515-223-5119 [email protected]

[Author: Doug Crable, Kiernan Benefit Solutions, LLC, 2013 | Keywords: Human Resources, COBRA]

The Consolidated Omnibus Budget Reconciliation Act of 1985, commonly known as COBRA, is a federal law that requires employers of 20 or more employees with group health plans to offer employees, their spouses and dependents a temporary period of continued health care coverage if they choose coverage through the employer’s group health plan. The purpose of COBRA is to protect current and former employees and plan participants and their dependents when they lose coverage.

Which employers are covered under COBRA?

Group health plans provided by employers with 20 or more employees are subject to COBRA. Employers who have not continuously had 20 employees are covered if at least 20 employees have worked more than 50 percent of their typical business days during the previous calendar year. (Both full and part-time employees are counted to determine whether a plan is subject to COBRA.)

Employers with less than 20 employees are not subject to the COBRA mandate. However, they are required comply with the appropriate state continuation laws.

What determines a qualifying event?

Certain events trigger COBRA coverage for employees, spouses and dependent children. For example, the voluntary or involuntary termination of employment for any reason other than misconduct is considered a qualifying event for employees, as is a reduction in the number of hours of employment.

Qualifying events for spouses also include the voluntary or involuntary termination of the covered employee’s employment, as well as a reduction in the hours worked by the covered employee. In addition, spouses may qualify for coverage if they get divorced or legally separated from the covered employee, the covered employee becomes entitled to Medicare, or the covered employee dies.

Several events trigger COBRA for dependent children, including the loss of dependent child status under the plan rules; voluntary or involuntary termination of the covered employee’s employment for any reason other than gross misconduct; reduction in the hours worked by the covered employee; the covered employee becoming entitled to Medicare; divorce or legal separation of the covered employee; or death of the covered employee. 

COBRA Notice and Election Requirements

COBRA requires covered plans to provide employees and dependents with proper notification of their rights to COBRA coverage on the occurrence of certain events. These requirements state that 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, in turn, must notify the plan administrator of a qualifying event within 60 days following event.

Plan participants and beneficiaries generally must be sent an election notice no later than 14 days after the plan administrator receives notice that a qualifying event has occurred. The beneficiary then has 60 days to decide whether to elect COBRA continuation coverage. After electing coverage, the beneficiary has 45 days to pay the initial premium.

When does COBRA coverage terminate?

The length of continuing COBRA coverage depends on what type of event triggers the coverage and the status of the qualified beneficiary. A group health plan may terminate continuation coverage earlier than the end of the maximum period if 1) the premiums are not fully paid within time limits or 2) the employer ceases to maintain any group health plan.

What is the cost of non-compliance?

The excise tax penalty is $100 per day per day of noncompliance. However, if the IRS finds a violation that it considers to be more than minimal, employers may be subject to a penalty up to $15,000. The maximum any employer could be taxed in a given year is 10 percent of the health plan costs in the previous year or $500,000, whichever is less.

What are my options for COBRA compliance?

The employer is responsible for compliance with the COBRA continuation mandate. Many options are available to an employer in order to comply, including self-administration, partial outsourcing or complete outsourcing.

Many organizations choose self-compliance as a solution to the COBRA mandate. If you go this route, there are several resources available through I-NEDA’s HR Resource Helpline, including:

  • Model COBRA notices directly from the department of labor
  • Model General Notice
    • Qualifying Event Notice for Employers
    • Employee Notice Requirements
    • Extensions and Early Termination Notices
    • Model Election Notice
    • Notice of Unavailability of Coverage (Model)
    • Notice of Early Termination of Coverage (Model)
  • Employer’s Guide to Group Health Continuation Coverage
  • Employee’s Guide to Group Health Continuation Coverage
  • Employer Access to our Client Resource Center HR Library

Have questions about COBRA coverage? Call INEDA’s HR Resource Helpline at (855) 277-5575.