The Consolidated Omnibus Budget and Reconciliation Act of 1985 (COBRA) is an important health insurance program that provides eligible employees and their dependents with continued health insurance coverage when they experience a reduction of work hours or lose their job. Your dependents can include spouses, former spouses and dependent children 26 and under.
In the midst of all of this coronavirus uncertainty, it’s a good idea to understand what COBRA is, if your business is required to provide it and how to administer it to qualified employees. This will prevent your business from facing legal issues and financial penalties from the IRS.
Here is everything you need to know about COBRA coverage.
[Read: Coronavirus Small Business Guide]
What is COBRA coverage?
COBRA is a federal program that allows you to take advantage of your employer’s last health insurance rate. In the simplest of terms, you can continue to buy into your health insurance plan after uncertain events, which include:
- A loss of job or reduction in hours for reasons besides gross misconduct.
- Becoming entitled to Medicare.
- Divorce or legal separation.
- A child’s loss of dependent status.
- The employee’s death.
Your employer may require the individual to pay for their continued COBRA coverage. It should be noted that COBRA is not a type of medical care plan, but rather a federal act.
[Read: A Quick Guide to Small Business Employee Health Insurance]
Which businesses must provide COBRA benefits?
COBRA applies to all private-sector group health plans that are maintained by a business. The company must have at least 20 employees on more than 50% of its typical business days. Both full-time and part-time time workers are counted in this number, with each part-time employee counting as a fraction of a full-time employee, depending on the amount of hours worked.
A group health plan is any benefit that an employer offers and maintains to provide employees and their families with medical care. These include:
- Hospital care
- Physician care
- Surgery
- Prescription drugs
- Dental
- Vision care
The following are not considered medical care:
- Life insurance
- Disability benefits
Employers must provide a COBRA notice to all qualifying employees within 90 days of becoming eligible.
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Who is eligible for COBRA coverage?
You only qualify for continual coverage through COBRA once you’re a qualifying beneficiary and after a qualifying event has occurred.
Qualifying beneficiaries are employees who were covered by their group health plan on the day before the qualifying event occurs. They can also be the employee’s spouse, former spouse or children.
A qualifying event is the reason that causes a person to lose group health coverage. The type of qualifying event will determine who among the employee’s dependents are qualifying beneficiaries.
Qualifying events for employees are:
- Termination of the employee’s job.
- Reduction in the employee’s hours.
Qualifying events for dependents are:
- Termination of the covered employee’s job.
- Reduction in the covered employee’s hours.
- Covered employee becomes entitled to Medicare.
- Divorce or legal separation from the covered employee.
- Death of the covered employee.
[Read the U.S. Chamber of Commerce's guide on Health Coverage Options]
How to offer COBRA
As a business, there are a few steps to take in order to offer your employees COBRA:
Notify eligible group health care participants
Employers must provide a COBRA notice to all qualifying employees within 90 days of becoming eligible. It is recommended to send this notice by the mail.
Provide qualifying event notices to employees
If the employee or their dependent experience a qualifying event, the employer must notify the plan administrator within 30 days of the event. From there, the administrator provides an election notice to the employee, their dependent or both, informing them that they are eligible to enroll in COBRA. This will allow them to elect into COBRA.
Employers that are their own plan administrators have 44 days to provide the election notice to the employee, again, preferably by mail.
Notify the insurance carrier
Employers must notify the insurance that group coverage has ended and the COBRA election form has been provided.
COBRA coverage election and payment
The employee must elect to use COBRA within 60 days of when the election notice was sent. If they do not, COBRA is no longer obligated to be provided to them. The employer will notify the insurance company that premiums will continue to be paid and to reinstate coverage.
[Read: 5 Important Things to Know About Small Business Health Insurance]
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