The Consolidated Omnibus Budget Reconciliation Act provides employees with continued access to health insurance coverage, helping them bridge the gap between losing employer-sponsored health coverage and finding alternative plans. COBRA is used so that employees can continue with insurance under circumstances — job loss, reduction of hours worked or transition between jobs — where the coverage otherwise would end. COBRA is helpful for employees if they'd like to continue to receive the same health plan benefits even though their employment may have changed.
COBRA benefits are time limited and apply only to group health plans sponsored by employers with 20 or more employees in the prior year. While COBRA helps employees avoid a lapse in coverage, there are some details they need to pay attention to:
- Employees have 60 days to enroll in COBRA once their employer-sponsored benefits end. Once COBRA is elected, they'll be covered by COBRA starting the day their employer-sponsored coverage ended.
- COBRA benefits last for only 18 to 36 months, depending on the reason for COBRA and the employer's health insurance plan. In other words, there is limited time to research and find another health insurance option.
COBRA benefits are also available to an employee's family under these circumstances:
- The death of a covered employee, resulting in the loss of coverage for their dependents.
- Divorce or legal separation of the covered employee if their spouse loses coverage due to the change in marital status.
- Loss of dependent-child status. When a dependent no longer qualifies for coverage under the employer health plan, that child may be eligible for COBRA coverage.
COBRA coverage isn't free. If employees elect to keep insurance coverage under COBRA, they're responsible for paying the full cost of their premium (the premium the employer previously paid) plus an administrative fee; the total could be up to 102% of the cost of the plan (the extra 2% being the administrative fee).
COBRA requirements
Employers are required to issue notices about COBRA availability to employees and their qualified beneficiaries. The details in these notices must be wholly correct. Employers are also responsible for offering coverage identical to the coverage provided to active employees and their dependents.
Additionally, employers must:
- Ensure the premiums charged for COBRA coverage are reasonable and reflect the full cost of the plan.
- Maintain accurate records related to COBRA, including documentation of notices sent, enrollment information and payment of premiums. Proper recordkeeping demonstrates compliance for addressing any potential audits or inquiries.
- Allow each qualified employee to independently elect COBRA coverage.
- Allow a covered employee to elect COBRA for any dependent children or qualified beneficiaries.
Penalties for not being COBRA compliant can vary:
- The Department of Labor can impose the maximum penalty for a single violation, upward of $110 per day per affected beneficiary.
- There may be legal consequences. Lawsuits may award monetary damages to beneficiaries who were denied their COBRA rights or who experienced harm due to noncompliance. You may be responsible for the legal fees associated with such a lawsuit.
- You may be required to reinstate coverage retroactively, which could result in increased costs and administrative burden.
COBRA responsibilities
Employers play a crucial role in ensuring COBRA compliance and providing eligible individuals with access to continued coverage. Seek compliance guidance from legal and HR professionals who specialize in employee benefits.
Common mistakes employers make when it comes to COBRA include:
- Inadequate or late notice. As a rule of thumb, send out a COBRA notice the day you terminate an employee.
- Misunderstanding eligibility criteria. If you don't know who is eligible, you might fail to offer continuation coverage. Be well informed about both qualifying events and the individuals who are entitled to COBRA coverage.
- Insufficient training and knowledge. Ensure compliance by investing in appropriate training and staying up-to-date with the latest COBRA requirements.
During transitional periods, COBRA provides employees with a safety net to help maintain continuity of coverage, protecting them against sudden gaps in health insurance. Employers must do their part to provide this important benefit.
Finally, keep in mind that regulations can change over time, often with little notice, so be sure to keep in touch with your technical advisors.
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