COBRA Insurance for Employers

COBRA During the Coronavirus Emergency - Information for Employers

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Employer-provided health coverage is a great benefit for your employees, but what when an employee leaves the company? Larger employers have a responsibility to maintain these benefits for a period of time after the employee is terminated. although they don't have to continue paying for them.

What Is COBRA?

The Consolidated Omnibus Budget Reconciliation Act (COBRA law) gives employees continued health benefits if they are terminated or their hours are reduced when those benefits are tied to the company they worked for. COBRA benefits apply to termination, voluntary termination by the employee, reduction in hours, death, divorce, and other life events. 

When Does COBRA Coverage Begin?

The Employee Benefits Security Administration enforces COBRA laws and sets three basic requirements for determining whether an employee is entitled to coverage:

  • Your company's plan must be covered by COBRA,
  • A qualifying event must have occurred such as the death of an employee or termination, and
  • The person receiving the benefit must be qualified.

Your business is covered by COBRA if you have more than 20 employees (for more than 50% of the year) and you offer company-paid health plan coverage, You must offer COBRA coverage to employees who are terminated as well as those who leave voluntarily. You don't have to pay the cost of the coverage for terminated employees, but you must keep them on your health plan for a certain period of time at the same rates as other employees. 

Both full-time and part-time employees are counted in this calculation. Part-time employees are counted based on the percentage of the time they work compared to a full-time employee.

Calculating COBRA Coverage – An 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% of a full-time person. If another part-timer works 30 hours a week, that person would count as 75% of full-time. Add up all the full-time and part-time employees to see if your business meets the minimum for the requirement. 

You must include covered employees, former employees, spouses, former spouses, and dependent children in the COBRA coverage you provide if the person receiving the benefits is "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."

When Does an Employee Qualify for COBRA?

An employee qualifies for COBRA coverage when they have a qualifying event, defined as an event that causes the employee to lose group health coverage. The event is usually termination, but it can also be if the employee's hours are reduced to the point where they lose eligibility for your group health plan.

You might 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 employees who are terminated for "gross misconduct" or if the employee becomes eligible for Medicare. 

The COBRA coverage you provide to employees must be the same as that provided to current employees under your health plan. If the employee elects COBRA coverage, they must be kept under your group insurance. 

Some employees may have an alternate form of health coverage through a spouse or through the Affordable Care Act. These individuals might decide not to sign up for the COBRA coverage provided by your company. 

You must maintain and pay for COBRA coverage for up to 18 months in the event of a termination or a reduction in hours. COBRA coverage might be required for up to 36 months in other circumstances such as when there is a second qualifying event after the first one.  

How Do I Notify Employees About COBRA?

COBRA rights must be included in the information documents you give employees about their health coverage.

You must include specific information on the notice to employees when you terminate them. The information must include how they can elect the coverage and when they must make a decision. The EBSA has a sample notice you can use for this purpose.

When you talk to an employee about a qualified You must present this information and the opportunity to enroll when you talk to an employee about termination or a reduction in hours. The same opportunity must be given to the dependents of an employee who has died.

The employee has 60 days to choose whether to elect COBRA coverage, beginning on the date when they receive the notice. If the person fails to sign up and pay the required premiums during the election period, he can be dropped from coverage. 

Gather information about COBRA coverage and add it to your termination checklist because you must give specific notification documents to the employee, such as the Employee Guide to Health Benefits Under COBRA.

Who Pays for COBRA Coverage? 

The employee must pay for the coverage, up to 102% of their cost for similar employees, but you must make it available at your company's group insurance rate. 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. 

It is becoming less common for employees to choose COBRA coverage because they have other options, such as one of the state Marketplace plans through the Affordable Care Act. 

Do You Have to Make a Report? 

You must notify your health care plan administrator when a qualifying event occurs such as the termination of an employee. You do not have to notify the Department of Labor. 

The Employer's Guide to COBRA Benefits has a chart that explains more about qualifying. 

Note: This article provides general answers to common questions employers have about COBRA laws. 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. Consult your benefits administrator or contact the U.S. Department of Labor if you have specific questions. If your company's health insurance plan is through a plan administrator, they'll have information about this regulation.