COBRA applies to employers of 20 or more workers that offer health benefits. (Determining whether you have 20 or more employees is complicated; you may be able to group the working hours of multiple part-time employees to equal one full-time employee.) Additionally, you must have offered health insurance for more than 50% of your business days in the previous year.
If you fall into these categories, you must give employees the option of continuing employer-sponsored health coverage if they undergo any of the following:
- Termination of employment, voluntary or involuntary (unless termination was the result of gross misconduct)
- Reduction in hours (including from full time to part time)
- Transition to a job with a different employer
- Divorce or marital separation (the spouse may still be entitled to benefits through your employee)
- Death
- Qualification for Medicare
- Change in status of covered dependents (that is, when they reach an age when they are no longer covered by a parent’s health plan)
To be covered by COBRA, the employee must have been part of your employer-sponsored health plan on the day before their qualifying event; they cannot have declined coverage, been ineligible for coverage or been covered by Medicare. Generally, the employee must give notice of the qualifying event to their employer within 30 days; they then have 45 days to send in their first monthly premium payment. If an employee declines COBRA coverage, or if the coverage is canceled in the future, it cannot be reinstated.
Employers’ responsibilities
Under COBRA, the employer has certain responsibilities to inform employees of their rights under COBRA.
First, the employer must inform employees and their spouses of their rights to COBRA within 14 days of the beginning of their employment. The employer must also notify the qualifying individual of their rights to COBRA within 14 days of the event that qualifies them for the coverage.
Employers must also notify the health insurance company if an employee elects COBRA coverage; the notification must occur within 30 or 60 days, depending on the type of qualifying event.
Employers must also make the following documents available to employees:
- A summary plan outlining COBRA rights provided under your group health plan. This information should include the available benefits under the health insurance plan, the rights of participants and beneficiaries under the plan, and a description of how the health plan works.
- A COBRA general notice. This must be given to each employee and their spouse within the first 90 days of coverage. It should include the contact information of the plan administrator (or whomever the employee can speak to for more information), a general description of COBRA coverage, and a description of what qualified beneficiaries must do to notify the plan of qualifying events.
Be sure to keep a record of these notifications as evidence that the policy was followed. You may want to use HR software to track and archive compliance records or outsource the process to a PEO service provider. If you do not have a professional plan administrator, the Department of Labor provides a general notice template that employers may use to notify employees of their COBRA rights.
Coverage and costs
Depending on the employee’s qualifying event and circumstances, COBRA coverage will last at least 18 months, but it can continue for as long as three years (for reasons such as a disability that was incurred while the employee was already on COBRA).
COBRA requires that the employer offer the same health insurance coverage as other employees are entitled to. This benefit may include:
- Inpatient or outpatient hospital treatments
- Physician or ancillary care
- Surgery or other types of major medical benefits
- Prescription drugs
- Dental and vision coverage
COBRA does not cover life insurance or disability benefits.
COBRA tends to be more expensive to the recipient because they are responsible for paying 100% of the health insurance premium. (Most employers cover a portion or all of health insurance.) COBRA recipients are additionally responsible for a 2% administrative charge, which offsets the cost of the employer’s administering the program. If an employee elects extended COBRA after becoming disabled while on COBRA, employers may be allowed to charge 150% of the health insurance premium.
COBRA-qualified individuals have 30 days after health insurance payments are due to send payment to their employer (or past employer). This means that the employer will generally be paying for coverage ahead of the recipient’s payment.
Individual states may also have COBRA-like laws, and some employers are subject to a state continuance-coverage law even if they’re exempt from federal law. Be sure to check with your state labor agency or your attorney to learn more.
Failing to comply with COBRA rules can lead to fines per covered employee along with the cost of any medical expenses incurred during the time the employee should have been covered.
COBRA is complicated to administer, but it gives peace of mind to employees and their families, especially if they have preexisting medical conditions or ongoing treatment needs.
