COBRA FAQ’s


COBRA Questions & Answers

What is COBRA?
How long must COBRA continuation coverage be available to a qualified beneficiary?

What is a qualifying event?
Who is a Qualified Beneficiary?
Are Newborns and Adopted Children considered “qualified beneficiaries”?

What is the definition of a Covered Employee?
What is the definition of Dependent Child?
What Plans Are Subject to COBRA?
What Plans Are Not Subject to COBRA?
What is the definition of Group Health Plan?
Can a qualifying event result from a voluntary termination of employment?
What triggers the obligation to offer COBRA coverage?
What Specific Events (“Triggering Events”) can be Qualifying Events?
What events are not considered Triggering Events?
What are the two mandatory items that must be sent to an employer to its employees regarding COBRA?
When must the Initial Notice be sent to Covered Employees and Spouses?
What is the purpose of the Initial COBRA Notice?
Who must provide the Initial Notice?
What is the Qualifying Event Notice regarding COBRA?
What is contained in the Qualifying Event Notice?
When must the employee or qualified beneficiary notify the plan administrator of any triggering events?
When must the Employer notify the Plan Administrator of COBRA qualifying events?
When must the Qualifying Event Notice be Sent to the Qualified Beneficiaries notifying them of their right to elect COBRA?
Within what time period does the Qualified Beneficiary have the option of electing COBRA?
Does each Qualified Beneficiary have Independent Election Rights under COBRA?
What are the Premium Payment Deadlines regarding COBRA coverage?
How does the COBRA continuation coverage requirements apply to Cafeteria Plans and other Flexible Benefit arrangements?


What is COBRA?

The Consolidated Omnibus
Budget Reconciliation Act of 1985 (COBRA) requires most employers with group
health plans to offer employees the opportunity to continue temporarily their
group health care coverage under their employer’s plan if their coverage otherwise
would cease due to termination, layoff, or other change in employment status
(referred to as “qualifying events”).


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How long must COBRA continuation coverage be available to a qualified beneficiary?

  • Up to 18 months for covered
    employees, as well as their spouses and their dependents, when workers otherwise
    would lose coverage because of a termination or reduction of hours.
  • Up to 29 months is available
    to employees who are determined to have been disabled at any time during the
    first 60 days of COBRA coverage and applies as well to the disabled employee’s
    nondisabled qualified beneficiaries.
  • Up to 36 months for spouses
    and dependents facing a loss of employer-provided coverage due to an employee’s
    death, a divorce or legal separation, or certain other “qualifying events”.


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What is a qualifying event?

The qualifying event requirement
is satisfied if the event is (1) the death of a covered employee; (2) the termination
(other than by reason of the employee’s gross misconduct), or a reduction of
hours, of a covered employee’s employment; (3) the divorce or legal separation
of a covered employee from the employee’s spouse; (4) a covered employee becoming
entitled to Medicare benefits under Title XVIII of the Social Security Act;
or (5) a dependent child ceasing to be a dependent child of the covered employee
under the generally applicable requirements of the plan and a loss of coverage
occurs.


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Who is a Qualified Beneficiary?

Under the statute, a qualified
beneficiary is someone who “is a beneficiary under the plan” (i.e.,
is covered under the plan) immediately prior to the qualifying event and who
is:

  • The spouse or dependent
    child of a covered employee.
  • A covered employee
    (but only if the qualifying event is a termination or reduction in hours
    of the covered employee’s employment.


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Are Newborns and Adopted Children considered “qualified beneficiaries”?

Yes. A child who is “born
to or placed for adoption with the covered employee during the period of continuation
coverage under [Code §490B, the Code’s COBRA provisions]” is also a qualified
beneficiary regardless of whether the qualifying event occurred before, on,
or after such date if they are enrolled within 30 days of birth or adoption.


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What is the
definition of a Covered Employee?

Covered employee “means
an individual who is (or was) provided coverage under a group health plan by
virtue of the performance of services by the individual for 1 or more persons
maintaining the plan. This definition is expansive and includes retirees, independent
contractors, self-employed persons and partners of a partnership.


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What is the definition
of Dependent Child?

COBRA does not define “dependent
child.” Who is a dependent child is determined by the terms of the group
health plan.


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What Plans Are Subject
to COBRA?

Virtually all group health
plans maintained by employers for their employees are subject to COBRA’s provisions,
include group health plans of corporations, partnerships, tax exempt organizations,
state and local governments. This also includes Health Care Spending Accounts.


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What Plans Are Not
Subject to COBRA?

Small Employer Plans:

Small employer plans are entirely exempt from COBRA. If all employers maintaining
the plan normally employed fewer than 20 employees on a typical business day
during the preceding calendar year, the plan falls within the “small employer
plan exception”
The Federal Government’s Group Health Plan:

The Federal government’s group health plan is not subject to COBRA. However,
a separate law, the Federal Employees Health Benefits Amendments Act of 1988
requires the Federal government to offer its employees continuation coverage
effective January 1, 1990.
Certain Church Plans
Certain church
plans also are not subject to COBRA. The IRS has concluded that a plan for employees
of an institute of higher learning under church auspices was a church plan,
and that plan was accordingly not subject to COBRA.


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What is the
definition of Group Health Plan?

Under the COBRA statute
the term “group health plan” is defined in Code § 5500 (b)(1) as follows:
a plan (including a self-insured plan) of, or contributed by, an employer (including
a self-employed person) or employee organization to provide health care (directly
or otherwise) to employees, former employees, the employer, other associated
or formerly associated with the employer in a business relationship, or their
families.


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Can a qualifying event result from a voluntary termination of employment?

Yes. Apart from gross
misconduct, the facts surrounding a termination or reduction of hours are irrelevant.
It does not matter whether the employee voluntarily terminated or was discharged.


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What
triggers the obligation to offer COBRA coverage?

COBRA requires employers
to offer a COBRA election to qualified beneficiaries when there is: (1) a triggering
event; and (2) the triggering event causes (or will cause) a loss in plan coverage
that occurs within the maximum coverage period for that event. When both elements
(1) and (2) exist, there is a COBRA “qualifying event.” A COBRA “qualifying
event” is a specified triggering event, “which, but for the continuation
coverage required (by COBRA), would result in the loss of coverage of a qualified
beneficiary.”  An event is a qualifying event if it (a) is one of
the specified events (“triggering events”), (b) causes the covered
employee, spouse or dependent child to lose coverage and {c} occurs while the
plan is covered by COBRA. If a qualified beneficiary experiences a triggering
event, but there is no loss in coverage attributable to the triggering event,
there is no qualifying event and COBRA coverage does not need to be offered.


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What Specific Events (“Triggering Events”) can be Qualifying Events?

The statute specifies
six triggering events that, if they result in a loss of coverage, can be qualifying
events:

  • Death of the covered
    employee;
  • Voluntary or involuntary
    termination of the covered employee’s employment other than by reason of
    gross misconduct (note that a retirement is considered a termination of
    employment);
  • Reduction in hours
    of the covered employee’s employment;
  • Divorce or legal
    separation of the covered employee from the employee’s spouse;
  • Dependent child ceasing
    to be a dependent child under the generally applicable requirements of the
    plan; and
  • An employer’s bankruptcy,
    but only with respect to health coverage for retirees and their families.


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What events
are not considered Triggering Events?

If an employer terminates
a group health plan or amends it to reduce coverage, neither the termination
nor the amendment is a qualifying event. The following events are not considered
triggering events:

  • A change in insurance
    carriers. Replacement of one insured health plan with a less generous plan
    is not a qualified event.
  • Tendering a resignation.
    Only when an employee actually terminates does a qualifying event occur.
  • Filing for divorce.
    The entry of the decree is the triggering event; however, if legal separation
    precedes the divorce and results in a loss of coverage, then the legal separation
    will become the triggering event.
  • Employee drops coverage
    for spouse or dependents.
  • Employee’s resignation
    from Union.
  • Termination of Employment
    After Insurer Cancels Group Health Plan.


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What are the two mandatory items that must be sent to an employer to its employees
regarding COBRA?

The initial notice and
the qualifying notice are the most two important COBRA notices. They communicate
to plan participants and to qualified beneficiaries their COBRA rights and obligations
generally (the initial notice) and with reference to a specific qualifying event
(qualifying event notice). The mishandling of these notices (either because
the notices are not delivered or their content is deficient) is a significant
source of litigation and liability for plans.


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When must the Initial Notice be sent to Covered Employees and Spouses?

The initial notice must
be sent by the “group health plan” to the covered employee and spouse
upon first becoming covered by a group health plan.


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What is
the purpose of the Initial COBRA Notice?

The Initial COBRA notice
informs the plan participants (and his or her spouse if any) their rights under
COBRA “at the time of commencement of the coverage under the plan.”


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Who must provide the
Initial Notice?

The statute requires the “group
health plan” to provide notice. The definition of group health plan, however,
does not identify any particular party. Most commentators have assumed that
the plan administrator has the obligation to provide the initial notice, because
ERISA § 502 {c}(1) makes the plan administrator liable for a $110 per day for
failure to distribute the initial notice. The Department of Labor assigns the
responsibility to the plan administrator.


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What
is the Qualifying Event Notice regarding COBRA?

Upon the occurrence of
a qualifying event and notice to the plan administrator of that event, the plan
administrator must send a qualifying event notice to each qualified beneficiary
advising them of their rights under COBRA and offers them the right to elect
COBRA.


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What is
contained in the Qualifying Event Notice?

The qualifying event notices
typically consists of (i) a cover letter explaining to the qualified beneficiary
his or her COBRA rights and obligations, as well as all election, payment and
notice deadlines; (ii) an election form; (iii) a premium schedule; and (iv)
an ACH notice.


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When must the employee or qualified beneficiary notify the plan administrator of
any triggering events?

The covered employee or
qualified beneficiary must notify the plan administrator within 60 days of the
occurrence of these triggering events:

  • divorce or legal
    separation of covered employee from his or her spouse; and
  • dependent child ceasing
    to be a dependent under the plan.

The proposed regulations
expand this rule to provide that the notice period is 60 days after the triggering
event or, if later, the date coverage would be lost. “If the notice is
not postmarked and sent to the employer or other plan administrator [within
the 60 day period], the group health plan does not have to offer the qualified
beneficiary the opportunity to elect COBRA continuation coverage.”


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When must the Employer notify the Plan Administrator of COBRA qualifying events?

The employer “must
notify the plan administrator…within 30 days…of the date of” the following
qualifying events:

  • death of a covered
    employee;
  • termination or reduction
    of hours of the covered employee;
  • the covered employee
    becomes entitled to Medicare; and
  • the commencement
    of a bankruptcy proceeding of the employer

The “qualifying event”
in this context means the date of the triggering event, not the date that coverage
is lost.


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When must the Qualifying Event Notice be Sent to the Qualified Beneficiaries notifying
them of their right to elect COBRA?

The plan administrator
must notify “any qualified beneficiary” with respect to a qualifying
event of his or her COBRA election rights within 14 days after it has been notified
(by the employer or by a qualified beneficiary) that the qualifying event has
occurred. If the plan administrator has not received notice that a qualifying
event has occurred, they are not obligated to provide notice of COBRA election
rights to the qualified beneficiary.


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Within what time period does the Qualified Beneficiary have the option of electing
COBRA?

A qualified beneficiary
may elect COBRA coverage at any time within 60 days after the date plan coverage
terminates, or, if later 60 days after the date of the notice to the qualified
beneficiary from the plan administrator. The 60-day period permits a qualified
beneficiary to “adopt a wait-and-see approach to continued coverage, and
then elect if and when medical care is required during the election period.
If the plan administrator has not sent the notice of qualifying event, the election
period remains open. The 60 day period is a minimum.


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Does each Qualified Beneficiary have Independent Election Rights under COBRA?

Yes. COBRA requires that “each”
qualified beneficiary be entitled to elect COBRA coverage. If there is a choice
among types of coverage under the plan, each qualified beneficiary is entitled
to make a separate election among the different types at open enrollment.


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What are the Premium Payment Deadlines regarding COBRA coverage?

A plan may not require
any payment until 45 days after the qualified beneficiary’s initial election.
If a qualified beneficiary fails to make the initial premium payment within
the 45-day period, the plan administrator may terminate the COBRA coverage.
Thereafter, payments are due on the first of each month, subject to a 30-day
grace period.


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How does the COBRA continuation coverage requirements apply to Cafeteria Plans and
other Flexible Benefit arrangements?

The provision of medical
care through a cafeteria plan (as defined in Section 125) or other flexible
benefit arrangement constitutes a group health plan. However, the COBRA continuation
coverage requirements of section 162(k) apply to those medical benefits under
the cafeteria plan or other arrangement that a covered employee has actually
chosen to received. Furthermore, except in cases where the plan is exempt from
HIPAA, COBRA need only be offered in cases where the participant has a positive
balance at the time of termination and only for the remainder of the current
plan year.


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