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Everything You Need to Know About COBRA
Layoffs can be a difficult situation for both employers and employees. As an employee, one of your biggest concerns may be losing health insurance while looking for a new job. As an employer, you want those laid-off employees to have the smoothest transition possible out of their role while still protecting your current workforce. COBRA is one of the best options available to employees and employers, but it can be tricky to navigate. That’s why we’ve put together a list of everything you need to know about COBRA coverage.
What is COBRA?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) was passed in 1986 to provide the continuation of group health coverage. Employees who lose their health benefits due to unemployment are able to continue group health benefits for a limited time provided by their group health care plan. Employers with 20 or more employees are required to offer and notify employees of COBRA coverage availability.
COBRA offers qualified beneficiaries the right to temporary continued health insurance at group rates due to a life-altering event that caused them to become unemployed. The cost for group health coverage for COBRA participants is higher than coverage for active employees because the employer pays a premium for active employees. Although COBRA participants tend to pay the entire premium, it is less expensive than individual health coverage.
If an exiting employee chooses to elect COBRA coverage, they will be entitled to the same benefits, choices, and services that a similar beneficiary is currently receiving under the same plan. Any changes made to the plan’s terms that apply to active employees will also apply to qualified beneficiaries receiving COBRA continuation coverage.
Who is Eligible for COBRA?
To qualify for COBRA benefits an employee must meet these three criteria:
1. Plan Coverage
For an employee to be eligible for COBRA, their employer must first meet COBRA plan requirements. Businesses with 20 or more employees who worked over 50 percent of the company’s business days in the previous calendar year are eligible to offer COBRA coverage. Both full-time and part-time employees are counted when determining if a health plan is subject to COBRA.
2. Qualified Beneficiaries
A qualified beneficiary is an employee covered by a group health insurance plan on the day before a qualifying event occurs. Here are other ways individuals qualify as beneficiaries:
- Retired employees, their spouse, and dependent children.
- Any child born to or placed for adoption with a covered employee during the COBRA coverage period.
- Independent contractors, agents, and directors who participate in the group health plan.
3. Qualifying Events
Qualifying events are life-altering events such as a covered employee leaving a job or being laid off, resulting in a loss of coverage. The type of qualifying event determines who the qualified beneficiaries are and the amount of time the plan will offer insurance to them under COBRA.
Here is a list of qualifying events for employees, spouses, and dependent children:
- Voluntary or involuntary termination of the covered employee’s employment for reasons other than gross misconduct
- Reduced employment hours for the covered employee
- Divorce or legal separation from the covered employee
- Death of the covered employee
- Loss of child status under the plan rules
When the qualifying event is due to termination or reduced hours beneficiaries are entitled to 18 months of COBRA coverage. For all other qualifying events, beneficiaries are entitled to 36 months of COBRA coverage.
The COBRA Administration Process
Tracking and Managing COBRA
If you choose to offer COBRA or are required to do so, it’s easier to track and manage the administration process in an online solution. Human capital management platforms can help with COBRA administration in the following ways:
- As employees are added or terminated, this information is logged for tracking purposes.
- As COBRA deductions are changed, added, or deleted, this information is also tracked.
- Depending on the solution, a qualifying event can trigger COBRA notices to be sent to ensure compliance.
Applying for COBRA
Once an individual becomes eligible for COBRA, they will receive an election notice within 14 days from their health plan administrator. Employers have 30 days to notify health plan administrators of eligible former employees. Qualified individuals have 60 days to elect COBRA continuation health coverage and 45 days after electing COBRA to pay the premium.
COBRA Notices Procedure
Employers have to distribute notices to terminated employees in addition to notifying plan administrators of a terminated employee. Here are the notices companies must provide to ensure individuals have adequate time to elect COBRA coverage:
Notice Notice Information Notice Participants When to Send COBRA General Notice Notice discussing the right to purchase a temporary extension of group coverage when coverage is lost due to a qualifying event. Covered employees and spouses. When the group plan starts. COBRA Election Notice Notice discussing the right to elect COBRA coverage upon the occurrence of a qualifying event as well as information about other coverage options available, such as through the Marketplace. Covered employees, spouses and dependent children who are qualified beneficiaries. he administrator must generally provide qualified beneficiaries this notice within 14 days after being notified by the employer or qualified beneficiary of the qualifying event.*
*If the employer is also the plan administrator, the administrator must provide the notice no later than 44 days after:
- The date on which the qualifying event occurred OR
- The date of loss of coverage due to a qualifying event if the plan provides that COBRA continuation coverage starts on the date of loss of coverage.
Paying for COBRA
Group health plans may require beneficiaries to pay for COBRA, and qualified individuals may be required to pay the entire premium for coverage up to 102 percent of the cost to the plan. A premium for a plan can include the costs paid by the person and the former employer with an additional two percent for administrative cost.
Health Coverage Tax Credit
Now You’re COBRA Ready
Understanding COBRA is important so you are offering coverage when required and maintaining compliance. Knowing how COBRA works can help employers save money and relieve stress for eligible individuals. Furthermore, being able to answer any COBRA-related questions your employees have helps them feel more confident making decisions about temporary healthcare.
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