COBRA Law and You
As of January, 1998, there is no federal law that requires employers to provide health care insurance benefits to employees. However, one important federal law does impose certain obligations on many employers to continue to provide health care coverage in the event of a change of employment or job status. A newer law, known as the Kennedy-Kassebaum Act (discussed below), also provides some new benefits to many workers changing jobs.
That law is often referred to as "COBRA", short for the full name - The Consolidated Omnibus Budget Reconciliation Act of 1985. According to COBRA, if an employer provides health care benefits to an employee and there is a change in that employee's job status, the employer must continue to make the health care benefits available for a period of time. The COBRA continuation requirements apply to all of the "core benefits" provided under any group health plan that furnishes medical care benefits to employees and their dependents, regardless of whether the plan is insured or self funded. COBRA does not apply to "small employers" (discussed below), certain governmental units and church plans. Nearly every other employer is subject to this law.
COBRA obligations apply to any covered employer that has a group health plan to provide health care directly or otherwise to employees, former employees or the families of those people. The obligations apply even if the employer does not contribute to the cost of the plan, but simply makes it available at discounted group term rates to employees. The obligations do not arise if the employer neither contributes to the plan nor has any involvement in its operation. For example, plans maintained by an employee representative, such as a union, are not group health plans subject to the continuation coverage requirements.
A covered employer is required to provide continuation coverage, regardless of whether its underlying insurance policy includes COBRA coverage or if the insurer refuses to issue continuation coverage without evidence of insurability. Coverage must be provided, even if the employer has to self insure it. Because the obligation is absolute, each small business should be sure that its insurer will provide continuation benefits to COBRA beneficiaries.
An "employer" as defined by COBRA includes nearly every private and public employer except a "small employer". A small employer is one that normally employs fewer than 20 employees on a typical business day. If your employer is a covered employer and provides COBRA continuation benefits to an employee, and then later changes to that of a small employer, your employer is nonetheless required to continue COBRA benefits for those former employees who received them before the change to small employer status.
Employees, for the purposes of this law, include both full-time and part-time workers. In addition, certain self employed persons may be included. For example, partners in a law firm are treated as employees. Additionally, independent contractors, as well as any employees or agents of the independent contractors are treated as employees if those individuals are eligible to participate in the employer's group health plan.
In addition to employees, COBRA also creates certain rights for qualified beneficiaries. A qualified beneficiary is an individual who was on the day before a qualifying event, a beneficiary under a covered group health plan. In addition to the covered employee himself or herself, other qualified beneficiaries may include a spouse of the covered employer or a dependent child. The group of qualified beneficiaries closes as of the day before the qualifying event. In other words, newborn children, adopted children and new spouses who subsequently join the family are not qualified beneficiaries.
A covered employee is an individual who is provided coverage under the group health plan by virtue of his or her performance of services for one or more people that maintain the plan. If an individual is merely eligible for group health plan coverage, but is not in fact covered under the plan, the individual is not a covered employee. The reason that the person is not covered is not relevant in determining whether the individual is a covered employee. This may happen where an individual declines to be included in the group health plan, usually because he or she has elected some other optional benefit.
The obligation to provide the continued health insurance benefits is triggered by the occurrence of a "qualifying event". Any of these events, when it results in the loss of coverage of a "qualified beneficiary" causes an employer to provide COBRA benefits:
- Death - The covered employee dies and it causes a qualified beneficiary to lose coverage
- Termination or reduction of hours - This does not include terminations due to an employee's gross misconduct
- Divorce or legal separation - For example, husband (covered employee) and his wife (qualified beneficiary) divorce and wife loses benefits
- Medicare entitlement
- Change in status of a dependent child - A dependent child ceases to be such according to the plan and a qualifying beneficiary loses coverage
Under the rules, employers and plan administrators have important obligations to both apprise the covered employees and other qualified beneficiaries of their rights and to continue to supply the health care insurance coverage upon payment of the appropriate premium amount. The continued coverage must, in most cases, be supplied for a period of 18 months after the occurrence of a qualifying event. The premium charged by the employer can be no more than the employer's actual cost, plus 2%.
Under COBRA, two different notice requirements are triggered by a qualifying event. First, the employer must give notice to the plan administrator of the group health care plan. Often, with self insured plans, there is no real burden. Then, the plan administrator must give notice to the employee of his or her continuation rights.
Normally, the employer has 30 days following a qualifying event to notify the plan administrator. The plan administrator has 14 days after receiving that notice to notify the qualified beneficiary of the continuation coverage rights. The qualified beneficiary then has 60 days to elect whether he or she will continue coverage.
The length of coverage to which the qualified beneficiary is entitled depends upon the qualifying event. In the event of employee termination or reduction of hours, the coverage period is only 18 months from the qualifying event. Other events may provide for a continuation period of up to 36 months.
Certain events may also cause the continued coverage to terminate. Most commonly, the qualified beneficiary is no longer entitled to coverage under the law if he or she becomes covered under any other group health plan, or becomes entitled to Medicare benefits under Title XVIII of the Social Security Act. Note that the coverage does not cease upon Medicare entitlement if the qualifying event was the employer's bankruptcy and the qualified beneficiary was a retiree or other certain individuals.
In late 1996, President Clinton signed a new law designed to provide further protection to workers covered by group health plans. The Kennedy-Kassebaum Act requires certain group health plans to continue coverage of employees and dependents when they change jobs, even if an insured person has a "pre-existing" condition.
The new law does not cover all employers in all cases. The change for group health plans is effective for many for the first plan year after July 1, 1997, and for most of the rest by January 1, 1998. The rules are complicated, but the crux is this: if an employer with a group health plan hires a new employee who has been insured for at least 12 months, the new employer’s plan must cover the new employee immediately. The qualification period may be extended to 18 months for employees who enroll late. New employees that do not meet one of these standards may be required to wait up to one year.
Employees who may be covered by this law should request information from their employer's human resources department or health care plan administrator.
Relationship To Other Laws
The Workers Adjustment and Retraining Notification act of 1988 ("WARN"), sometimes called the "plant closing law", requires employers to give 60 days notice of site closings or to compensate laid off employees with amount equal to 60 days salary and benefits, including the cost of health insurance. WARN does not require an employer to provide laid off employees with actual medical plan coverage. Rather, WARN only obligates employers to pay the cost of medical expenses incurred as if the employment loss had not happened.
If an employer fails to comply with the obligations of WARN, that employer effectively becomes a self insurer of the medical benefits of laid off employees for 60 days. An employer may determine that it is lest costly simply to pay the COBRA premium after announcing the site closing in that situation.
The Family and Medical Leave Act requires certain employers to provide unpaid leave to employees in certain situations. If an employee takes an unpaid leave under this law, the employee must be continued under the employer's health care plan under the same conditions as before the leave.
Most states also have laws that require continuation of health insurance coverage for former employees. Also, many states require continuation of group life insurance coverage - an obligation not found in COBRA. If your state provides you more rights, you get the benefit of those expanded rights in addition to the benefits of COBRA.
What if you don't get your COBRA benefits?
If you believe that you have been illegally denied COBRA benefits, contact your former employer, first send a letter requesting coverage and ask for a written response. If your request is denied, you may want to contact an attorney. You may also want to contact your state's agency that handles these claims. Call the office of the Attorney General if you do not know what state office to contact. Lastly, you may want to contact the U.S. Department of Labor.