COBRA Coverage Facts
As we mentioned in the first edition of this mini-series on the Federal Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), “marketplaces” or “exchanges” created by the Patient Protection and Affordable Care Act (ACA) did not make COBRA coverage obsolete. Rather, COBRA is still going strong. And while the general rule of COBRA coverage is not necessarily that difficult to understand, the timeframes, notice requirements, intricacies, and the ways in which COBRA interacts with other laws presents employers with potentially extremely expensive outcomes.
In the March 29 blog, I introduced COBRA, with a general guide to determine which employers are subject to federally mandated continuation coverage – generally, private sector employers sponsoring group health plans that have 20 or more employees on more than half of the business days in the previous calendar year. In this edition, I will discuss the who, when, and how long of COBRA – who is eligible, when is that person entitled to coverage, and how long the federally-mandated continuation coverage lasts.
Who is eligible for COBRA coverage?
Group health plans subject to COBRA must offer continuation coverage to “qualified beneficiaries.” To be a qualified beneficiary, the individual must have been covered under the group health plan the day before the qualifying event and must be a covered employee, a covered spouse of the employee, a covered dependent of the employee, or a child born to or placed for adoption with a covered employee during a period of COBRA continuation coverage.
A qualified beneficiary might also be a covered employee who had retired on or before the date of substantial elimination of group health plan coverage due to the bankruptcy of the employer. Any spouse, surviving spouse, or dependent child of such a covered employee is also a qualified beneficiary if, on the day before the bankruptcy qualifying event, the spouse, surviving spouse, or dependent child is a beneficiary under the plan.
Let’s take a closer look at a couple of the common COBRA missteps.
A covered employee might not be an employee.
A “covered employee” is a defined term and means an individual who is (or was) provided coverage under a group health plan by virtue of the performance of services by the individual for one or more persons maintaining the plan. Therefore, agents, independent contractors, and directors who participate in the group health plan may be covered employees.
Be careful of domestic partner coverage.
Although plans may allow for domestic partner eligibility, COBRA coverage is available to a “covered spouse of the employee.” Because domestic partners are not “spouses,” they are not qualified beneficiaries.
What does “placed for adoption” mean?
A child that is born to, adopted by, or placed for adoption with a covered employee during the covered employee’s COBRA continuation period becomes a qualified beneficiary when enrolled in the benefit. “Placement for adoption or being placed for adoption” means that the covered employee has assumed a legal obligation for total or partial support of a child in anticipation of the adoption of the child. The child’s placement for adoption with the covered employee terminates upon the termination of the legal obligation for total or partial support.
In contrast, if a covered employee who is a qualified beneficiary does not elect COBRA continuation coverage during the election period, then any child born to or placed for adoption with the former qualified beneficiary (covered employee) on or after the date of the qualifying event is not a qualified beneficiary.
Qualified beneficiaries can forfeit their status.
A qualified beneficiary who does not elect COBRA continuation coverage in connection with a qualifying event ceases to be a qualified beneficiary when the election period ends. This lost right generally cannot be resurrected.
When is the individual entitled to coverage?
Only certain events, called “qualifying events,” trigger an entitlement to continuation coverage. The qualifying events and the respective qualified beneficiaries affected are:
- Termination of employment for any reason other than gross misconduct – for the covered employee, covered spouse, and covered dependent children
- Reduction in working hours of a covered employee – for the covered employee, covered spouse, and covered dependent children
- The death of a covered employee – for the covered spouse and covered dependent children
- Divorce or legal separation of a covered employee from the employee’s spouse – for the covered spouse and covered dependent children
- Loss of coverage due to election of Medicare – for the covered spouse and covered dependent children
- Loss of dependent child status under the terms of the plan – for covered dependent children
- Chapter 11 bankruptcy of an employer – for retirees
How long does the continuation coverage last?
Generally, the maximum continuation coverage period is determined by the qualifying event and is measured from the qualifying event date.
If the qualifying event is loss of coverage due to a covered employee’s reduction in hours or termination of employment other than by reason of gross misconduct, the maximum coverage period for all qualified beneficiaries is 18 months.
The maximum coverage period is 36 months for a spouse and dependent children who are qualified beneficiaries when the qualifying event is the death of a covered employee, the divorce or legal separation of a covered employee from the employee’s spouse, or the covered employee’s becoming entitled to Medicare benefits.
There may be times when the 18-month maximum continuation coverage due to the employee’s reduction in hours or termination of employment is extended.
- Under the extended notice rule, also known as the delayed employer notice rule, the maximum coverage period runs from the date of loss of coverage, rather than from the date of the triggering event. For example, if a qualifying event occurs on April 5, 2016, and the plan provides for coverage to extend through the end of the month, the loss of coverage does not occur until April 30, 2016. If the plan requires that the employer notify the plan administrator within 30 days of the loss of coverage – rather than within 30 days of the triggering event – then the coverage period will be through October 30, 2017, instead of October 5, 2017.
- The disability extension rule is applicable in certain situations where a qualified beneficiary is determined to be disabled. The coverage period is extended from 18 months to 29 months for the disabled qualified beneficiary.
- The multiple qualifying event rule extends the maximum coverage period to 36 months for spouses and children of the covered employee when a second qualifying event occurs during the initial period. The second qualifying event must result in a loss of coverage and will typically be either a covered employee’s death, divorce or legal separation from the covered employee, or a dependent child’s loss of eligibility.
- The pre-termination (or pre-reduction of hours) Medicare entitlement rule extends the 18-month period for spouses and children when the covered employee becomes entitled to Medicare within 18 months of the date of the triggering event.
When the qualifying event is the bankruptcy of the employer, the coverage period for the retired covered employee ends on the date of the retired covered employee’s death. The maximum coverage period for a qualified beneficiary who is the spouse, surviving spouse, or dependent child of the retired covered employee is 36 months from the death of the retired covered employee.
It is extremely important that employers have procedures in place to examine potential COBRA coverage situations. Regardless of whether the employer contracts COBRA coverage administration to a third party, the plan sponsor/employer is the liable party. Employers should have processes in place for identifying which individuals are entitled to coverage when coverage terminates, and ensuring proper identification of potential qualified beneficiaries. Failure to properly identify COBRA qualified beneficiaries can be very expensive. In the next segment, we will look at the notice requirements and potential liabilities for employers.