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Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)


COBRA Health Care Continuation Coverage
 
 
OVERVIEW
Most employers with group health plans are required to offer employees the opportunity to continue temporarily their group health care coverage under their employer's plan if their coverage otherwise would cease due to a termination, layoff, or other change in employment status (referred to as "qualifying events"). These "COBRA" health care continuation requirements, so called because they were enacted as part of the Consolidated Omnibus Budget Reconciliation Act of 1985, generally entitle certain "qualified beneficiaries" (as well as covered spouses and dependents) to extend (at their own expense) their employer-provided health care coverage for a period of:

· Up to 18 months for covered employees, as well as their spouses and dependents, when workers otherwise would lose coverage because of a termination or reduction of hours;  
· 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."  
 
The range of employers affected by COBRA is very broad, with exemptions available only for employers that normally employ fewer than 20 workers, church plans, and plans maintained by the U.S. government. Although employers are permitted to charge COBRA beneficiaries a premium for continuation coverage of up to 102 percent of the cost of the coverage to the plan (150 percent in the case of certain disabled employees), the 2 percent "mark up" usually does not cover the full cost of administering COBRA.
 
Employers that violate the COBRA requirements are subject to an excise tax of $100 per affected employee for each day that the violation continues. In addition, plan administrators who fail to provide required COBRA notices to employees may be personally liable for a civil penalty of up to $100 a day for each day the notice is not provided.

COBRA is one of the more administratively complex pieces of legislation in the employee benefits area. This complexity is underscored by the fact that COBRA has been subject to numerous legislative changes that have outdated parts of the proposed regulations originally issued by IRS in 1987.

These modifications to COBRA's requirements are noted in this chapter, as well as in a checklist of legislative changes that appears at the end of this chapter. Most recently, Congress enacted the of 1996 (PL 104- 191). Effective Jan. 1, 1997, HIPAA:
 
· Expanded the definition of "qualified beneficiary" to include a child who is born or adopted by the covered employee during the period of continuation coverage;  
· Clarified that an additional 11 months of COBRA coverage (up to 29 months) is available to employees who are disabled at any time during the first 60 days of COBRA coverage and applies as well to the disabled employee's non-disabled qualified beneficiaries; and  
· Limits COBRA coverage for pre-existing condition exclusions, where other HIPAA rules on portability have eliminated those exclusions.  
 
For a copy of a COBRA notice that may be sent to employees and qualified beneficiaries upon a qualifying event, see the sample policy (updated for HIPAA) Sample COBRA Notice To Employees and Qualified Beneficiaries.

GENERAL PRINCIPLES
  
In General
COBRA requires an employer to offer employees and their dependents the opportunity to continue their group health coverage under the employer's plan upon the occurrence of certain events that otherwise would cause them to lose their employment- related health plan coverage. Important terms used for COBRA administration purposes include:
 
· "Qualifying event," which refers to the specific events, such as, an employee's termination, layoff, or death, that would cause a loss of employer- provided coverage and thus trigger the coverage-continuation option. §4980B(g)(3), Prop. Treas. Regs. § 1.162-26, Q/A- 18 to Q/A-21.)   
· "Qualified beneficiary," which is used to refer to an employee or a worker's spouse or dependent who is or was covered under the employer-provided health plan and has experienced a qualifying event. (§4980B(g)(3))  
 
Note: The Health Insurance Portability and Accountability Act of 1996 modified the definition of a qualified beneficiary in (§4980B(g)(1) ) to include a child who is born to or placed for adoption with the covered employee during the period of continuation coverage. This rule is effective on Jan. 1, 1997, regardless of whether the qualifying event occurred before, on, or after that date. In addition, HIPAA clarified that extended coverage of 11 additional months available to disabled employees also is available to the non-disabled family members of an employee.

COBRA imposes a host of rules governing the obligations and duties of both employers and qualified beneficiaries involved in coverage-continuation situations. Specific rules under COBRA, for example, address such issues as the length of the required coverage period, notification requirements for employers and plan administrators, procedures for electing continuation coverage, premiums the employer may require beneficiaries to pay, and the circumstances under which an employer may terminate COBRA coverage short of the full continuation period.
 
How COBRA Rights Are Triggered

An employer's obligation to offer COBRA coverage is triggered by the occurrence of a qualifying event. Specifically, COBRA recognizes a qualifying event as a loss of employer-provided health coverage due to one of the following reasons:
· The death of a covered employee;  
· The employee's change in employment status- such as the employee's termination or reduction in working hours;  
· Divorce or legal separation of the employee;  
· The employee's entitlement to Medicare;  
· A dependent child's loss of eligibility under the plan; or  
· Bankruptcy of the employer. IRC Section 4980B(f)(3))  
 
An employee called to military duty also has COBRA continuation rights, according to the Internal Revenue Service. In Notice 90-58 , the IRS has ruled that the termination of health coverage arising from an employee's being called to active military duty triggers an employer's obligation to offer health care continuation coverage, unless the employer continues normal coverage while the employee is on military leave.
 
The
of 1994 also requires COBRA continuation coverage in some circumstances. (USERRA Section 4317(a))
 
Coverage Periods: Basic Rules
The normal COBRA coverage continuation period is either 18 or 36 months under section 4980B(f)(3). However, special coverage periods are available to qualified beneficiaries who:
 
· Are disabled at the time of a qualifying event (or are disabled within the first 60 days of COBRA coverage, effective Jan. 1, 1997); or  
· Are retirees (or are a retiree's widow or widower) and would lose their health plan coverage due to the bankruptcy of the sponsoring employer.  

An 18-month period of continuation coverage is available to covered employees and their spouses and dependents in cases where coverage is lost due to the employee's termination or reduction of hours. A special 29-month period of coverage - the basic 18-month period of continuation coverage, plus an additional 11 months - is available for beneficiaries who are disabled at the time of the qualifying event.

Effective on Jan. 1, 1997, the extended coverage is available if the disability exists at any time during the first 60 days of COBRA coverage, rather than at the time of the qualifying event. In addition, the 29-month coverage period also applies to the non-disabled qualified beneficiary of the covered employee. (IRC Section 4980B(f)(2))

EMPLOYERS AND PLANS AFFECTED BY COBRA
 
In General
COBRA applies to any employer that employed 20 or more employees on a typical business day during the preceding calendar year. However, churches and the federal government are exempt from COBRA. (IRC Section 4980B(d))
 
Group health plans maintained by state governments and their political subdivisions must comply with COBRA if the state receives funds under the Public Health Service Act. This is because the COBRA law not only amended the Employee Retirement Income Security Act (from which government plans are exempt), but also added parallel requirements to the Public Health Service Act. Since all states receive PHSA funds, the COBRA requirements extend to virtually all state and local employers, except those that qualify for the small employer exemption.
 
Small Employer Exemption
Small employers that normally employ fewer than 20 employees are exempt from COBRA. An employer is considered as "normally" employing fewer than 20 employees if it had fewer than 20 employees on at least 50 percent of its working days during the preceding calendar year.
 
For purposes of applying the 20-employee limit, the employer must count agents, independent contractors, and corporate directors if such individuals are eligible to participate in a group health plan maintained by the employer. Part-time employees must be counted as employees regardless of the number of hours they work.
 
When an employer increases its work force to where it normally employs 20 or more employees, the plan becomes fully subject to COBRA beginning with the next calendar year. If an employer's work force drops below 20 employees, employees remain eligible for COBRA coverage during the calendar year following the year in which the employer had at least 20 employees.
 
Plans maintained jointly by several small employers remain eligible for the small-employer exemption as long as each participating employer normally employs fewer than 20 employees. However, where one or more of such employers exceeds the 19-employee limitation, the whole plan becomes subject to COBRA in the next calendar year. A special rule allows such a plan to retain its exempt status if any employers that exceed the 19-employee limit withdraw from the plan prior to February 1 of the year following the year in which the limit was exceeded.
 
Types of Plans Affected
The coverage continuation rules apply to any type of employer-provided group health plan, whether insured or self-insured, funded or unfunded. A health plan is deemed to be "employer-provided" if the coverage under the plan would not be available at the same cost to employees or independent contractors if such individuals did not perform services for the plan sponsor. The COBRA rules do not apply to group health plans that cover only qualified long-term care services (as defined in tax code Section 7702B(b)) or medical savings accounts. (IRC Section 4980B(g)(2))
 
Under the COBRA rules, a health plan is any type of plan maintained by an employer to provide medical care to employees, former employees, or the families of such employees or former employees. A health plan may include health benefits or reimbursements provided through a cafeteria or flexible benefit plan, as well as health and medical services provided through a health maintenance organization (HMO) or preferred provider organization (PPO). In addition, the COBRA rules generally treat drug or alcohol treatment programs as health plans.
 
Health care flexible spending accounts, also known as health care "FSAs," qualify as group health plans under the COBRA rules, although employees generally would not have any incentive to elect continuation coverage under an FSA. This is because FSAs usually are funded through pre-tax deductions from an employee's salary. Since employers are permitted to charge COBRA beneficiaries a 2- percent markup over their regular plan contributions, employees electing an FSA as their COBRA plan essentially end up paying $1.02 for each $1.00 of coverage.
 
COBRA provides no special exemption for collectively-bargained plans. However, union-sponsored plans under which employees pay all the costs of their coverage are exempt from COBRA coverage continuation requirements.
 
Not Treated as Health Plans
Arrangements not treated as health plans under the COBRA rules include the following:
 
On-site medical facilities, which are not treated as covered plans under the following conditions: (1) the medical care (primarily first aid) provided by such facilities occurs during the employer's working hours for the treatment of health conditions, illnesses, or injuries that occur during those hours; (2) the medical care is available only to the employer's current employees; and (3) employees are not charged for the use of the facility.

Discount programs for merchandise, such as drugs or eyeglasses, generally are not affected by COBRA. These programs are not treated as medical plans as long as they are accessible to and used by employees without regard to health needs.
 
Exercise or fitness facilities normally accessible to and used by employees for reasons other than relief of health or medical problems do not constitute medical care and are not affected by COBRA.

QUALIFIED BENEFICIARIES AND QUALIFYING EVENTS
 
Who Is a "Qualified Beneficiary?"
A "qualified beneficiary" is defined as any individual who, on the day before a qualifying event, is covered under an employer's group health plan by virtue of being either:
 
· A covered employee;  
· The spouse of a covered employee; or  
· The dependent child of a covered employee. (Section 4980B(g)(1))  
 
COBRA defines a "covered employee" as an individual who is or was covered under a group health plan as a result of having performed services for one or more persons maintaining the plan. Although COBRA continuation coverage rights generally arise out of an employment relationship, COBRA's definition of "covered employee" is designed to be sufficiently broad so that independent contractors, partners, and other non employees may have continuation coverage rights if they are covered by a plan as a result of services performed for the plan sponsor. (Section 4980B(g)(1))
 
Dependents acquired by a COBRA beneficiary during a period of continuation coverage, such as a spouse who marries a qualified beneficiary after he or she has already started to receive continuation coverage, must be permitted to elect coverage for the remaining period of the qualified beneficiary's coverage period, if a such a health care election is permitted for the acquired dependents of active employees.
 
 Generally, a dependent acquired after a qualifying event would not gain status as a "qualified beneficiary." For example, if a qualified beneficiary acquires a spouse who signs up for the COBRA coverage provided that beneficiary, the spouse would not have COBRA rights if the covered employee were to die during the continuation coverage period. However, effective Jan. 1, 1997, HIPAA expanded the definition of qualified beneficiary to include a child who is born or adopted by the covered employee during the period of continuation coverage.
 
What Is a "Qualifying Event?"
COBRA privileges arise whenever there is a "qualifying event." A qualifying event is one of a number of events that causes a loss of employer-sponsored health care coverage. A loss of coverage does not have to be a complete loss of coverage to trigger a qualified beneficiary's COBRA rights. For example, a retiring employee may be offered continued employer-sponsored coverage, but under a plan that provides somewhat different coverage than that provided to active employees. Even though some type of coverage is offered to the retiring employee, COBRA election rights would be triggered since the employee lost the original coverage as a result of his or her retirement.
 
The specific events for which workers or their dependents are entitled to COBRA continuation coverage are:
 
Death of the employee - When employees who are covered under their employer's health care plan die, their spouse and dependents who would lose their health plan coverage as a result of the worker's death have the right under COBRA to elect to continue their coverage under the employer's plan.
 
Termination of employment-Employees and other qualified beneficiaries are entitled to elect COBRA continuation coverage upon a loss of coverage resulting from an employee's termination of employment, unless such termination occurs as a result of "gross misconduct". Qualified beneficiaries retain their COBRA election rights whether they are discharged or terminate voluntarily. Except for cases of gross misconduct, the particular facts surrounding a termination or reduction of hours are irrelevant. Therefore, strikes, walkouts, and layoffs are all qualifying events if they result in a loss of coverage under an employer's plan. Retirement also constitutes a qualifying event if an employer's plan ceases coverage at that time.
 
Reduction of employment- The COBRA rules treat a loss of coverage caused by a reduction in working hours the same as a coverage loss due to termination of employment. COBRA continuation rights convey to employees and other qualified beneficiaries whenever employees would lose coverage because their work hours are reduced below the level required for coverage under the plan, regardless of whether the hours reduction is voluntary (i.e., requested or sought by the employee) or mandated by the employer.
 
Employee's divorce or legal separation- The spouse of a covered employee who loses cover age under an employer's health plan as a result of divorce or legal separation is entitled to elect COBRA continuation coverage under the employer's plan. Dependent children who lose coverage because of a divorce or legal separation also are entitled to make elections for COBRA coverage. The covered employee or spouse is responsible for notifying the employer or plan administrator of the occurrence of the divorce or legal separation.
 
Employee's entitlement to Medicare- The spouse and dependents of a former employee are eligible to elect up to 36 months of COBRA coverage if they lose coverage as a result of the employee becoming entitled to Medicare. Individuals generally become eligible for Medicare benefits at age 65, but become "entitled" to Medicare benefits only after they enroll in the program. (Keep in mind that employers are prohibited by the Social Security Act and the Age Discrimination in Employment Act from forcing active employees to enroll in Medicare, even if those employees are age 65 and over. However, employers may include provisions in their health plans that terminate the coverage of retirees upon their entitlement to Medicare. Such a loss of coverage would not give the retiree any rights to elect COBRA coverage, but would trigger COBRA rights for the retiree's spouse and dependents if they lose their coverage.)
 
Loss of dependent child status- Group health care plans typically specify an age at which an employee's child loses eligibility as a child dependent under the plan. The COBRA rules allow dependents to elect continuation coverage upon such a loss of eligibility under the plan.
 
Bankruptcy of the employer- When retirees (or their widows or widowers) experience a loss of health plan coverage because the employer sponsoring the plan files for bankruptcy under Chapter 11 of the Federal Bankruptcy Code, the employer is responsible for providing COBRA coverage for such individuals and their covered spouses or dependents. A loss of health plan coverage is treated as a loss of coverage due to bankruptcy if the health plan beneficiaries lose their coverage during the period one year before or one year after the sponsoring employer files for bankruptcy.

Upon a loss of health plan coverage due to bankruptcy, an employer must provide continuation coverage until the earlier of: (1) the death of the retiree (or widow/widower); (2) the coverage of the beneficiary under another plan; (3) or the failure of the beneficiary to pay the required COBRA premium. The continuation coverage period does not end when the beneficiary becomes entitled to Medicare. In addition, where the death of the retiree or widow/ widower would cause coverage to cease for a surviving spouse and/or dependents, the spouse and dependents may elect to remain covered for up to 36 months after the retiree's or widow/widower's death.
     
Military leave- Employers cannot deny those who serve in the armed forces any benefit of employment on the basis of that service, under Section 4317 of the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). Individuals who serve in the uniformed service are treated as being on a leave of absence from their employers. Benefits offered to employees on leave must also be offered to employees serving in the uniformed service.
 
If employees and their dependents have health plan coverage, and they are absent from employment due to military service, they may elect to continue coverage on a COBRA-like basis. The maximum period of coverage they may elect will be the lesser of the 18-month period beginning on the date on which the absence began; or the day after the date on which the person fails to apply for or return to work.
 
For leaves of 31 days or longer, individuals in military service would pay 102 percent of the premium. However for leaves shorter than 31 days, individuals are not required to pay more than the employee share, if any. For more information, see separate chapter Military Leave
 
"Gross Misconduct" Exception
COBRA Section 4980B(f)(3)(B) permits employers to deny continuation coverage to employees who are terminated for gross misconduct. However, neither the law nor IRS' proposed regulations specifically define what constitutes "gross misconduct". Moreover, the IRS has indicated that it will not issue private rulings on what constitutes gross misconduct.
 
In view of COBRA's stiff penalties and the absence of any legal definition or guidelines on what constitutes "gross conduct," employers are well-advised to apply COBRA's gross-misconduct exception only in very clear-cut cases of egregious or outrageous misconduct. According to legislators who worked closely with the statute, the "gross misconduct" exception was intended for use in only extreme cases of employee misconduct.

In one unpublished case involving COBRA's gross misconduct exception, a federal district court turned for guidance to the definition of "gross misconduct" used under California unemployment insurance law. Under that definition, the court noted, "gross misconduct" is conduct characterized by:
 
Willful or wanton disregard of an employer's interests;
 
Deliberate violations or disregard of standards of behavior that an employer has the right to expect of an employee;
 
Carelessness or negligence of such degree or recurrence as to indicate an "evil design" or wrongful intent on the part of the employee.
 
On the other hand, the court pointed out, the gross misconduct standard did not extend to such actions as "mere inefficiency, unsatisfactory conduct, failure in good performance as a result of inability, incapacity, inadvertencies or ordinary negligence in isolated instances, or good faith errors in judgment or discretion." ( Paris v. F. Korbel & Brothers, 12 EBC 2489.)
  
Multiple Qualifying Events
COBRA section 4980B(f)(2)(B)(i)(II) provides that qualified beneficiaries entitled to 18 months of COBRA continuation coverage due to a covered employee's termination or reduction in hours can extend the length of their coverage period if a second qualifying event occurs during the initial 18 month period. The extension generally cannot exceed 36 months from the date of the first qualifying event and applies to individuals who were qualified beneficiaries under the plan as of the first qualifying event and who were covered under the plan at the time of the second qualifying event.
 
An exception to the general rule governing multiple qualifying events applies in cases where employees become entitled to Medicare prior to the expiration of an existing period of continuation coverage that was triggered by a change in employment status. As discussed above, COBRA Section 4980B(f)(2)(B)(i)(I) , qualified beneficiaries generally are eligible for 18 months of COBRA coverage when an employee loses health plan coverage due to a termination of employment or a reduction in working hours. However, under Section 4980B(f)(2)(B)(i)(V) , if a COBRA-covered employee becomes entitled to Medicare before the expiration of the 18-month period, the worker's COBRA coverage ends, but other qualified beneficiaries --e.g., the employee's spouse -- become eligible for an additional 36 months of continuation coverage.
 
Note: One possible interpretation of the above exception would have permitted continuation coverage for up to 54 months. However, this was not the intent of the exception. As a result, the of 1996 amended the COBRA rules to limit the continuation coverage in such cases to no more than 36 months. This amendment is effective as if included in the Revenue Reconciliation Act of 1989, i.e., it is effective for plan years beginning after 1989. Thus, under Section 4980B(f)(2)(B)(i)(V) as amended, if the covered employee separates from service or has hours reduced less than 18 months after the date the covered employee became entitled to Medicare, the period of coverage for the covered employee's spouse and dependents will not terminate before the end of the 36-month period beginning on the date the covered employee becomes entitled to Medicare.
 
Events Terminating COBRA Coverage
COBRA coverage may be terminated prior to the end of the applicable coverage period, i.e., 18-, 29-, or 36-months, or the lifetime coverage provided to retirees whose coverage terminated as a result of employer bankruptcy, under any of the following circumstances:
 
All health plans are terminated - If the employer no longer provides group health coverage to any of its employees, it is not obligated to provide continuation coverage. For instance, a plant closing generally results in termination of employment and loss of health coverage. If the employer offers no other health benefit plans after the closing, employees have no rights to continuation coverage. However, if the employer maintains other plans e.g., for other plants or divisions, employees retain their right to elect continuation coverage. (IRC Section 4980B(f)(2)(B)(ii) )
 
Beneficiary fails to pay COBRA premium- Where a beneficiary fails to make "timely payment" of any required COBRA premium, the employer may terminate the beneficiary's continuation coverage short of the full coverage period. A qualified beneficiary's initial premium payment following the election of COBRA coverage is considered timely if received within 45 days of such election. In addition, a premium is considered timely if it is paid within the longer of: (1) 30 days from the due date; (2) the period specified in the plan document; or (3) the period permitted for the employer to make premium payments on behalf of similarly situated active employees to the insurer, HMO, or other entity providing plan benefits. (IRC Section 4980B(f)(2)(B)(iii) )
 
Beneficiary's coverage under another plan-
Employers may terminate continuation coverage when a qualified beneficiary becomes covered under any other group health plan that contains no restrictions or limitations on coverage of "preexisting conditions." Under this rule, an employer is barred from terminating continuation coverage, whether or not the beneficiary actually is affected by the particular preexisting conditions excluded under the employee's new health plan coverage. (IRC Section 4980B(f)(2)(B)(ii) )
 
Note:      The Health Insurance Portability and Accountability Act of 1996 limited preexisting conditions, effective July 1, 1997. COBRA Section 4980B(f)(2)(B)(ii) was amended to coordinate with the preexisting condition requirements. Thus, under the amended section, COBRA coverage can be terminated if a qualified beneficiary becomes covered under another group health plan, even if this other group health plan contains a preexisting condition limitation or exclusion, as long as the limitations or exclusions would not actually apply to the qualified beneficiary.
 
Beneficiary's entitlement to Medicare- When certain qualified beneficiaries become entitled to Medicare, an employer may terminate their continuation coverage. Employers also should note that individuals generally become "eligible" for Medicare at age 65, but become "entitled" to Medicare benefits only after enrolling in the program. (IRC Section 4980B(f)(2)(B)(iv)(II) )
 
Determination that beneficiary is no longer disabled- This rule applies to disabled beneficiaries who were granted an additional 11 months of continuation coverage over the basic 18-month continuation coverage period. The plan administrator may terminate the continuation coverage of such individuals at the beginning of the next month after there has been a determination (in accordance with Title II or Title XVI of the Social Security Act) that the individual no longer is disabled. Qualified beneficiaries are required to notify the plan administrator within 30 days of such determination. (IRC Section 4980B(f)(2)(B)(v) )

COBRA ELECTION RULES AND PROCEDURES
 
Election Procedures
The regulations do not require that beneficiaries make their elections on a specific form. However, most employers prepare a carefully worded election form accompanied by an explanation of the COBRA law to help document that the beneficiaries were fully notified of their COBRA rights at the time of their election.
 
Qualified beneficiaries may waive their rights to continuation coverage rather than make a COBRA election. However, qualified beneficiaries must be permitted to revoke their waiver if they change their minds and decide to elect COBRA coverage at any time during the election period. If a qualified beneficiary revokes a waiver, coverage does not have to be provided for any period before the waiver.
 
The time limit on the election period allowed qualified beneficiaries to exercise their COBRA rights is 60 days. This election period begins on the later of:
 

· The date that the qualified beneficiary would lose coverage as a result of a qualifying event; or  
· The date that the qualified beneficiary is notified of his or her right to elect continuation coverage.  

(IRC Section 4980B(f)(5)(A))
 
COBRA and Open-Enrollment Periods
An open enrollment period is a period during which an employee covered under a health plan can choose to be covered under another group health plan or to add or eliminate coverage as needed. If an employer maintains more than one group health plan and permits active employees to change benefit coverage during an open enrollment period, it must extend the same opportunity to change benefit elections to each qualified beneficiary receiving COBRA continuation coverage.
 
"Identical Coverage" Requirement
As a general rule, the COBRA continuation coverage must be identical to the health coverage provided to similarly situated beneficiaries under the plan to whom a qualifying event has not occurred. Certain exceptions to the general rule give employees the right to select just "core coverage" i.e., all coverage except dental and vision benefits, or core coverage plus any "non-core benefits" i.e., dental and vision benefits that the qualified beneficiary was receiving immediately before the qualifying event).
 
Specifically, the continuation coverage provided qualified beneficiaries must be identical to coverage provided similarly situated employees with respect to the following items:
 
Deductibles and Coinsurance - Deductibles and coinsurance amounts applicable to qualified beneficiaries may not be any greater than those for active employees, even though the employer may charge COBRA beneficiaries a higher premium.
 
Additionally, if continuation coverage is elected, expenses already credited to the deductible for that year must be carried forward into the continuation coverage period.
 
Plan Options- Plan options, such as "conversion" features, must be offered to qualified beneficiaries if they are offered to similarly situated employees. Conversion features generally enable terminating employees to convert their group health coverage to individual health coverage without regard to preexisting conditions and without having to undergo a medical examination or otherwise demonstrating "proof of insurability." Where a conversion option exists, qualified beneficiaries must be notified within 180 days prior to the end of the continuation period that such an option is available.
 
Plan Limitations- The continuation coverage provided qualified beneficiaries must have the same benefit limits (e.g., a maximum number of hospital days or dollar amount of reimbursable expenses) and limits on "out-of-pocket" expenses (e.g., annual and lifetime caps or "stop loss" limits) applicable to similarly situated employees. Moreover, like deductibles, any amounts already credited to the limits prior to a qualifying event are carried forward into the continuation coverage period.
 
Election Rule for "Region-Specific" Plans
In some cases a COBRA beneficiary may have received coverage under a "region-specific" plan- such as a health maintenance organization that primarily serves a single metropolitan area - prior to a qualifying event. In such cases, the coverage provided under the plan may be of little value to the beneficiary leaving the plan's service area following the qualifying event. Therefore, Prop. Treas. Regs. Section 1.162-26, Q&A 30, provides a rule that permits beneficiaries relocating to an area not served by a region-specific plan (regardless of the reason for the relocation) to elect alternative coverage serving the region to which they relocate if active employees ordinarily are given the opportunity when they transfer outside the area served by the plan in which they participate.
  
Core and Non-Core Benefits

The COBRA rules prohibit an employer from requiring a qualified beneficiary to continue all the coverage he or she was receiving under a plan prior to a qualifying event. In general, a plan must offer beneficiaries the choice of either "core-coverage only" or core coverage plus "non-core coverage." "Core coverage" is defined under IRS regulations as all the health coverage received by a beneficiary, except dental and vision benefits. Dental and vision benefits are the only types of coverages defined as "non-core coverage." However, dental and vision will be treated as core coverage where such benefits are mandated by law (see separate chapters State Benefit Mandates).
 
The COBRA rules provide two exceptions under which employers do not have to offer core coverage separately from non-core coverage:
 
De minimis non-core benefits- An employer does not have to offer core coverage separately from "core plus non-core coverage" if non-core benefits offered under a plan constitute a "de minimis" portion of the total benefits provided under the plan. Non-core benefits are considered "de minimis only" if the applicable premium for core coverage would be at least 95 percent of the applicable premium for core coverage and non-core coverage combined.
 
Other "core-coverage" plan - Where a qualified beneficiary was covered under a plan that includes both core and non-core coverage prior to a qualifying event, the employer does not have to offer core coverage separately from non-core coverage, provided that: (1) the employer offers at least one other plan comprised solely of core-only coverage for similarly situated active employees; and (2) the employer allows the qualified beneficiaries to elect COBRA coverage under that core-only plan and any other group health plan available to similarly situated employees.
 
Beneficiaries' Independent Election Rights
Each qualified beneficiary may make an independent election to receive COBRA coverage. For instance, although a covered employee may elect not to receive continuation coverage on his or her own behalf, the employee's spouse and dependents may elect COBRA coverage independently of the employee. Moreover, if there is a choice among types of coverage under a plan, each qualified beneficiary is entitled to make a separate election from among the various types of coverage offered under the plan. Thus, even if the employee elects certain coverage, the spouse or other dependent may elect different coverage.
 
Although a plan must permit beneficiaries to make separate COBRA elections, the covered employee (or spouse in the case of the employee's death or divorce or legal separation from the spouse) is permitted to make the election on behalf of other qualified beneficiaries affected by the qualifying event. In such cases, the decision of the employee or spouse is binding on the other qualified beneficiaries in the family and the other family members lose their right to make an independent election.
 
Separate Plan Rules
Qualified beneficiaries have the right to make a separate COBRA election for each plan they were covered under prior to a qualifying event. In general, this requires an employer to divide its health care program into separate health plans as determined under the following guidelines:
 
Each benefit level or option offered under an arrangement will be treated as a separate group health plan e.g., "high option" and "low option" health coverages would be treated as separate health plans.
 
An insured health arrangement may be treated as more than one plan where there exist multiple insurance contracts between the insurer and the plan sponsor, even if the coverage under the separate contracts is identical.
 
A self-funded health care arrangement may be treated as more than one plan if segments of the arrangement have assets available only to pay the benefits of their respective segment.
 
Multiple employer welfare plans must be treated as a separate group health plan for each participating employer.
 
Collectively bargained arrangements must be treated as a separate group health plan from any non-collectively bargained arrangement offered by the same employer.
 
Pediatric Vaccines
Any group health plan that covered the cost of pediatric vaccines as of May 1, 1993, must continue the same level of coverage after that date. Failure to do so subjects the plan to the excise tax penalty under COBRA, applicable to plans that fail to allow qualified employees to elect health care continuation coverage.
 
Portability
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) provides that group health plans must limit any preexisting condition period by the length of the period of prior creditable coverage.
 
The group health plan and the employer offering group health insurance coverage must provide a certification of the period of creditable coverage under the plan, the coverage under any applicable COBRA continuation provision, and any waiting period.
 
The certification must be provided when:
 
· The individual ceases to be covered under the plan;  
· The individual becomes covered under COBRA or COBRA continuation coverage stops; or  
· The individual requests certification within 24 months after coverage ceased.  

NOTIFICATION REQUIREMENTS
 
General Rules for Employers and Beneficiaries
COBRA notification requirements generally fall into the four following categories:
 
Notice to participants upon entering the plan - A written notice of COBRA rights must be distributed to each employee and spouse when they first enter the health plan. The Department of Labor has issued a model notice for employers to use for this purpose. Employers will be considered as having demonstrated good-faith compliance with the law, according to DOL, if the notice is mailed, first class, to the covered employee's and spouse's last known addresses. In addition to providing employees with special written notices, employers also should incorporate an explanation of COBRA rights as part of the plan's summary plan description provided to employees.
 
Notice from employer to plan administrator-In cases where the employer is not the plan administrator, the employer is responsible for notifying the plan administrator of certain qualifying events. The employer has 30 days from the date coverage ceases (if provided under the terms of the plan) or the date of the following qualifying events: (1) the death of the covered employee, (2) the covered employee's termination (for reasons other than gross misconduct), (3) the covered employee becoming entitled to Medicare, and (4) the employer's bankruptcy. Multi-employer plans are permitted to take more than 30 days to notify the plan administrator if permitted by the terms of the plan.
 
Notice from administrator to beneficiaries-The administrator of the health plan is obligated to notify qualified beneficiaries of their COBRA rights when a qualifying event occurs. Such notice must be provided within 14 days of receiving notice of any qualifying event. Multi-employer plan administrators are allowed more than 14 days to notify qualified beneficiaries as long as the length of the notification period is spelled out in the plan document and summary plan description.
 
Notice from employees or beneficiaries to administrator - COBRA requires spouses who be come divorced or legally separated from a covered employee, as well as dependents who lose their "dependent status" under the employer's plan, to notify the plan administrator that these qualifying events have occurred. Such notice must be made within 60 days of the qualifying event or the date the qualified beneficiary would lose coverage as a result of the qualifying event, whichever is later. The group health plan does not have to offer the qualified beneficiary the opportunity to elect COBRA coverage if the covered employee or qualified beneficiary fails to make the required notification.
  
Rules for Disabled Beneficiaries
Qualifying beneficiaries who are disabled at the time they experience a change in employment status e.g., a termination, reduction of hours below the level required for coverage, etc. are eligible for an extra 11 months of continuation coverage in addition to the regular 18-month continuation coverage period. To qualify for this extended period of COBRA coverage, disabled qualified beneficiaries must notify the plan administrator of their disability status within 60 days of their disability determination under Title II or Title XVI of the Social Security Act. Such notice must be given no later than the end of the regular 18-month COBRA coverage period that applies whenever there is a change in employment status.
 
Note: The Health Insurance Portability and Accountability Act of 1996 amended IRC Section 4980B(f)(2)(B)(i)(V) to provide that the 29-month coverage period applies if the qualified beneficiary's disability exists at any time during the first 60 days of COBRA coverage, rather than at the time of the qualifying event. In addition, the COBRA rules were modified to clarify that the 29-month coverage period also applies to the non-disabled qualified beneficiary of the covered employee. These rules are effective on Jan. 1, 1997, regardless of whether the qualifying event occurred before, on, or after that date. A group health plan must notify each qualified beneficiary who has elected COBRA coverage of these changes by Nov. 1, 1996.
 
Where there is a subsequent determination that the individual no longer is disabled, the person is required to notify the plan administrator within 30 days of such determination. The plan administrator then may terminate COBRA coverage at the beginning of the next month after the determination that a beneficiary is no longer disabled.

RULES GOVERNING COBRA PREMIUMS
 
Premium Payment Rules
A group health plan must allow qualified beneficiaries the option of paying for COBRA continuation coverage in monthly installments. However, a plan also may allow beneficiaries to pay COBRA premiums at other intervals e.g., quarterly or semiannually.
 
Where a beneficiary fails to make "timely payment" of any required COBRA premium, the employer may terminate the beneficiary's continuation coverage short of the full coverage period. A premium will be considered timely where it is paid within the longer of: (1) 30 days from the due date (2) the period specified in the plan document; or (3) the period permitted for the employer to make premium payments on behalf of similarly situated active employees to the insurer, HMO, or other entity providing plan benefits.
 
Group health plans cannot require payment of any COBRA premium until 45 days after the qualified beneficiary made the initial election of COBRA coverage. However, employers may collect premiums for this period on a retroactive basis.
 
Amount of COBRA Premiums
The premium charged to the employee or beneficiary for COBRA continuation coverage is based on the applicable premium cost under the plan for "similarly situated" employees. In general, employers are permitted to charge qualified beneficiaries up to 102 percent of the applicable plan premium cost. The additional 2 percent above the premium cost is intended to help employers recoup part of the cost of administering COBRA.
 
Disabled qualified beneficiaries granted the special extended period of continuation coverage an additional 11 months over the basic 18-month period of continuation coverage may be charged up to 150 percent (rather than 102 percent) of the applicable plan premium during the 11-month period of extended coverage. This 48-percent differential is permitted since disabled individuals are more likely to incur substantial medical expenses.
 
Determining Applicable Premium Costs
COBRA premiums are based on a percentage (102 percent or 150 percent) of the applicable premium costs for similarly situated employees. In the case of insured plans, the applicable premium cost would be the group premium imposed by the insurance company for covering a similarly situated employee. However, special rules are necessary to determine the applicable premium for self-funded arrangements.
 
For purposes of determining groups of similarly situated employees, administrators may take into account the following factors:
 

· The level of coverage ("high option" or "low option" plans) elected by employees;  
· Employees who elect employee-only versus those that elect family coverage and any varying levels of family coverage (employee plus one dependent, employee plus two or more dependents); and  
· Employees' geographical locations where there are regional differences in plan costs.  
 
For instance, a plan may charge a qualified beneficiary who elects high-option family coverage a COBRA premium of 102 percent of what the plan charges to cover an active employee who also elects high-option family coverage. However, plans are restricted from assessing COBRA premiums on the basis of premium costs to employees grouped by their sex or specific medical conditions that employees may suffer. Moreover, employers may not group active employees separately from retirees in determining applicable plan costs.
 
To ensure some consistency in how self-insured plans determine their premiums, the COBRA rules provide the following two premium-costing methods from which self-insured plans may choose:
 
· General Method-Under this method, self- funded arrangements are permitted to use certain actuarial techniques to make a reasonable estimate of the cost of providing coverage to similarly situated employees during the same coverage period.  
· Alternate Method-The alternate method allows the applicable continuation coverage premium to be determined on the basis of the cost to the plan for covering similarly situated beneficiaries during the preceding year. Then, that cost is adjusted for cost-of-living increases or decreases as measured by the gross national product (GNP) implicit price deflator, as calculated by the Commerce Department. This method may not be used where either the coverage available under the plan or the employees covered by the plan differ significantly between the preceding year and the current year.  
 
State Payment of COBRA Premiums
Under certain circumstances state governments are required to pay COBRA premiums on behalf of Medicaid-eligible individuals and have the option of paying COBRA premiums for certain lower-income individuals not eligible for Medicaid. Medicaid is a public health program for low-income individuals that is administered by individual states and funded jointly by federal and state governments.
 
The provisions relating to the state payment of COBRA premiums were contained in the Omnibus Budget Reconciliation Act of 1990 and are effective beginning December 3, 1990. They allow states to pay the group premiums for the following types of individuals who are eligible for COBRA coverage:
 
Medicare-eligible individuals- Under this rule, state Medicaid programs are required to pay the group premiums as well as any deductibles and coinsurance for individuals eligible for group health coverage (including COBRA coverage) if it would be cost effective for the state to do so.
Other lower-income individuals - Under this rule, states have the option of paying COBRA premiums for lower-income individuals who are not Medicaid eligible, but are eligible for COBRA coverage under a plan maintained by an employer with 75 or more employees.
 
Some states have programs under which the state pays the COBRA premiums for individuals suffering from catastrophic illnesses. Under Maryland's program, the state will pay COBRA premiums for certain Medicaid-eligible persons suffering with AIDS- related diseases who are unable to continue working, but are eligible for COBRA continuation coverage. The state program, which began in July 1990, is projected to cost the state about $240,000 in premium payments during its first year. However, that cost would be more than offset by projected savings of about $3,000,000 in Medicaid payments.
  
COBRA PENALTIES

In General
Employers that violate COBRA may be subject to both civil sanctions and tax penalties. Under COBRA's civil sanction procedures, either the Department of Labor or plan beneficiaries themselves can sue a plan that fails to provide required COBRA notices to employees. Where a court decides beneficiaries were wrongfully denied continuation coverage, they are entitled to equitable relief. In addition, plan administrators may be personally liable for a special civil penalty of up to $100 a day for failure to provide the required COBRA notice.
  
COBRA's tax sanctions include a nondeductible excise tax of $100 a day for each beneficiary affected during the noncompliance period. However, the tax penalty is capped at $200 per day with respect to each affected family. For purposes of applying the $100 a day penalty, the period of noncompliance is measured from the date of the failure to the date when the failure is corrected or the date six months after the last day of the otherwise applicable COBRA coverage period, whichever is earlier. An employer's maximum liability under the tax penalty is limited to the lesser of $500,000 or 10 percent of the preceding year's total costs of providing group health coverage.
  
Joint Liability
Liability for COBRA violations may extend to third parties - such as plan administrators or benefits providers - where their actions or omissions cause a compliance failure. For third parties jointly liable for violations, the maximum liability for the excise tax penalty is $2 million per non compliance period.
 
Third parties become subject to COBRA penalties under either of the following circumstances:
  
Responsibilities assumed in writing- A third party may be subject to the COBRA excise tax penalty if it signs a written agreement with the employer to assume either plan administration or plan benefit payment responsibilities. However, penalties may be assessed against an administrator or benefit provider only for violations relating to the specific responsibilities it assumed under the written agreement. In addition, the third party's actions (or lack thereof) must contribute to the violation in question. However, even in cases where a written agreement exists between the employer and the third-party administrator or provider, the administrator/ provider may be spared liability for COBRA violations where the employer's actions (or lack thereof) render the administrator/provider unable to carry out its responsibilities under the agreement.
 
Written request for COBRA coverage- A third party administrator or provider also may be subject to the COBRA excise tax penalty if the failure occurs, despite the fact that the administrator/provider received a written request to provide COBRA coverage. This liability might be triggered by an employer's request to the plan administrator or benefit provider or the plan administrator's request to a benefit provider or another administrator. A written request submitted by a qualified beneficiary also can trigger an administrator/provider's liability where the request relates to coverage lost due to divorce, legal separation, or loss of dependent child status under the plan.

Prompt Correction Exception
The $100 a day tax penalty does not apply in cases where a violation was for "reasonable cause" and was corrected quickly. In general, employers will be spared the $100-a-day excise tax in cases where failures are for "reasonable cause" (rather than "willful neglect") and are corrected within 30 days of the date that they first occur. This exception does not apply in cases where the failure is discovered in the course of an IRS audit.
 
Reasonable Cause Exception

The COBRA rules also grant relief to COBRA violators in cases where the violations are purely inadvertent. Under this rule, the $100-a-day excise tax does not apply to periods of noncompliance during which the parties responsible for administering the plan did not know and could not have known of the failure to meet the COBRA requirements. This exception does not apply in cases where the failure is discovered in the course of an IRS audit.
 
COBRA Coordination With FMLA
 
Taking leave under the generally does not constitute a qualifying event for COBRA purposes, the Internal Revenue Service said in Notice 94-103.
 
However, a qualifying event occurs if three conditions are satisfied:
 
· The employee (or spouse or dependent) is covered on the day before the first day of FMLA leave under a group health plan offered by the employer;  
· The employee does not return to work at the end of FMLA leave; and  
· The employee would, in the absence of COBRA coverage, lose coverage under the health plan before the end of the maximum period.  
 
Under these circumstances, a qualifying event would occur on the last day of FMLA leave. The maximum coverage period should be measured from the date of the qualifying event. However, if coverage under the group health plan is lost at a later date and the plan provides for the extension of the required period, then the maximum coverage period would be measured from the date when coverage is lost.
 
A COBRA qualifying event still may occur if an employee fails to pay the employee portion of premiums for coverage under a group health plan during FMLA leave, or declined coverage under a group health plan during FMLA leave. A determination of when a qualifying event occurs is not affected by any state or local law that requires coverage under a group health plan to be maintained during leave of absence for a longer period than that required under FMLA. A right to COBRA continuation coverage may not be conditioned upon reimbursement of the premiums paid by the employer for coverage under a group health plan during FMLA leave.
 
State Continuation Rules
Many states have enacted so-called "mini-COBRA" laws that require that a continuation coverage option be included in group health insurance policies. Like COBRA, these state laws generally require that employer-sponsored group health insurance plans offer employees, their spouses, and dependents a period of continued health coverage upon termination of the employee, a change in marital status, or other event causing a loss of eligibility under the plan. However, the continuation coverage periods required under state laws typically are less extensive than required under the federal rules.
   
The period of continuation coverage provided by an employer pursuant to a state continuation coverage mandate generally may be credited toward satisfaction of 18-, 29-, or 36-month coverage periods required under COBRA, providing the coverage is identical to that required by COBRA. However, certain states, such as California, specifically require that state mandated continuation coverage be offered only after the expiration of any continuation coverage elected by an employee under COBRA.

REFERENCES

Employers Affected By COBRA

  • Private-Sector Employers: Internal Revenue Code § 4980B(d); Employee Retirement Income Security Act Section 601(b).
  • Public-Sector Employers: Public Health Service Act Title XXII, Sec. 2201(b)(1).
  • Small Employers: Martinez v. Dodge Printing Centers, 13 EBC 1625 (D.Colo. 1991).
     

Qualifying Events

  • In General: IRC Section 4980B(f)(2)(B)(i).
  • Call To Military Service: IRS Notice 90-58 ; Uniformed Services Employment and Reemployment Rights Act of 1994 Section 4317. 

Coordination with Family and Medical Leave Act: IRS Notice 94-103.
 
Notice Requirements

IRC Section 4980B(f)(6).


U.S. Department of Labor, ERISA Technical Release No. 86-2, June 6, 1986.
 
COBRA Premiums
 
State Payment: Title 42 U.S.C. Section 1396a as amended by the Omnibus Budget Reconciliation Act of 1990.
  
Premium Payments: IRS Rev. Rul. 96-8 .
 
Core and Non-Core Benefits

U.S. House of Representatives Report No. 99- 841, Volume II, 99th Congress, 2nd Session (Sept. 18, 1986), p. II-859.
 
Pediatric Vaccines: IRC Section 4980B , as amended by Omnibus Budget Reconciliation Act of 1993, Section 13422(a).
 
Terminating COBRA Coverage
Oakley V. City of Longmont, 11 EBC 2452 (CA 10) 1989; 890 F2d 1128USSC Rev. Denied, 58 USLW 3658 (1990).
 
Gross Misconduct: Paris v. F. Korbel & Brothers,)12 EBC 2489, 951 F. Supp 834 (N.D. Cal 1990).
 
COBRA Penalties
 
Civil Penalties: ERISA Section 502(c).
 
Excise Tax: IRC Section 4980B(b)(2).
 
Relationship To State Continuation Rules
 
Sample Letter  
   
Dear (employee or beneficiary's name):
On (date), the following qualifying event occurred:
For employee:
   
Change in employment status - termination.
Change in employment status - reduction in working hours.
For spouse of an employee or other worker covered by (group health plan name):
 
Death of your spouse.
   
Change in your spouse's employment status - termination.
   
Change in your spouse's employment status - reduction in working hours.
   
Divorce or legal separation from your spouse.
   
Your spouse has become entitled to Medicare.
For dependent child of an employee or other worker covered by (group health plan name):
   
Death of your parent.
   
Change in your parent's employment status- termination.
   
Change in your parent's employment status - reduction in working hours.
   
Your parents' divorce or legal separation.
   
Your parent has become entitled to Medicare.
   
You have been born or adopted while your parent is receiving COBRA.
   
You are no longer a dependent child under (group health plan name).
 
Because of this qualifying event, your health insurance coverage provided by (company name) will end as of midnight on (date). You have the option, however, of continuing the health insurance coverage available to you prior to the qualifying event if you pay the required premium. Your coverage options are described on the enclosed COBRA Election Form. Please review this information, and, regardless of your decision to continue or waive coverage, complete and return the COBRA Election Form by (date).
  
You are eligible for continuing coverage for a period of up to:
 
 18 months (for covered employees, as well as their spouses and dependents) for loss of coverage due to termination or reduction of hours.
 
 29 months (for covered employees who are disabled at any time during the first 60 days of COBRA coverage, and for spouses and dependents (disabled or not)).
 
 36 months (for spouses and dependents) for loss of coverage due to employee's death, a divorce or legal separation, or Medicare entitlement.
  
 36 months (for dependent children) for loss of dependent child status, having reached the age of (maximum age of coverage under the company's plan).
  
Frequent Questions About COBRA

Please review the following frequently asked questions and answers regarding COBRA coverage. They may help answer some of your own questions.
  
 Q: Who pays for COBRA coverage?
 A: The employee or employee's beneficiary. If you decide to continue health insurance coverage, you must pay the full cost of such coverage. Current monthly rates - subject to change - appear on the enclosed COBRA Election Form. You will be notified of any change in rates.
 
 Q: Must I elect COBRA coverage?
 A: No. You can waive your right to COBRA coverage if you prefer.
 
 Q: How much time do I have to decide if I want coverage?
 A: You have a 60-day election period. The election period begins on the later of: (a) the date you would lose coverage due to the qualifying event; or (b) the date you are notified of your right to elect continuation coverage.
 
 Q: What happens if I waive coverage and then change my mind?
 A: If you waive coverage, you can revoke your waiver during the 60-day election period. However, no coverage will apply for the period before the waiver.
 
 Q: What coverage can I continue under COBRA?
 A: You can elect the identical coverage you had prior to your qualifying event, or you can reduce coverage. You also can switch coverage during open season.
 
 Q: How is billing handled?
 A: When we receive your election to continue coverage, we will send you written confirmation of your election, along with payment instructions. You will have 45 days from confirmation date to make your first payment. COBRA coverage does not begin until receipt of your payment. After the initial payment, you will receive monthly invoices. Failure to make regular, timely payments will result in the termination of COBRA coverage.
 
 Q: What happens if I elect not to continue coverage, but my spouse or dependent child wants to continue?
 A: You, your spouse, and your dependent child may each make separate elections as to whether to continue coverage.
  
 Q: What should I do if I want to continue coverage?
 A: If you want to continue your health insurance coverage at your own expense under COBRA, complete the enclosed COBRA Election Form and return it to this office by (60 days from the date that coverage would cease or 60 days from the date of notification, whichever is later). Unless we hear from you by that date, your coverage, which terminated automatically on (date of qualifying event), cannot be continued.
  
Q: Am I guaranteed coverage for the full period?
A: If you accept coverage, you do not have to undergo a medical review, so in that sense you are "guaranteed" coverage. However, your coverage may be cut short of the full period if any of the following happens: the employer providing COBRA no longer provides group health coverage to any of its employees; you do not pay the premiums; you become covered by another health plan that does not contain any provision restricting or limiting coverage of preexisting medical conditions; you become entitled to Medicare (although your spouse and dependents may continue COBRA coverage for up to 36 months if the Medicare entitlement occurred within the first 18-month period); or you are no longer disabled.
  
 Q: Who can I talk to if I have other questions?
 A: If you have questions, contact (name) in the Human Resources Department at (telephone number).
 
 
Sample COBRA Election Form
 
COBRA election/waiver:
Monthly cost breakdown for (company name) group health insurance:
Certification:
COBRA election/waiver:
  
Please check one:
I elect to continue my (company name) group health coverage under COBRA and pay the required premiums.
 
I elect to continue my (company name) group health coverage under COBRA with the following reduction in coverage and pay the required premiums.
  
  
I decline to continue my (company name) group health coverage under COBRA.
Monthly cost breakdown for (company name) group health insurance:
  
Please check options:
Family health, prescription drugs, vision coverage = per month (fill in exact amount, for example $635.00 per month)
Family dental* coverage = per month
Single health, prescription drugs, vision coverage = per month
Single dental* coverage = per month
*You may elect health and dental coverage, or health-only coverage, but you may not elect dental-only coverage.
 
Certification:
I will immediately notify the Human Resources Office in writing in the event that I become a participant in any other group health plan; become eligible for Medicare; or have a change in marital or dependent status. My failure to notify (company name) of a change of my status may result in termination of my coverage.
 
Your signature, date
 
 
Regardless of your election, please return this form to the Human Resources Office in the enclosed envelope by (date). See the accompanying COBRA Cover Letter for additional information.
 
 
Sample COBRA Notice to Employees and Qualified Beneficiaries
 
An employer must provide a written notice describing COBRA continuation coverage rights to each employee and spouse that enrolls in the employer's health plan. The Department of Labor issued a model notice (DOL ERISA Technical Release No. 86-2, June 6, 1986) for employers to use in notifying their employees. (Note: This sample notice is general in nature and may not be appropriate for all types of health care arrangements. Employers should consult legal counsel before drafting a COBRA notice for their particular health care plans.)
 
* VERY IMPORTANT NOTICE *
** TO HEALTH PLAN PARTICIPANTS **
ON CONTINUATION COVERAGE RIGHTS
 
On April 7, 1986, the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) was signed into law (Public Law 99-272, Title X). Under COBRA, most employers sponsoring group health plans must offer covered workers and their families the opportunity for a temporary extension of health coverage called "continuation coverage" at group rates in certain instances where coverage under the plan would otherwise end. This notice is intended to inform you, in a summary fashion, of your rights and obligations under the continuation coverage provisions of the COBRA law. (Both you and your spouse should take the time to read this notice carefully.)
 
If you are an employee of (Name of Employer) covered by (Group Health Plan Name) or you are otherwise covered under the plan by virtue of your services (as an independent contractor, for example) to (Name of Employer), you have a right to choose continuation coverage if you lose your group health coverage because of a reduction in your hours of employment or the termination of your employment (for reasons other than gross misconduct on your part).
 
If you are the spouse of an employee or other worker covered by (Group Health Plan Name), you have a right to choose this continuation coverage for yourself if you lose group health coverage under (Group Health Plan Name) for any of the following four reasons:
 
(1)      The death of your spouse;
 
(2)      A termination of your spouse's employment (for reasons other than gross misconduct) or reduction in your spouse's hours of employment;
 
(3)      Divorce or legal separation from your spouse; or
 
(4)      Your spouse becomes entitled to Medicare.
 
In the case of a dependent child of an employee or other worker covered by (Name of Group Health Plan), the child has the right to continuation coverage if group health coverage under (Name of Group Health Plan) is lost for any of the following five reasons:
 
(1)   The death of a parent;
 
(2)   The termination of a parent's employment (for reasons other than gross misconduct) or reduction in a parent's hours of employment with (Name of Employer) ;
 
(3)   Parents' divorce or legal separation;
 
(4)   A parent becomes entitled to Medicare; or
 
(5)   The dependent ceases to be a "dependent child" under (Name of Group Health Plan).
 
Note:  Previously, the dependents of a covered employee were considered qualified beneficiaries only if they were covered under the group health plan on the day before the event triggering eligibility for COBRA coverage. Effective Jan. 1, 1997, the definition of a qualified beneficiary has been changed to include a child who is born to or placed for adoption with an individual who is already receiving COBRA coverage.
 
Under COBRA, the covered worker or a family member has the responsibility to inform (Name of Plan Administrator) of a divorce, legal separation, or a child losing dependent status under (Name of Group Health Plan). Such notice must be made within 60 days of the event or the date on which coverage would be lost because of the event. (Name of Employer) has the responsibility to notify (Name of Plan Administrator) of the covered worker's death, termination of employment or reduction in hours, or entitlement to Medicare.
 
Health care continuation rights also are available to covered retirees, their spouses, and widows or widowers of covered retirees, if they should they lose group health coverage in the event that (Name of Employer) should ever file for bankruptcy.
 
When (Name of Plan Administrator) is notified that one of the above named events has happened, (Name of Plan Administrator) will in turn notify you that you have the right to choose continuation coverage. Under the COBRA law, you have at least 60 days from the date you would lose coverage because of one of the events described above to inform (Name of Plan Administrator) that you want continuation coverage.
 
If you do not choose continuation coverage, your group health insurance coverage will end.
 
If you choose continuation coverage, (Name of Employer) is required to give you coverage which, as of the time coverage is being provided, is identical to the coverage provided under the plan to similarly situated employees or family members. The COBRA law requires that you be afforded the opportunity to maintain continuation coverage for 36 months (i.e., 3 years) unless you lost group health coverage because of a termination of employment or reduction in hours. In that case, the required continuation coverage period is 18 months. The 18-month period may be extended to 36 months if a second event (e.g., divorce, legal separation, death, or Medicare entitlement) occurs during that 18-month period.
 
Note:  If a qualifying event occurs less than 18 months after the date an employee becomes entitled to Medicare benefits, the coverage period for qualified beneficiaries other than the employee is extended to 36 months from the date of the employee's Medicare entitlement.
 
Moreover, the 18-month period may be extended for an additional 11 months (for a total of 29 months) if an individual is determined to be disabled (under the rules for Social Security disability benefits) and the plan administrator is notified of that determination within 60 days. The affected individual also must notify the (Plan Administrator) when it is determined (for purposes of Social Security disability benefits) that the individual is no longer disabled.
 
Note: COBRA had required that an individual be disabled at the time of a termination of employment or reduction in hours of employment to receive 29 months of extended disability coverage. Beginning Jan. 1, 1997, the disability extension will also apply if the individual becomes disabled at any time during the first 60 days of continuation coverage. In addition, family members of the disabled individual are entitled to the 29-month extended coverage period, whether or not they are disabled.
 
The COBRA law provides that your continuation coverage may be cut short of the full coverage period - 18, 29, or 36 months - for any of the following reasons:
 
(1)   (Name of Employer) no longer provides group health coverage to any of its employees;
 
(2)   The premium for your continuation coverage is not paid;
 
(3)   You become covered under another group health plan that does not contain any provision restricting or limiting coverage of a "preexisting medical condition";
 
(4)   You become entitled to Medicare;
 
(5)   There has been a final determination that you are no longer disabled, for beneficiaries who qualified for an extra 11 months continuation coverage based on their disability at termination or within the first 60 days.
 
Note: The circumstances under which group health plans can apply coverage limitations or exclusions for preexisting conditions will be restricted in plan years beginning on or after July 1, 1997, or later for plans maintained under collective bargaining agreements. For COBRA beneficiaries who enroll in another group health plan, the new restrictions may eliminate coverage limits based on pre-existing conditions, thus allowing prior employers to terminate continuation coverage.
 
You do not have to show that you are insurable to choose continuation coverage. However, under the COBRA law, you may have to pay all or part of the premium for your continuation coverage. A minimum 30-day "grace period" will be allowed for you to pay your regularly scheduled premiums.
 
(COBRA also provides that at the end of the 18, 29, or 36 month continuation coverage period you must be allowed to enroll in an individual conversion health plan provided under (Name of Group Health Plan).)
 
The COBRA law applies to (Name of Group Health Plan) beginning on (applicable date). If you have any questions about COBRA, please contact (Plan Administrator name and business address). Also, if you have changed marital status, or you or your spouse have changed address, please notify (Plan Administrator) at the above address.

Last updated: 03-04

 
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