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New to COBRA

Learn what a COBRA is and get a high-level overview of everything you need to know to understand how it works.

Lesson 1: COBRA BASICS

Start your educational journey into COBRA by expanding the questions in the left column you’d like to learn more about. Additional educational resources related to this section topic are available to the right. 

The Consolidated Omnibus Budget Reconciliation Act, more commonly known as “COBRA,” was a federal law enacted in 1985. It is a form of insurance that provides employees, their spouse, and their dependents who lose healthcare-related benefits the right to continue those benefits under a group health plan if they choose to. 

Federal COBRA applies to employers with twenty or more employees. COBRA doesn’t apply to federal government plans, churches, and certain other non-profit organizations. Note that State/mini-COBRA rules may have different requirements. 

COBRA insurance covers the same ERISA group health plans an individual had with the employer. A group health plan doesn’t only apply to health insurance coverage like co-pay plans and high deductible health plans. It extends to other situations where coverage is involved. This includes the following plan types:

  • Medical, dental, and vision benefits
  • Flexible Spending Accounts (depending on the situation)
  • Health Reimbursement Accounts (depending on the situation)
  • Medical Expense Reimbursement Plans (MERPs)
  • Employee Assistance Programs (EAP)

 

This coverage is for a limited period of time and under certain circumstances (qualifying events). COBRA is regulated by the Internal Revenue Service (IRS) and the Department of Labor (DOL).

  • Qualified Beneficiaries (QBs) can enroll in COBRA. A QB is an individual covered by a group health plan on the day before a qualifying event who is either an employee, an employee’s spouse, or a dependent.
  • In some instances, a retired employee, their spouse, and their dependent children may be considered QBs.
  • If the covered individual has or adopts a child during COBRA coverage, that child is considered a QB.

The cost of COBRA is calculated as the entire premium (typically split between the employer and the employee when an individual is employed) plus a 2% administration fee. This cost may be increased up to 150% for disabled individuals.

 

To reduce their monthly payment, covered individuals can elect each benefit separately. For example, they can go to the Federal Exchange for health coverage instead of electing COBRA and only elect COBRA to continue their dental coverage.

Individuals can purchase an individual health plan from a broker, insurance carrier, or through a state or federal Health Insurance Marketplace instead of enrolling in COBRA. Eligible individuals can also enroll in Medicaid, CHIP, or Medicare.

  • To compare plan details and costs, individuals should visit HealthCare.gov for more information.
  • eHealth is an excellent resource for qualified beneficiaries to explore their options.
Learn more about COBRA Basics:

Lesson 2: Documents & Letters

A big part of understanding COBRA is knowing what document and letter requirements exist. This section covers the main letter types that you may encounter (note, names of these letters/notices may vary). Additional educational resources related to this section topic are available to the right. 

The Summary Plan Description (SPD) is a written document providing vital details about the plan and COBRA rights, such as available benefits, participant and beneficiary rights, and plan operations. ERISA mandates that group health plans provide individuals with the SPD within 90 days of becoming a plan participant (or within 120 days of the plan coming under ERISA).

The COBRA General Rights Notice (GRN) is issued to a New Plan Member (NPM) when they are first added to the system or when there is a re-hire. It reviews an NPM’s basic COBRA rights, including a description of qualifying events, the type of coverage provided, and how long they can be covered. This notice may also include a HIPAA Certificate, but it is not required of the TPA (the insurance carrier should also send it). By law, employers have 90 days to send this notice.

A Qualified Beneficiary (QB) receives a COBRA Specific Rights Notice (SRN; also known as a COBRA Qualifying Event letter or Election notice) when they lose group health plan coverage because of a qualifying event such as termination or retirement, and they have at least one plan. It reviews how the QB can elect COBRA coverage, pay premiums, and terminate coverage; how long the coverage period lasts and under what circumstances it may be extended; and information about coverage for dependents.

  • A QB may also receive this notice if they add or delete a plan before their First Day of COBRA. The Specific Rights notice can be manually re-queued and regenerated if a correction needs to be made. This notice may include a HIPAA Certificate (QB and NPM) or State Letter Insert if applicable. The specific wording of the COBRA Specific Rights notice depends on the qualifying event type.
  • By law, a Qualified Beneficiary (QB) must be sent this notice within 44 days of the event.

A Postmark date (PMD) is a marking on an envelope from the US Postal Service indicating the date and time the envelope entered their system. Postmark dates (PMD) determine the timely payment of premiums.

A member receives a Plan Change letter when something causes a change to their plan. It details the change that occurred and outlines how the change affects the member’s coverage levels and premiums. It also lists up to 12 months of expected premiums, subsidies, and due date (i.e., plan added or dropped, plan deleted in the system, coverage level change, rate change for open enrollment).

The third-party administrator sends a Subsidy Notice to a member whose plan premium is being paid partially or in full by a source other than the member to communicate the amount the member owes.

Suppose an employer switches to a new third-party administrator to handle their COBRA/Direct Billing administration. In that case, they will be sent a Takeover Notice that confirms the plan and premium information. This notice accompanies information that helps the members get online so they can pay for their premiums and elect for initial coverage if they are in a pending status. 

Sometimes, group health plans deny a request for (or extension of) continuation coverage. When this occurs, the plan has 14 days from receiving the request for coverage to provide a notice of unavailability of continuation coverage. This notice must include an explanation of why the request was denied. 

As discussed in the next section, continuation coverage may be terminated early for various reasons. When this occurs, the plan must provide a notice of early termination as soon as possible after the decision is made. The notice must include:

  • The date continuation coverage will end.
  • The reason for termination.
  • Any rights the QB may have to enroll in alternative group or individual coverage.
Learn more about COBRA Documents & Letters:

Lesson 3: Electing COBRA

This section covers many of the key elements an employee would want to know before enrolling in COBRA continuation coverage. Expand the questions in the left column that you’d like to learn more about. Additional educational resources related to this section topic are available to the right. 

A qualifying event is a life event resulting in a loss of group coverage. The most common COBRA Qualifying Events include the following:

  • Termination of Employment: voluntary or involuntary.
  • Ineligible dependent: Child who turns 26 and ages off the active insurance coverage; the dependent is the QB, NOT the parent/employee.
  • Loss of coverage: Death or divorce/legal separation; the dependent(s) become the QB.
  • Entitlement to Medicare: This event is only for the spouse or children covered under the group health plan. This typically only happens if the employer offers retirees under 65 access to a retiree health plan.
  • Reduction in hours that cause a loss of coverage.
  • Employer Bankruptcy.
  • COBRA qualifying events trigger the employer to notify the third-party administrator (TPA) with specific required information within 30 days of the event so that TPA can send the member paperwork and an election form (Specific Rights Notice).
  • By federal law, the initial election notification process (notifying the former employee and qualified beneficiaries) can take up to 44 days from the event date.
  • COBRA Qualified Beneficiaries have up to 60 days from the date of the Specific Rights Notice or the Qualifying Event date, whichever is later, to elect coverage.
  • Upon receiving the COBRA election, the TPA will notify the applicable carrier(s) of the COBRA reinstatement once the initial payment is received and notify all other relevant parties about the reinstatement.
  • The coverage is retroactive to the First Day of COBRA, and there cannot be a lapse.

Federal COBRA requires coverage extended from the qualifying event date for 18-36 months, depending on the reason/qualifying event.

  • 18 months: termination, retirement, reduction in hours, employer bankruptcy
  • 36 months: death of an employee, divorce, legal separation, ineligible dependent (turning 26), employee’s entitlement to Medicare

Note that state continuation may extend these coverage periods. 

In certain situations, coverage can be extended to the maximum allowed. Examples include:

  • A spouse who is receiving COBRA coverage divorces the covered employee.
  • A child who is receiving COBRA coverage ceases to be a dependent.
  • A covered employee dies while one or more qualifying beneficiaries is receiving COBRA coverage.

COBRA regulations allow members to send payment any time during the Initial Premium Payment Grace Period, which lasts 45 days from the date the member elects COBRA coverage.

  • The initial premium payment includes any premium due from the effective date of the plan(s) through the current month. The premium payments must be postmarked during the 45-day window, or the member’s coverage will be canceled.
  • A QB receives a 45-day First Premium Month Paid letter when they submit the election form with a payment that covers only one month of their premium, but they owe for multiple months. This letter details the member’s payments to satisfy the initial premium payment requirement and avoid having their plan (s) canceled.
  • A request to reinstate coverage is sent once the initial premium payment is paid in full.

Subsequent premiums are due on the 1st of each month and must be postmarked by the 30th. The insurance carrier has the right to suspend coverage between the 1st and 30th, reinstating benefits when premiums are received.

  • Changed By QB: COBRA is continuation coverage. This means the individual is “continuing” the coverage they had before the qualifying event. However, they can change their coverage during an annual open enrollment period if they elect COBRA.
  • Changed By Employer: If the employer’s insurance premium increases, the premium for those enrolled in COBRA will also increase.

COBRA continuation coverage can be terminated for any of the following reasons:

  • The employer stops maintaining any group health plan.
  • A QB begins coverage under another group health plan.
  • Premiums are not paid in full on a timely basis.
  • A QB becomes entitled to Medicare benefits.
  • A QB engages in fraud or other conduct that would justify terminating coverage.

The plan must provide the QB with an early termination notice if continuation coverage is terminated early. If this coverage is terminated early, covered individuals generally can only enroll in a Marketplace plan during the open enrollment period.

Employers sometimes pay for all or a portion of a COBRA premium for several months as a part of a separation agreement. The employer should communicate this with their third-party administrator (TPA) so the TPA can generate a subsidy notice, updated rate tables, and coupons for payment. 

  • If one or all plans are canceled, a refund may be due to the member, depending on the current date and premiums submitted. If all COBRA plans are canceled, a member can request a refund if they are paid to date through the end of their coverage period.
  • Refunds can also occur/be requested if employer subsidies are applied after payment has been made.

Lesson 4: COBRA COMPLIANCE REQUIREMENTS

COBRA compliance is crucial for both employers and employees as it ensures that individuals have continued access to their employer-sponsored healthcare coverage. This section summarizes key components of COBRA compliance and what can happen if your company fails to comply. Additional educational resources related to this section topic are available to the right. 

There are quite a few requirements you must meet to remain in compliance. General requirements include the following:

  • Comply with any state laws. First and foremost, employers must comply with state mini-COBRA requirements first. State law preempts federal law, varies from state to state, and changes more frequently. State mini-COBRA laws can provide additional protections and requirements beyond the federal COBRA regulations.
  • Offer all eligible plans to the right people. Employers must offer COBRA continuation coverage to eligible individuals and their qualified beneficiaries for all group health plan options. Coverage must be identical to the current plan coverage (subject to the same rules, limits, and changes to plan terms). Additionally, if there is a new qualified beneficiary (i.e., due to marriage, birth, or adoption), the plan must allow the individual(s) to be added to the plan.
  • Send all required notices with accurate and sufficient information within the required timeframe. Employers must provide written notice to individuals and their covered dependents about their COBRA rights when they become eligible for group health plan coverage. This includes information about how to elect COBRA coverage, the coverage cost, and the coverage duration. You can find descriptions of these notices in Lesson 2, though it’s important to note that variations may exist based on requirements for Multiemployer plans and mini-COBRA.
  • Provide the required amount of time to elect (and continue) COBRA coverage. This will vary depending on mini-COBRA laws and the type of qualifying event.
  • Comply and coordinate with other federal laws and programs. This includes, but is not limited to, the following:
    • Affordable Care Act (ACA)
    • Health Insurance Portability and Accountability Act (HIPAA)
    • Employee Retirement Income Security Act (ERISA)
    • Americans with Disabilities Act (ADA)
    • Public Health Service Act (PHSA)
    • Uniformed Services Employment and Reemployment Rights Act (USERRA)
    • Trade Adjustment Assistance (TAA) Program
    • Family and Medical Leave Act (FMLA)

See additional information about Federal requirements within An Employee’s Guide to Health Benefits under COBRA developed by the US Department of Labor’s Employee Benefits Security Administration (EBSA).

Mini-COBRA laws are regulations put in place by states regarding continuing coverage that tend to be more generous regarding who is covered. Specifics on employer size, duration of the coverage, qualified beneficiaries, qualifying events, health plan limitations, notification requirements/deadlines, and maximum premium can vary by state.

 

The majority of US states have a mini-COBRA law in place. To see a summary of what each state requires, visit the official state website.

In general, the following is true:

  • Employers who don’t meet the 20-employee minimum threshold set by Federal COBRA should follow state continuation coverage rules.
  • Depending on the state’s coverage rules, employers with 20 or more employees may be required to follow Federal COBRA and state mini-COBRA laws.

When both apply, state law preempts federal law, so employers should go by state guidelines first and follow federal guidelines for areas their state laws don’t cover.

At their core, COBRA laws consist of timeframes and deadlines. Whether it’s due to disgruntled employees calling the US Department of Labor (DOL) to complain about not receiving notification or the DOL performing an audit, there’s always the risk of a COBRA violation if steps are not followed to the letter of the law.

  • If a Qualified Beneficiary is not notified in a timely fashion, the IRS can levy a penalty that can exceed $100 per day per person (or $200 per day per family).
  • Upon notice of examination by the IRS, the minimum fee for non-compliance is $2,500 for each affected QB. If they determine the violation as “more than trivial,” the company could face up to a $15,000 fine. The maximum tax for “unintentional failures” is the lesser of $500,000 annually or 10% of the past year’s total healthcare costs.
  • Per ERISA, an employer is liable for up to an additional $110 per day per participant if they fail to provide initial COBRA notices on a timely basis. ERISA also allows for any fiduciary to be held personally liable for non-compliance. On top of that, additional fees can be levied as the result of any lawsuits that may occur (i.e., payment of medical bills, attorney’s fees, damages, etc.).

Want to learn more?

Check out our other New to Benefits Education Series topics.