What is COBRA, and Are You Eligible for Continuation Coverage?

Addressing the most common questions about COBRA for injured workers

The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) amended the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code and the Public Health Service Act to provide continuation of group health coverage that otherwise might have been terminated.

COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available when coverage is lost due to certain specific events.

Group health coverage for COBRA participants is usually more expensive than health coverage for active employees since the employer usually pays a part of the premium for active employees while COBRA participants generally pay the entire premium themselves. It is ordinarily less expensive than individual health coverage, though.

Here at the Wilder Pantazis Law Group, our clients are often confused about what COBRA is. They seem to think that COBRA is the name of an insurance policy. Essentially, we tell them that COBRA is the name of the law that requires their employer to continue their current health insurance. We explain that it’s expensive because the employee is now required to pay the entire cost instead of the employer paying a portion.

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Frequently asked questions about COBRA

Q: Who is eligible for COBRA, and what is its purpose?

COBRA is extended to anyone who is enrolled in their employer’s health care plan. Under COBRA, that health care plan continues to be in effect for active employees on the date of the employee’s separation from employment.

Q: What group health plans are subject to COBRA?

Group health plans for employers with 20 or more employees fall under COBRA. Both full and part-time employees are counted to determine whether a plan is subject to COBRA.

Q: Who are qualified beneficiaries?

A qualified beneficiary generally is an individual covered by a group health plan on the day before a qualifying event who is an employee, the employee’s spouse, or an employee’s dependent child.  In certain cases, a retired employee, the retired employee’s spouse, and the retired employee’s dependent children may be qualified beneficiaries.

In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary. Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.

Q: What is a qualifying event?

Qualifying events are certain events that would cause an individual to lose health coverage. What constitutes a “qualifying event” depends on your status. Here are some examples:

Q: What is the COBRA application process?

1. Employers must notify plan administrators of a qualifying event within 30 days after an employee’s death, termination, reduced hours of employment or entitlement to Medicare. A qualified beneficiary must notify the plan administrator of a qualifying event within 60 days after divorce or legal separation or a child’s ceasing to be covered as a dependent under plan rules.
2. Plan participants and beneficiaries generally must be sent an election notice by the plan administrator no later than 14 days after the plan administrator receives notice that a qualifying event has occurred.
3. After receiving an election notice from the plan administrator, the individual has 60 days to decide whether to elect COBRA continuation coverage.
4. The person has 45 days after electing coverage to pay the initial premium. The initial premium is paid retroactive to the date of loss of coverage, even if the election is made 60 days later. In other words, an individual may be required to pay up to 105 days of retroactive coverage (60-day election period, plus a 45-day grace period) in order for COBRA to go into effect, depending on when the election was made.
5. After the initial premium, all successive premiums are due on a monthly basis.

Q: Can I change my COBRA election?

If the COBRA election is initially waived, the individual can revoke the waiver anytime during the election period. The election period is 60 days from the date that the election notice is sent to the individual by the plan administrator. However, the coverage only dates back to the date of the initial waiver.

An injured worker who is laid off and who originally rejects COBRA because it is too expensive can undo that rejection within 60 days of the election notice. Sometimes, this buys you time to work out a settlement to help pay for the COBRA premiums.

Q: How long does COBRA last?

COBRA requires the group health plan to cover the individual for up to 18 months from the qualifying event. However, the plan may provide longer periods of coverage over the federal requirement.

COBRA also extends benefits for SSDI claimants who have a ruling from the Social Security Administration that he or she became disabled within the first 60 days of COBRA continuation coverage. The applicant must send the plan provider a copy of the Social Security ruling letter within 60 days of receipt, but prior to the expiration of the 18-month period of coverage.

If these requirements are met, the entire family qualifies for an additional 11 months of COBRA continuation coverage. Plans can charge 150% of the premium cost for the extended period of coverage.

COBRA coverage may end prior to the 18 months if:

• Premiums are not paid on a timely basis
• The employer ceases to maintain any group health plan
• The individual enrolls in another group health plan (except if that group health plan contains a pre-existing condition limitation or exclusion)
• The individual becomes eligible for Medicare

Q: When does COBRA coverage begin?

COBRA coverage begins on the date that the health insurance would have otherwise been lost due to a qualifying event.

Q: How does Medicare impact COBRA?

If the individual is not a Medicare beneficiary when he/she elects COBRA, then COBRA ends once a beneficiary becomes entitled to Medicare benefits. However, if Medicare is obtained prior to the COBRA election, COBRA coverage may not be discontinued, even if Medicare continues after the COBRA election.

Q: Can I receive COBRA benefits while on FMLA leave?

The Family and Medical Leave Act, effective August 5, 1993, requires an employer to maintain coverage under any group health plan for an employee on FMLA leave under the same conditions coverage would have been provided if the employee had continued working.

Coverage provided under the FMLA is not COBRA coverage, and FMLA leave is not a qualifying event under COBRA. A COBRA qualifying event may occur, however, when an employer’s obligation to maintain health benefits under FMLA ceases, such as when an employee notifies an employer of his or her intent not to return to work.

An employee who is out on FMLA may still be required to pay his/her portion of group health premiums in order to continue to receive group health insurance. However, the employer may not charge the entire group health premium during the FMLA leave period. This may apply to injured workers who are receiving temporary total disability (TTD).

Q: What are some of your employer’s responsibilities?

Under COBRA, employers must follow certain duties and responsibilities, such as:

• Notifying employees and covered spouses of their COBRA rights when they first become covered under the employer’s health plan.
• Notifying employees and/or covered dependents, within 14 days of the COBRA qualifying event date, of their ability to elect COBRA continuation of coverage and provide election forms.
• Maintaining records to prove notifications were sent within their specified timeframes.
• Tracking COBRA election periods and the length of coverage.
• Invoicing COBRA premium payments and balancing bill short payments.
• Maintaining payment records and correspondence.
• Notifying COBRA continuants of benefit changes and any open enrollment periods.
• Allowing COBRA continuants the ability to add dependents, increase coverage, or change plans as “similarly situated” active employees are allowed to do.
• Notifying active COBRA continuants of their conversion rights, if any, within 180 days of their projected COBRA coverage termination date.
• Notifying COBRA continuants when their COBRA coverage has terminated.
• Maintaining written procedures for COBRA administration.

Q: What are the penalties for non-compliance with COBRA?

The IRS excises a tax penalty of $100 per day for each violation. This fine can be increased to $200 for each day in which there was more than 1 qualified beneficiary per family. An ERISA penalty of $110 per day is also payable to each qualified beneficiary for each day the employer was not in compliance.

The employer can be held liable for payment of legal fees, court costs and even for medical claims incurred by a qualified beneficiary.

Q: How long of an insurance gap can I have before being subject to a pre-existing condition waiting period?

A pre-existing condition exclusion is the period of time that a health plan is not responsible for covering the costs of a pre-existing condition. Significantly, the Health Insurance Portability and Accountability Act (HIPAA) does not ban exclusion periods. It does, however, limit them to no more than 12 months for first-time enrollment in a health plan and 18 months for late enrollment (enrollment after or between open enrollment periods).

HIPAA also established a concept called “creditable coverage,” which gives the individual credit for the amount of time he/she was insured by 1 plan (called “prior coverage”) and applies it to the pre-existing condition exclusion period of a new plan. Prior coverage is not creditable if there is a gap of 63 or more consecutive days without coverage.

So, as long as the individual does not have a gap of more than 63 days in coverage, then the time period that he/she was on the old plan is credited to the new plan in determining how long they need to wait for treatment to be covered for a pre-existing condition.

Q: Why should an individual elect COBRA?

In addition to providing ongoing health care coverage, electing COBRA allows the individual to protect themselves against the imposition of a pre-existing condition waiting period when obtaining new group coverage.

If the individual has an opportunity to start a new job with health insurance benefits but must wait a probationary period before being allowed to join the new group plan, electing COBRA for that probationary period would be the way to bridge that gap. Having COBRA for the months between the old group health insurance ending and the new group health insurance beginning helps reduce the pre-existing condition waiting period.

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The American Recovery and Reinvestment Act of 2009 (ARRA)

Also known as the Federal Stimulus Plan, the ARRA was enacted in February 2009 and provided a temporary 65% federal health insurance subsidy to workers who were involuntarily terminated between September 1, 2008, and May 31, 2010. This involuntary termination is a condition that was not imposed on regular COBRA requirements. The ARRA specifically limited the subsidy eligibility to people who were involuntarily terminated.

The ARRA originally expired on December 31, 2009, and only provided 9 months of subsidy. However, it was extended until February 28, 2010, and again until May 31, 2010. Federal extensions changed the subsidy period from 9 months to 15 months.

Due to the statutory sunset, the COBRA premium reduction under the ARRA is not available for individuals who experience involuntary terminations after May 31, 2010. However, individuals who qualified on or before May 31, 2010, continued to pay reduced premiums for up to 15 months, as long as they were not eligible for another group health plan or Medicare.

During the ARRA, the employer was required to pay the 65% subsidy directly to the health insurance plan. The employer was reimbursed by the federal government in the form of an offset to federal payroll taxes paid on the IRS Form 941.

When negotiating side agreement releases and resignations during the ARRA eligibility period, our attorneys were very careful to categorize any separation from employment as an “involuntary termination.” When we explained the COBRA ramifications to the defense attorneys, they were typically fine with this language versus calling it a “resignation.” We were also careful not to release any rights to pursue a COBRA appeal in the event that the subsidy was not granted. This came in handy when we had to handle ARRA/COBRA appeals.

Although the ARRA has long since expired, these points are helpful to remember in the event that the ARRA is ever extended.

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Got questions? Contact us for answers

Hopefully, you now have a better understanding of what COBRA is, its purpose and how it affects you. If you ever have any questions regarding your employment rights, particularly as it relates to workers’ compensation benefits, we encourage you to reach out to our knowledgeable attorneys for answers and assistance.