Employer’s Guide for COBRA Administration and Compliance

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 is a law that mandates employers provide employees with the option of continued access to the company's health insurance coverage, even after leaving employment. 

While COBRA administration and compliance can be a great burden for employers, this guide should be able to help.

COBRA Administration and Compliance Overview

COBRA ensures that employees and their families or dependents still have access to employer-provided healthcare benefits for a limited period of time under specific circumstances and life change events known as COBRA qualifying events. 

Additionally, the employer must continue to administer the benefits plan for the employee and / or the dependent(s). This includes providing a means of enrollment during open enrollment or administration due to life-changing events. This can be done by the employer directly or by a third-party service provider specializing in COBRA administration.

When it comes to COBRA compliance employers can’t leave any room for error, so it’s important that they understand the law for proper COBRA administration.

What Is a Group Health Plan?

A group health plan is an arrangement by the employer, where medical care is provided to employees and their families. It can be provided through insurance, by a
health maintenance organization, out of the employer’s assets, or through any other means.

Medical care under COBRA is regarded as: 

• Inpatient and outpatient hospital care
• Physician care
• Surgery and other major medical benefits
• Prescription drugs
• Dental and vision care

NOTE: Plans that only offer life insurance and / or disability benefits are not considered "medical care" under COBRA, and are not eligible for continuation coverage.

COBRA Covered Health Plans

Generally, a health plan is subject to COBRA if it provides medical care and is maintained by an employer. 

The following types of benefits and health plans are subject to COBRA:

• Fully insured group health plans
• Self-funded group health plans
• Dental and vision plans
• Prescription drug plans
• Health flexible spending accounts
• Health reimbursement arrangements
• Disease-specific policies, such as cancer policies that provide medical care
• Employee assistance programs (EAPs) that provide medical care
• Wellness plans that provide medical care

COBRA Plan Coverage

All COBRA-covered beneficiaries must be offered identical coverage to that which was available to them prior to becoming eligible for continuation coverage. Furthermore, if an employer makes a change to the benefits plan for active employees, then the change must be also applied to COBRA beneficiaries.

NOTE: Those entitled to elect COBRA continuation coverage may have more affordable or generous alternatives for coverage.

COBRA Covered Employers

COBRA continuation of coverage requirements apply to private-sector employers with 20 or more employees (on more than 50 percent of its typical business days in the previous calendar year) who maintain group healthcare plans.

Coverage requirements are also applicable to state and local government employees and employers only (not federal). 

How to Calculate Employee Number for COBRA Purposes

When determining how many employees you have in regard to COBRA coverage, employers must count both full and part-time employees. A part-time employee is considered a fraction of a full-time employee, however, at a ratio equal to that of their weekly hours worked divided by 40. 

In other words, a part-time employee who works 20 hours a week would count as 0.5 employees toward the 20-employee minimum. 

Employers must also ensure that they count all employees (not just plan participants), including those who work outside of the United States. 

Government Employee and Employer Requirements

Both state and local government employees are subject to requirements under the Public Health Service Act, which is similar to COBRA. Federal government employees, as well as the District of Columbia, on the other hand, are subject to the Federal Employees Health Benefits Amendments Act of 1988.

There are some other exemptions for small employers (fewer than 20 employees), as well as churches and other related organizations.

COBRA Small Business Exemption

Employers who employ fewer than 20 employees on at least 50 percent of typical business days during a calendar year are exempt from COBRA coverage. 

NOTE: Most states have their own COBRA laws, sometimes referred to as mini-COBRA, that require small employers to continue to provide access to benefits as well. Some states like New Mexico COBRA, extend coverage to all employers, while others may use a reduced minimum employee count.

Church Exemption

Church healthcare plans are exempt from COBRA requirements. A church healthcare plan is any plan established by the church that also:

• Is exempt from tax under Section 501 of the Internal Revenue Code 
• Has not made an election under Code Section 410(d) to have certain tax qualification requirements apply to it

Important to note is that in some circumstances an organization that is not a church, such as a school or a hospital, can be considered for this exemption if it is closely controlled by or affiliated with a church or religious entity.

COBRA Qualified Beneficiaries (Employees and Family)

A COBRA-qualified beneficiary is an employee covered by a group health plan the day before a qualifying event. This extends to the spouse, former spouse, and dependent children (any child born to or placed for adoption with a covered employee
during a period of continuation coverage is automatically considered a qualified beneficiary.)

In the case of employer bankruptcy, a retired employee, their spouse, and any dependents may also be qualified beneficiaries. 

The department of labor provides a COBRA FAQ for employees to help employees and employers understand the compliance components of covered beneficiaries.

COBRA Qualifying Events

COBRA coverage must be offered to a covered beneficiary when a qualifying event occurs and the beneficiary works for a COBRA-covered employer. The event must also cause loss of health plan coverage.

What Are COBRA Qualifying Events?

According to COBRA, there are different types of qualifying events for different types of qualified beneficiaries.

The type of event has an impact on who the qualified beneficiaries are and the period of time that a plan must offer continuation coverage

Qualifying Event for COBRA - Employees

Qualifying events for an employee of a covered employer include:

• Termination of employment (other than for gross misconduct)
• A reduction in hours of employment

Qualifying Event for COBRA - Employee Spouses

Qualifying events for a spouse of a covered employee include: 

• Termination of employment by the covered employee (other than for gross misconduct) 
• A reduction in hours of employment by the covered employee
• A divorce or legal separation from the covered employee
• The death of a covered employee
• The covered employee becomes entitled to Medicare

Qualifying Event for COBRA - Covered Employee Dependents

Qualifying events for a dependent of a covered employee include: 

• Loss of dependent status under the plan rules 
  • Under the Affordable Care Act (ACA), plans must make coverage available until the adult child reaches the age of 26 on plans that offer coverage to children
• Termination of employment by the covered employee (other than for gross misconduct) 
• A reduction in hours of employment by the covered employee
• A divorce or legal separation from the covered employee
• The death of a covered employee
• The covered employee becomes entitled to Medicare

NOTE: Important for employers to remember, is that not all losses of health plan coverage are a result of a qualifying event. Additionally, a qualifying event without a loss in coverage does not warrant required COBRA coverage.

Length of COBRA Coverage Continuation Periods

The length of the period of time for which any covered individual received COBRA benefits is dependent on the category of the qualifying event. Coverage can vary from 18 to 36 months, but employers may offer a longer period of coverage than the legal minimum requirement.

A covered beneficiary receives 18 months of COBRA coverage for:

• Termination of employment (other than for gross misconduct)
• A reduction in hours of employment

A covered beneficiary receives 36 months of COBRA coverage for:

• A divorce or legal separation from the covered employee
• The death of a covered employee
• The covered employee’s entitlement to Medicare
• Loss of dependent status under the plan rules

Note: If the qualifying event is either a "reduction in hours of employment" or "Termination of employment (other than for gross misconduct)" and the employee became entitled to Medicare less than 18 months before the qualifying event, COBRA coverage may qualify for up to 36 months. (36 months minus however many months prior the employee became entitled to Medicare. So if an employee became entitled 6 months before one of the above qualifying events, the employee would qualify for 30 months of coverage).

In the case of employer bankruptcy, the covered retiree shall receive benefits until their death, while their covered spouse or child receives benefits for 36 months after the retiree’s death.

COBRA Extensions

There are two instances in which a period of 18-month coverage can be extended up to 36 months total. In order to qualify for an extension, a qualified beneficiary must be disabled, or experience a second qualifying event. 

Disabled Qualified Beneficiaries

If any of the qualified beneficiaries tied to a qualifying event are disabled, each qualified beneficiary is entitled to an 11-month extension of the maximum period of
continuation coverage, bringing the total to 29 hours.

In order to receive an extension for disability, the following requirements must also apply: 

• Social Security Administration (SSA) determines that the qualified beneficiary is disabled before the 60th day of continuation coverage
• Disability continues during the rest of the initial 18-month period of continuation coverage

NOTE: The plan can charge qualified beneficiaries an increased premium, of up to 150 percent during the extension period (final 11 months of coverage only). 

COBRA Disability Extension Application Process

A disabled beneficiary must notify the group health plan of the SSA determination no later than 60 days (at minimum) from the latest of: 

• The date SSA issues the disability determination
• The date the qualifying event occurs
• The date the qualified beneficiary loses (or would lose) coverage under the plan as a result of the qualifying event
• The date the qualified beneficiary is informed, through the furnishing of either the SPD or the COBRA general notice, of the responsibility to notify the plan and the procedures for doing so

The plan may require disabled beneficiaries to provide notice if / when the SSA determines that the qualified beneficiary is no longer disabled. If such a determination happens, the beneficiary must be given 30 days after the determination to provide this notice, after which any remaining extension of coverage may be terminated. 

Qualified Beneficiaries Experiencing a Second Qualifying Event

If a qualified beneficiary that initially received 18 months of COBRA coverage experiences a second qualifying event, that would have resulted in loss of coverage in the absence of the first qualifying event, then they shall receive an additional 18 months of coverage, resulting in a total of 36 months. 

Group health plans must have procedures in place for providing notice of a second qualifying event. However, such procedures must allow beneficiaries to give notice within at least 60 days from the latest of:

• The date on which the qualifying event occurs
• The date on which the qualified beneficiary loses (or would lose) coverage under the plan as a result of the qualifying event
• The date on which the qualified beneficiary is informed, through the furnishing of either the SPD or the COBRA general notice, of the responsibility to notify the plan and the procedures for doing so

Can COBRA Coverage be Terminated Early?

In short yes, employers can terminate COBRA coverage early under specific circumstances. 

When it comes to early termination of coverage, specific events that may warrant a premature end to benefits include: 

• Late premium payments
• The employer ceases to maintain any group health plan
• After electing continuation coverage...
  • A qualified beneficiary begins coverage under another group health plan
  • A qualified beneficiary becomes entitled to Medicare benefits
• A qualified beneficiary engages in fraud or other conduct that would justify terminating coverage of a similarly situated participant or beneficiary not receiving continuation coverage

If early termination occurs, the group health plan must give the qualified beneficiary a notice of early termination as soon as practical. It must include the date coverage will terminate, the reason why, and details on rights regarding alternative or individual coverage. 

Employers should be extra sure before terminating COBRA coverage early in order to avoid any non-compliance and the penalties associated with it. 

COBRA Coverage Cost

In some instances, COBRA-covered employees may need to pay for coverage. The premium payment can’t be more than 102% of the cost of a plan for an employee who has not incurred a qualifying event or loss of coverage. 

NOTE: Any qualified beneficiaries who also qualify for the 11-month disability extension may see a premium increase of up to 150% of the plan’s total cost of coverage.

COBRA Premium Payments

When it comes to premium payments under COBRA the 102% comes from the costs paid by both the employee and the employer, plus 2% for administrative costs. 

COBRA premiums can increase if the cost of the plan increases, however, they generally need to be fixed in advance of each 12-month premium cycle. Plans must also allow individuals to make payments monthly, weekly, quarterly, or at other intervals.

NOTE:  The COBRA election notice should describe all of the necessary information about COBRA premiums, when they are due, and the consequences of payment and nonpayment.

Initial Premium Payments

Initially, payments need to be made within 45 days after a COBRA-covered employee elects for coverage. The payment must generally cover the period of coverage from the date of election back to the date of the qualifying event. Payment is considered to be made on the day it is sent to the plan, rather than processed, approved, or received.

Subsequent Premium Payments

Following the initial payment, the group health plan may provide due dates for each subsequent premium payment, however, must allow for a 30-day grace period for each payment. 

What Happens if an Employee Fails to Pay a Premium?

In the case of failure to pay an initial COBRA premium by the end of the 45-day period, the plan may terminate a qualified beneficiary's COBRA rights. Plans can also terminate if subsequent payments are not made by the end of each 30-day grace period.  

If the payment is made but is not the correct amount, but is not a significant error, the plan must first notify the covered individual and allow for a correction in a practical amount of time (viewed as 30 days under federal COBRA law).

Health Coverage Tax Credit

The Health Coverage Tax Credit was a refundable tax credit to pay for specified types of health insurance coverage, including COBRA coverage. However, as of December 31, 2021, the tax credit is no longer available. 

Alternatives to COBRA Insurance

Employees or other qualified beneficiaries should review any alternative options to COBRA coverage, as such options can provide more affordable or generous benefits.

Special Enrollment

Under the Health Insurance Portability and Accountability Act (HIPAA), group health plans and health insurance issuers are required to provide a special enrollment period upon special events. One of said events is the loss of other health coverage eligibility. 

During a "Special Enrollment Period", individuals who previously declined coverage for themselves and their dependents, who are also otherwise eligible, may enroll without waiting until the next open enrollment season.

Special Enrollment must be requested within 30 days of losing other coverage. 

Enroll in the Health Insurance Marketplace in your State of Residence

Individuals eligible for COBRA coverage also have the option of enrolling in the
Health Insurance Marketplace in their state of residence.

The Marketplace allows individuals and small businesses to find and compare private health insurance options that may qualify for cost-sharing reductions and a tax credit that lowers monthly premiums.

Marketplace coverage must be selected within 60 days before or after the loss of other coverage to avoid waiting till the next period of open enrollment. 

Medicare Special Enrollment

Medicare is the federal health insurance program for people who are 65 or older and certain younger people with disabilities or End-Stage Renal Disease. 

For individuals who have not enrolled in Medicare and who qualify for COBRA coverage after their Medicare initial enrollment period has ended, a 8-month special enrollment period for Medicare is available. 

The 8-month period begins the month after employment ends or the month after group health coverage ends, whichever occurs first. 

COBRA Notice Requirements

While COBRA notice requirements are relatively simple, there are different responsibilities and requirements that apply to different roles within a company.

COBRA Notice Requirements for Health Plan Administrators

For COBRA compliance, health plan administrators are required to:

• Provide a Summary Plan Description (SPD), which gives an overview of COBRA rights provided under the plan and other important information 
  • An SPD must be provided within 90 days after becoming a plan participant
  • Beneficiaries may request a copy of an SPD and must be provided within within 30 days
• Provide a Summary of Material Modifications (SMM) if there are material changes to the plan 
  • An SMM must be provided within 210 days after the end of the plan year in which the changes become effective
  • If the change is a material reduction in covered services or benefits, the SMM must be provided within 60 days after the reduction is adopted
  • Beneficiaries may request a copy of an SMM and must be provided within within 30 days
• Provide a COBRA General Notice within the first 90 days of coverage
  • This notice may be included in an SPD
  • This notice must include:
    • The name of the plan and the name, address, and telephone number of someone the employee and spouse can contact for more information on COBRA and the plan
    • A general description of the continuation coverage provided under the plan
    • An explanation of what qualified beneficiaries must do to notify the plan of qualifying events or disabilities
    • An explanation of the importance of keeping the plan administrator informed of addresses of the participants and beneficiaries
    • A statement that the general notice does not fully describe COBRA or the plan and that more complete information is available from the plan administrator and in the SPD
• Provide a COBRA Election Notice to qualified beneficiaries within 14 days of receiving a COBRA Qualifying Event Notice. It must describe rights to continuation coverage, how to make an election, and include the following: 
  • The name of the plan and the name, address, and telephone number of the plan’s COBRA administrator
  • Identification of the qualifying event
  • Identification of the qualified beneficiaries (by name or by status)
  • An explanation of the qualified beneficiaries’ right to elect continuation coverage
  • The date coverage will terminate (or has terminated) if continuation coverage is not elected
  • How to elect continuation coverage
  • What will happen if continuation coverage isn’t elected or is waived
  • What continuation coverage is available, for how long, and (if it is for less than 36 months), how it can be extended for disability or second qualifying events
  • How continuation coverage might terminate early
  • Premium payment requirements, including due dates and grace periods
  • A statement of the importance of keeping the plan administrator informed of the addresses of qualified beneficiaries
  • A statement that the election notice does not fully describe COBRA or the plan and that more information is available from the plan administrator and in the SPD
• In the event of a denial of a request for continuation coverage or for an extension of continuation coverage, provide a COBRA Notice of Unavailability of Continuation Coverage to the denied individual within 14 days of the request being received. 
  • This notice must explain why the request was denied
• In the event of early termination, provide COBRA Notice of Early Termination of Continuation Coverage as soon as practical
  • It must include the date coverage will terminate, the reason why, and details on rights regarding alternative or individual coverage. 

COBRA Notice Requirements for Employers

For COBRA compliance, employers are required to: 

• Provide a COBRA Qualifying Event Notice on behalf of the employee to the group health plan (within 30 days of the event), if any of the following are the specific type of qualifying event:
  • Termination or reduction in hours of employment of the covered employee
  • Death of the covered employee
  • Covered employee becoming entitled to Medicare
  • Employer bankruptcy

COBRA Notice Requirements for COBRA Beneficiaries

For COBRA compliance, employees are required to:

• Provide a COBRA Qualifying Event Notice to the group health plan, if any of the following are the specific type of qualifying event:
  •  Divorce
  • Legal separation
  • A child’s loss of dependent status under the plan 

NOTE: Group health plans must have procedures for how qualified beneficiaries
can provide COBRA Qualifying Event Notices, however must give at least 60 days to provide such notice, from the latest of: the date the qualifying event occurs, the date the qualified beneficiary loses (or would lose) coverage under the plan as a result of the qualifying event, or the date the qualified beneficiary is informed, through the furnishing of either the SPD or the COBRA general notice, of the responsibility to notify the plan and the procedures for doing so.

COBRA Notice Requirements and Considerations for Multi-employer Plans

Multi-employer plans may:

• Provide its own uniform time limits for the qualifying event notice or the
  election notice
• Elect not to require employers to provide qualifying event notices
  • Instead,  the plan administrator must determine when a qualifying event has occurred

NOTE: Any special multi-employer plan rules must be set out in the plan’s documents and SPD.

Final Thoughts on COBRA Administration and Compliance

While a guide to COBRA administration and compliance can be of great help to employers, navigating the requirements of COBRA can still be a challenge. Employers still struggling may want to consider a benefits administration solution from an HR and payroll provider.

For more help with COBRA compliance and administration, or to get connected with an HR and payroll provider, contact us today.