COBRA 101 - Everything You Need To Know

What better way to start the new year than a refresher outline on the basics of COBRA? There’s a lot to administrating COBRA, which is why we at Granite, take the cost and burden off of your plate by offering free complete COBRA administration.

Still, it’s helpful to know the basics, because in general, an employer is subject to COBRA if it sponsors a group health plan. Take a look to make sure you’re in compliance:

Employer groups with 20 or more full time equivalents for 50% of the typical business days in the preceding calendar year.

COBRA applies to any plan maintained by an employer to provide health care benefits to employees, former employees, spouses or dependents. Types of plans include:

  • Medical, dental, and vision

  • Prescription drug plans

  • Health FSAs, HRAs, and executive reimbursement plans

  • Certain EAPs, wellness programs, cancer policies, and employer sponsored drug and alcohol treatment programs and health clinics

  • Depends on plan design and benefits offered

COBRA does not apply to HSAs, LTC, life insurance, disability insurance, or other types of ancillary insurance.

There are some exempt entities like:

  • Small Employers with fewer than 20 employees

  • Less than 20 employees for at least 50% or more of the typical working days in the preceding calendar year.

  • Definition of “Employees” for this purpose:

  • Includes all full and part-time common law employees.

  • Part time employees are counted as a “fraction of an employee,” equal to the number of hours a part-time employee works divided by full time hours.

  • Church plans, as defined in IRC §414 (e)

  • Federal government

Qualified beneficiaries are:

  • Covered employee;

  • Covered spouse;

  • Covered dependents; and

  • Child born to, or placed for adoption with, the covered employee during a period of COBRA coverage.

  • Domestic partners are not qualified beneficiaries

Covered employees are:

  • Any employee or former employee covered under the group health plan;

  • Agents and independent contractors covered by the group health plan;

  • Corporate directors covered by the group health plan; and

  • Qualified beneficiaries must be treated the same as similarly situated non-COBRA beneficiaries (open enrollment)

What’s a qualifying event?

  • For employee, spouse and dependents:

  • Termination of employee (except for “gross misconduct”)

  • Voluntary or involuntary

  • Reduction in hours of employment resulting in loss of benefits or increase in premiums or contribution.

For spouse and dependents only:

  • Divorce or legal separation from employee

  • Loss of dependent child status

  • Death of covered employee/retiree

  • Employee entitlement to Medicare

  • A qualifying event is one of the above “triggering events” that causes a loss of coverage “under the terms of the group health plan.”

How long are COBRA benefits paid out?

  • “Employee” qualifying events:

  • 18 months- for termination or reduction of hours

  • 11-month disability extension

  • “Dependent” qualifying events:

  • 36 months- for death, divorce, legal separation, employee Medicare entitlement or loss of dependent child status

Employer may choose continuation coverage to begin on:

  • The qualifying event date; or

  • The loss of coverage date

  • When Continuation Coverage Must Become Effective (no gap)

Who Pays for COBRA? – Qualified beneficiary that is electing COBRA

Group health plans may charge up to:

  • 102% of applicable premium

  • 150% of applicable premium during 11-month disability extension

Applicable premium definition:

  • Insured plans- The cost to maintain the plan for similarly situated employees

  • Self-insured plans-

  • The cost to maintain the plan for similarly situated employees (actuarially determined). Cost may be derived from past plan performance adjusted to the rules in COBRA

  • Rate increases may be passed on to qualified beneficiaries, but premium must be fixed for 12-month rate determination period.

How about some important COBRA timelines?

Important COBRA Timelines

30 Days: The employer has 30 days to notify the plan administrator that there has been a qualifying event.

14 Days: The plan administrator has 14 days to send out the election notice.

60 Days: The qualified beneficiary has 60 days to elect COBRA coverage.

45 Days: Once they elect COBRA, the qualified beneficiary has 45 days to make their first premium payment.

30 Days: COBRA participants must be given a 30-day grace period to make monthly payments for COBRA coverage.

Your notification requirements:

General Notice (formerly known as the Initial Notice)

  • This notice informs covered individuals of their continuation rights under COBRA upon the future occurrence of a qualifying event. DOL Regulations specify a 90-day notification timeframe.

When to send a General Notice

  • Company first becomes subject to COBRA

  • New employee (and spouse, if any) becomes covered under plan

  • Employee adds spouse to plan upon marriage or open enrollment

What the General Notice includes

  • Basic information about COBRA

  • Informs employee and spouse of responsibility to notify employer

  • Responsibilities, rights and obligations

How to distribute the General Notice

  • First class mail or USPS certificate of mailing

  • DO NOT…insert as payroll stuffer or post on bulletin board

  • Same language must be included in company Summary Plan Description, but if employer wishes to use the SPD to satisfy notice requirement , the SPD must be distributed in the same manner prescribed for the General Notice.

Election Notice

  • This notice is given to qualified beneficiaries upon the occurrence of a qualifying event. The election notice should include the following:

  • Type of qualifying event

  • Date of qualifying event

  • Loss of coverage date

  • Election period

  • Type(s) of coverage

  • Premium amounts

  • Due date of premium

  • Separate election rights for each qualified beneficiary

  • Continuation coverage period

  • Names, address, and phone number of plan administrator

  • Reasons employer may terminate COBRA coverage

Conversion Notice

  • If a group health plan offers a conversion option, this option must be offered to qualified beneficiaries upon the exhaustion of continuation coverage.

  • Notice should be distributed within the last 180 days of the continuation coverage period.

  • If group health plan does not offer a conversion option, COBRA does not require that a conversion option be made available.

  • Exhaustion of COBRA now allows for conversion rights in to an exchange plan

Other Required Notices:

  • Notification of Early Termination

  • Notice of Unavailability

Employee Notification Requirements:

  • If exercising COBRA rights, provide written notice to employer within specified 60-day election period

  • Notice to employer within 60 days of a divorce, legal separation or loss of dependent child status

  • Notice to employer within 60 days of a disability determination from the Social Security Administration

  • Notice to employer within 30 days of a final determination that the individual is no longer disabled

Do you need to know more about COBRA or how our administration partner can assist you? Download the COBRA Cheat Sheet today!