COBRA Coverage Continuation

An employer who has 20 full-time-equivalent employees or more on at least 50% of its working days during the prior year must meet the requirements of IRC Sec. 4980B, also known as COBRA.

Failure to comply with COBRA requirements may result in serious penalties.

Under COBRA, an employer must give his covered employees (including spouses and dependent children who are covered) the opportunity to elect continuation coverage under an employer maintained group health plan (including plans to which the employer does not contribute financially) after any of the following events that would otherwise result in loss of coverage:

  • The death of the covered employee
  • The divorce or legal separation of the covered employee
  • The termination of the employee's employment, unless for gross misconduct, or a reduction inhours that results in a loss of coverage
  • The covered employee becomes entitled to Medicare
  • A dependent child ceases to be covered by the plan due to his or her attained age
  • For retired employees, the filing by the employer for Chapter 11 bankruptcy

Continuation Coverage

The coverage which is offered must be identical to the coverage offered prior to the event causing the continuation.

The plan may require the covered employee (spouse or dependents) to pay a premium, but it generally cannot exceed 102% of the cost to the plan for a person in a similar situation.

Terminated employees and employees with reduced hours must be provided coverage for up to 18 months (up to 29 months if disabled [by Social Security definition] during the first 60 days of COBRA coverage). Widows, divorced spouses, spouses of employees or retirees who lose coverage due to Medicare eligibility and dependent children who become ineligible are given up to 36 months of coverage.

Each health plan must give written notice to each covered employee of his or her continuation coverage rights.

American Recovery and Reinvestment Act of 2009 (ARRA 2009)

ARRA 2009 provided a partial subsidy for COBRA health insurance continuation premiums for workers who have been involuntarily terminated, and their families, for up to nine months. Under this Act, the terminated employee pays 35% of the premium. The former employers pays the remaining 65% and receives an equal credit against federal income tax withholding and payroll taxes. The provision applied to involuntary terminations occurring on or after September 1, 2008 and before January 1, 2010.

Under the Department of Defense Appropriations Act, 19, 2009, signed by President Obama on December 19, 2009, the period of eligibility for COBRA premium assistance payments resulting from an involuntary termination was extended from December 31, 2009, to February 28, 2010. The defense appropriations bill also extended the maximum subsidy period from nine to 15 months and provided and option to pay premiums retroactively to maintain COBRA coverage.

The Temporary Extension Act of 2010 (HR 4961), signed into law by President Obama on March 2, 2010 extended eligibility for the COBRA premium subsidy, through March 31, 2010. The COBRA premium subsidy was again extended, to May 31, 2010, when the President signed into law HR 4851, the Continuing Extension Act of 2010.

Notice and Election Requirements

COBRA contains detailed rules and timelines specifying when employers, covered employees, and health plans/plan administrators must provide notices of certain events or take certain actions. The most important of these is the notice of an individual's right to elect continuation coverage. An individual normally has only 60 days from the date of the COBRA election notice (triggered by a loss of group health coverage due to one of the events diccussed earlier) in which to elect continuation coverage. If they do not elect continuation coverage during this period, they normally give up their rights under COBRA to choose continuation coverage.

However, the Trade Act of 2002 created a special second 60-day election period for certain individuals who do not elect COBRA coverage during the initial 60-day period. The rules regarding this special second election period are complex. Employers whose employees may be entitled to assistance under the Trade Act of 2002 should check with their insurers or COBRA administrators to make sure that individuals who are qualified to receive trade adjustment assistance under the Trade Act of 2002 receive an appropriate notice of this special second COBRA election period.

Failure to Comply

Employers who fail to comply with the COBRA Rules can incur an excise tax of $100 per qualified beneficiary for each day of noncompliance (with a maximum of $200 per day per covered family). COBRA Administrators who fail to provide the initial COBRA notice of the COBRA election notice when a qualifying event occurs are subject to a penalty of up to $110 per affected beneficiary per day under then Employee Retirement Income Security Act. If the to comply is not intentional, but due to reasonable cause, the maximum excise tax is limited to 10% of the prior year's group health plan costs (with a maximum of $500,000).

Regulations

In February 1999 and again in January 2001, the IRS issued final regulations under COBRA, plus new proposed regulations. The regulations include dozens of changes and clarifications regarding the details of COBRA. In May 2004, the Department of Labor issued additional regulations (effective the first day of the first plan year that occurs on or after November 26, 2004) that make significant changes to the notice requirements. The regulations include model notices that should be customized for each plan.

Contact Information

a Stan Burns Insurance, Inc. affiliated agency
21061 S. Western Ave. #110
Torrance, CA 90501

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