is not subject to COBRA.
However, a separate law, the Federal Employees Health Benefits
Amendments Act of 1988 requires the Federal government to offer its
employees continuation coverage effective January 1, 1990.
Certain Church Plans
Certain church plans also are not subject to COBRA. The IRS has
concluded that a plan for employees of an institute of higher learning
under church auspices was a church plan, and that plan was accordingly
not subject to COBRA.
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What
is the definition of group health plan?
Under the COBRA statute the term
"group health plan" is defined in Code § 5000 (b)(1) as
follows: a plan (including a self-insured plan) of, or contributed by,
an employer (including a self-employed person) or employee
organization to provide health care (directly or otherwise) to
employees, former employees, the employer, other associated or
formerly associated with the employer in a business relationship, or
their families.
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Can
a qualifying event result from a voluntary termination of employment?
Yes. Apart from gross misconduct, the
facts surrounding a termination or reduction of hours are irrelevant.
It does not matter whether the employee voluntarily terminated or was
discharged.
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What
triggers the obligation to offer COBRA coverage?
COBRA requires employers to offer a
COBRA election to qualified beneficiaries when there is: (1) a
triggering event; and (2) the triggering event causes (or will cause)
a loss in plan coverage that occurs within the maximum coverage period
for that event. When both elements (1) and (2) exist, there is a COBRA
"qualifying event." A COBRA "qualifying event" is
a specified triggering event, "which, but for the continuation
coverage required (by COBRA), would result in the loss of coverage of
a qualified beneficiary." An event is a qualifying event if
it (a) is one of the specified events ("triggering events"),
(b) causes the covered employee, spouse or dependent child to lose
coverage and {c} occurs while the plan is covered by COBRA. If a
qualified beneficiary experiences a triggering event, but there is no
loss in coverage attributable to the triggering event, there is no
qualifying event and COBRA coverage does not need to be offered.
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What
specific events ("triggering events") can be qualifying
events?
The statute specifies six triggering
events that, if they result in a loss of coverage, can be qualifying
events:
- Death of the covered employee;
- Voluntary or involuntary termination
of the covered employee's employment other than by reason of gross
misconduct (note that a retirement is considered a termination of
employment);
- Reduction in hours of the covered
employee's employment;
- Divorce or legal separation of the
covered employee from the employee's spouse;
- Dependent child ceasing to be a
dependent child under the generally applicable requirements of the
plan; and
- An employer's bankruptcy, but only
with respect to health coverage for retirees and their families.
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What
events are not considered triggering events?
If an employer terminates a group
health plan or amends it to reduce coverage, neither the termination
nor the amendment is a qualifying event. The following events are not
considered triggering events:
- A change in insurance carriers.
Replacement of one insured health plan with a less generous plan
is not a qualified event.
- Tendering a resignation. Only when
an employee actually terminates does a qualifying event occur.
- Filing for divorce. The entry of the
decree is the triggering event; however, if legal separation
precedes the divorce and results in a loss of coverage, then the
legal separation will become the triggering event.
- Employee drops coverage for spouse
or dependents.
- Employee's resignation from Union.
- Termination of Employment After
Insurer Cancels Group Health Plan.
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What
are the two mandatory items that must be sent to an employer to its
employees regarding COBRA?
The initial notice and the qualifying
notice are the most two important COBRA notices. They communicate to
plan participants and to qualified beneficiaries their COBRA rights
and obligations generally (the initial notice) and with reference to a
specific qualifying event (qualifying event notice). The mishandling
of these notices (either because the notices are not delivered or
their content is deficient) is a significant source of litigation and
liability for plans.
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When
must the initial notice be sent to covered employees and spouses?
The initial notice must be sent by the
"group health plan" to the covered employee and spouse upon
first becoming covered by a group health plan.
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What
is the purpose of the initial COBRA notice?
The Initial COBRA notice informs the
plan participants (and his or her spouse if any) their rights under
COBRA "at the time of commencement of the coverage under the
plan."
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Who
must provide the initial notice?
The statute requires the "group
health plan" to provide notice. The definition of group health
plan, however, does not identify any particular party. Most
commentators have assumed that the plan administrator has the
obligation to provide the initial notice, because ERISA § 502 {c}(1)
makes the plan administrator liable for a $110 per day for failure to
distribute the initial notice. The Department of Labor assigns the
responsibility to the plan administrator.
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What
is the qualifying event notice regarding COBRA?
Upon the occurrence of a qualifying
event and notice to the plan administrator of that event, the plan
administrator must send a qualifying event notice to each qualified
beneficiary advising them of their rights under COBRA and offers them
the right to elect COBRA.
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What
is contained in the qualifying event notice?
The qualifying event notices typically
consists of (i) a cover letter explaining to the qualified beneficiary
his or her COBRA rights and obligations, as well as all election,
payment and notice deadlines; (ii) an election form; (iii) a premium
schedule; and (iv) an ACH notice.
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When
must the employee or qualified beneficiary notify the plan administrator
of any triggering events?
The covered employee or qualified
beneficiary must notify the plan administrator within 60 days of the
occurrence of these triggering events:
- divorce or legal separation of
covered employee from his or her spouse; and
- dependent child ceasing to be a
dependent under the plan.
The proposed regulations expand this
rule to provide that the notice period is 60 days after the triggering
event or, if later, the date coverage would be lost. "If the
notice is not postmarked and sent to the employer or other plan
administrator [within the 60 day period], the group health plan does
not have to offer the qualified beneficiary the opportunity to elect
COBRA continuation coverage."
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When
must the employer notify the plan administrator of COBRA qualifying
events?
The employer "must notify the plan
administrator…within 30 days…of the date of" the following
qualifying events:
- death of a covered employee;
- termination or reduction of hours of
the covered employee;
- the covered employee becomes
entitled to Medicare; and
- the commencement of a bankruptcy
proceeding of the employer
The "qualifying event" in
this context means the date of the triggering event, not the date that
coverage is lost.
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When
must the qualifying event notice be sent to the qualified beneficiaries
notifying them of their right to elect COBRA?
The plan administrator must notify
"any qualified beneficiary" with respect to a qualifying
event of his or her COBRA election rights within 14 days after it has
been notified (by the employer or by a qualified beneficiary) that the
qualifying event has occurred. If the plan administrator has not
received notice that a qualifying event has occurred, they are not
obligated to provide notice of COBRA election rights to the qualified
beneficiary.
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Within
what time period does the qualified beneficiary have the option of
electing COBRA?
A qualified beneficiary may elect COBRA
coverage at any time within 60 days after the date plan coverage
terminates, or, if later 60 days after the date of the notice to the
qualified beneficiary from the plan administrator. The 60-day period
permits a qualified beneficiary to "adopt a wait-and-see approach
to continued coverage, and then elect if and when medical care is
required during the election period. If the plan administrator has not
sent the notice of qualifying event, the election period remains open.
The 60 day period is a minimum.
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Does
each qualified beneficiary have independent election rights under COBRA?
Yes. COBRA requires that
"each" qualified beneficiary be entitled to elect COBRA
coverage. If there is a choice among types of coverage under the plan,
each qualified beneficiary is entitled to make a separate election
among the different types at open enrollment.
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What
are the premium payment deadlines regarding COBRA coverage?
A plan may not require any payment
until 45 days after the qualified beneficiary's initial election. If a
qualified beneficiary fails to make the initial premium payment within
the 45-day period, the plan administrator may terminate the COBRA
coverage. Thereafter, payments are due on the first of each month,
subject to a 30-day grace period.
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How
does the COBRA continuation coverage requirements apply to cafeteria
plans and other flexible benefit arrangements?
The provision of medical care through a
cafeteria plan (as defined in Section 125) or other flexible benefit
arrangement constitutes a group health plan. However, the COBRA
continuation coverage requirements of section 162(k) apply to those
medical benefits under the cafeteria plan or other arrangement that a
covered employee has actually chosen to received. Furthermore, except
in cases where the plan is exempt from HIPAA, COBRA need only be
offered in cases where the participant has a positive balance at the
time of termination and only for the remainder of the current plan
year.
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