COBRA Insurance Guide for Employers
Health Plan Continuation for Terminated Employees
Employer-provided health coverage is a great benefit to your employees, but what happens to the employee's health benefits when he or she leaves a company? For larger employers, it's become a responsibility to continue these benefits in some form for a period of time after the employee is terminated. These benefits are provided under the COBRA law.
How Does COBRA Affect Me as an Employer?
If you are a larger company (with more than 20 employees) and you have company-paid health plan coverage,
- You must offer COBRA coverage for employees who are terminated.
- You don't have to pay the cost of health coverage for terminated employees, but you must keep them on your health plan for a certain length of time at the same rates as employees.
- At the time of termination, you must give employees information about COBRA so they can make a decision.
That's your responsibility in a nutshell. Now, the details.
What Is COBRA?
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act, a part of the 1974 ERISA (Employee Retirement Income Security Act) law. Because employee health benefits are tied to the company they work for, the COBRA law was enacted to give employees continued health benefits in case of termination.
This article provides general answers to common questions of employers about the COBRA laws and their responsibilities.
It's not intended to be a detailed report, but only to give you an overview of your responsibilities as an employer. Every situation is different, and if you have specific questions, consult your benefits administrator or contact the Department of Labor. If your company's health insurance plan is through a plan administrator, they will have information about this regulation.
Does My Business Have to Comply With COBRA Regulations?
Because of the cost of continuing health plans for employees, smaller employers are not required to comply. It only applies to for-profit businesses "that have at least 20 employees on more than 50 percent of its typical business days in the previous calendar year." Both full-time and part-time employees are counted in this calculation. Part-time employees are counted based on the percentage of their time to a full-time employee.
For example, if a part-time employee works 20 hours a week and your full-time employees work 40 hours a week, the part-time person would count as 50 percent of a full-time person. Add up all the full-time and part-time employees to see if your business meets the minimum for the requirement.
Do I Have to Offer COBRA Benefits Just to the Employee? What About Spouse and Children?
You must include covered employees, former employees, spouses, former spouses, and dependent children in the COBRA coverage you provide. The person receiving the benefits must be "qualified." The DOL says, "A qualified beneficiary is an individual who was covered by a group health plan on the day before a qualifying event occurred that caused him or her to lose coverage."
Of course, it's more complicated than this. The Employer's Guide to ... COBRA Benefits has a chart that explains more about qualifying.
When Must I Offer COBRA Benefits to Employees?
You must offer COBRA coverage upon the death of an employee (to the dependent spouse and dependent children) or upon termination or "reduction in hours." (This term probably means if the employee goes from full-time to part-time status and loses benefits.)
You may also be required to offer COBRA coverage to dependent children, if your health plan stops coverage for them at a certain age.
But you don't have to offer COBRA coverage:
- to an employee who was terminated for "gross misconduct" (DOL definition) or
- if the employee becomes eligible for Medicare.
What Kind of Benefit Must I Offer Through This Coverage?
The COBRA coverage you provide to employees must be the same as that provided to current employees under your health plan.
If the person elects COBRA coverage, they must be kept in under your group insurance.
How Do I Know If One of My Employees Is Entitled to COBRA Coverage?
The Employee Benefits Security Administration sets the three basic requirements:
- Your company's plan must be covered by COBRA,
- A qualifying event must have occurred (such as death of an employee or termination), and
- The person receiving the benefit must be qualified, as described above.
What If the Employee Doesn't Take the Coverage? Do I Have to Pay Anything?
Some employees may have an alternate form of health coverage through a spouse or through the Affordable Care Act, and these individuals may decide not to sign up for the COBRA coverage provided by your company.
How Long Do I Have to Pay for This COBRA Coverage?
In the event of a termination or reduction in hours, you must maintain and pay for COBRA coverage for up to 18 months. In other circumstances, COBRA coverage might be required for up to 36 months. This is one of those complicated discussions it's best to have with a qualified benefits person.
How and When Must I Notify the Employee About This COBRA Coverage?
When you talk to an employee about termination or reduction hours is the time when you must present this information and the opportunity to enroll. The DOL calls this a "qualifying event." The same opportunity must be given to the dependents of an employee who has died. It's a good idea to gather information about COBRA coverage and add this item to your termination checklist.
There are specific notification documents you must give to the employee. One good document to provide is the Employee Guide to Health Benefits Under COBRA (PDF).
Who Pays for COBRA Coverage?
The employee must pay for the coverage, but you must make it available at your company's group insurance rate. It is becoming less common for employees to choose COBRA coverage, because they have other options, like one of the state marketplace plans through the Affordable Care Act (Obamacare). The person with the coverage must also pay all deductibles and make all co-insurance payments. Any increases in cost for coverage must be paid by the person receiving coverage.
What Do I Do If an Employee Wants COBRA Coverage?
Let's say you have presented the information about COBRA coverage to a terminated employee. If the employee wishes coverage, you should provide the information so the person can contact your company's health plan insurance company to sign up.
The former employee will have a specified period of time in which to sign up for this coverage, called an "election period." If the person fails to sign up and pay the required premiums during this election period, they may be dropped from coverage.
Are Employees Eligible for COBRA Coverage During Leaves of Absence?
A leave of absence is not a qualifying event for COBRA coverage; employees aren't eligible during FMLA (Family Medical Leave Act) leaves of absence.
Do I Have to Make a Report to Someone?
You as the employer must notify your health care plan administrator of a qualifying event, like the termination of an employee. You don't have to notify the Department of Labor.
Is COBRA Being Replaced by Obamacare?
The COBRA law is still in place, but terminated employees now have more options for finding their own health coverage after termination. Those options now include coverage under the Affordable Care Act (Obamacare).