In the event that one of your employees is no longer employed by you, federal law might require that they are allowed to temporarily continue their health insurance plan. The Consolidated Omnibus Budget Reconciliation Act, or COBRA, asserts that former workers and their dependents are entitled to maintain group health insurance coverage for a period of time after their eligibility ends, if one of the following conditions apply:
- Job loss, whether voluntary or involuntary (except in cases of gross misconduct)
- Work hours are reduced and the employee otherwise loses eligibility for benefits
- A dependent is divorced or legally separated from an employee
- The employee becomes eligible for Medicare
- An employee’s child loses their dependent status
- An employee dies (in this case COBRA applies to their dependents)
Are you required to provide COBRA health insurance coverage? COBRA applies to private-sector employers, with twenty or more full-time employees (or full-time equivalents) in 50 percent of the calendar year, who provide group health insurance benefits.
However, COBRA coverage might not apply to all of your employees. You don’t have to provide COBRA to:
- Employees who haven’t worked for you long enough to be eligible for group health insurance benefits
- Those who declined to participate in a group benefits plan
- Those who are enrolled in Medicare
Even smaller employers should be aware of COBRA requirements. Your company could grow in the near future. Even if you employ just under 20 workers, become familiar with COBRA so that you can comply with the law when the time comes.
Employees must be notified. COBRA also requires that you notify workers of their COBRA rights within 90 days of their eligibility for your group plan. You must also notify them of COBRA eligibility within 14 days of a qualifying event (as listed above). The former employee, or dependent, has 60 days to opt into COBRA coverage.
COBRA applies to all health plans. If a former employee (or dependent) elects COBRA coverage, it must apply to all plans in which they were formally enrolled. Examples include medical flexible spending accounts, dental plans, vision plans, or drug plans.
COBRA is subject to certain time limits. For employees, COBRA coverage lasts up to 18 months. For dependents, coverage under COBRA can extend to 36 months after the qualifying event. Other rules apply in cases of disability.
Who pays for COBRA? The employer can require that the former employee or dependent pays 100 percent of the cost of coverage under the group plan. Premiums cannot exceed the full cost of coverage plus two percent for administrative expenses.
Noncompliance can cost you. Failure to comply with COBRA requirements can result in IRS fines, private lawsuits, and audit or enforcement actions by the Department of Labor.
If you have more questions about COBRA coverage, please don’t hesitate to call us. We can assess your responsibilities and help you maintain compliance with the law.