When you’re a business owner, keeping up with all of your employees and effectively managing your company takes a lot of work. While most of the energy of a CEO is probably focused on the day-to-day responsibilities, something that can often be overlooked are the employee health benefits and the continuation of these benefits when the employee leaves the company. To better understand what exactly continued coverage means, we’ve created an all-encompassing guide to COBRA. Within the guide we will discuss what COBRA is, which employers must provide COBRA benefits. As well as what benefits are covered, and much more.
What is COBRA?
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1985. And stands as a federal law that allows eligible employees as well as their dependents to continue their group health coverage for an extended period of time after losing their benefits. The law states that any company that has 20 or more employees and offers healthcare benefits must offer COBRA. More specifically, an employee who loses their healthcare benefits due to termination, reduction of hours or other qualifying events. Will be allowed to maintain their health insurance coverage for up to 18 months at their own expense. In some cases, it can be up to 36 months. COBRA acts as a safeguard for employees. Ensuring that they have an option to remain insured after parting ways with their employer. Or after experiencing other specific circumstances.
Who is Covered by COBRA benefits?
If your company is subject to COBRA and you offer your employees health benefits, you will be required to provide qualified beneficiaries with COBRA benefits. A qualified beneficiary is anyone who is covered under your group health insurance plan the day before an event takes place causing them to lose their coverage. This includes:
- Full and part-time employees who participate in your plan the day before a qualifying event takes place.
- An employee’s spouse.
- An employee’s dependents.
- An employee who retires (as long as they aren’t eligible for Medicare).
- An employee’s legal partner.
You will not be required to provide COBRA benefits to the following employees:
- An employee who declined to be a part of your group health plan.
- Individuals enrolled in and/or receiving Medicare benefits.
- An employee who isn’t eligible for your group health plan.
What Qualifying Events Trigger COBRA?
An event that allows an employee’s COBRA benefits to come into effect is referred to as a qualifying event. In general, there are three main qualifying event types — loss of a job, reduction in work hours, or a qualifying life event:
- Loss of a job – this is considered to be an employee’s voluntary or involuntary termination of employment. The exception to this is if an employee is terminated or quits due to gross misconduct. Although COBRA itself does not define misconduct, if you think this might be the case with an employee you must:
- Make a connection between the offense and the employee’s job.
- Must make them aware of the seriousness of the situation.
- Make sure that the employee’s offense was intentional or deliberate.
- Reduction of hours – anytime an employee’s hours are considerably reduced, such as the transition from full time to part time.
- Qualifying life event – some of the more common serious life events include:
- A spouse who is covered under the policy gets divorced or legally separated from an employee.
- An employee’s death.
- An employee who becomes entitled to receive Medicare.
- An employee’s dependent’s insurance status changes. For example, coming of age where they can no longer be on their parent’s insurance policy.
- An employee’s failure to return to work after family or medical leave is over (only if they were covered at the start of the leave, and then coverage was lost mid-way through).
- Your business files bankruptcy.
How Long Do Benefits Last?
When it comes to the continuation of benefits, the time period that benefits are extended depends upon the event that took place to trigger COBRA in the first place. For any employee that is terminated or experiences reduced hours, they and their dependents will be covered for 18 months. During any qualifying event that is not defined as termination or reduced hours, employees and their dependents will be covered for up to 36 months.
When to Communicate COBRA Rights
As an employer you are required to communicate with your employees about their continued coverage rights at specific times. Which includes:
- Notifying a covered employee as well as their spouse or partner of their rights under COBRA when the first opt-in to the group insurance plan.
- Notifying someone who is covered of their COBRA rights when a qualifying event occurs.
Generally, after one of the above situations occurs, you will have 30 days to notify the insurance company. In the case of a divorce or a dependent whose status changes. You will have 60 days to notify the insurance company. In turn, after notifying the insurer, the employee will then have 60 days to let you know if they want to continue coverage.
Who Pays For COBRA Benefits?
When an employee decides to continue coverage with COBRA, they will be responsible for paying the full cost of their insurance premiums. To cover administrative costs, the law states that the employer can charge 102 percent of the premium. Allowing you to keep the additional 2 percent. It’s also important to note that employees who receive COBRA coverage for over 18 months due to disability can be charged 150 percent of their premiums after the 18th month. It’s crucial for employers and employees to know that once COBRA premium payments are due, the beneficiary must make the payment within 30 days of the due date. Failure to pay premiums or payment any longer than 30 days late, can force COBRA benefits to be terminated.
Are There Other Continued Coverage Laws?
Some states have other laws that are similar to COBRA. These laws allow employees to remain covered under their former-employees insurance after experiencing a qualifying event. They vary quite a bit from state to state. So, it is important to research your specific state’s laws regarding these benefits. An example of this would be that various states have laws that protect employee benefits who work for companies with less than 20 employees. It’s important when looking at your states guidelines to pay attention to:
- Specific benefits that are covered.
- The characteristics of employers and insurers who are subject to these laws.
- The type of employees that are affected by these continued benefit laws.
- The triggering events that allow continued coverage.
- The length of the continued coverage.
- The laws surrounding when you must notify employees of their benefits.
Though it may seem like a lot of work and research to stay up to date with all of your state’s employee continued coverage laws, it will ensure that no former employee tries to take legal action against your organization. Additionally, many companies decide to outsource the administrative details surrounding COBRA and other similar laws. It may be in the best interest of your company to be sure nothing is forgotten or lost in translation.
What Alternatives Do Employees Have to COBRA?
Although COBRA benefits stand as a great option for employees to remain insured, there are various other options that should be considered in order to have the best coverage for their situation. A few of these alternatives include:
- Applying for Medicaid- depending on how much money your former employees make, they and their dependents may be eligible for Medicaid coverage. Medicaid is in place just for this reason — to provide low-cost or no-cost health insurance.
- Joining a spouse’s group insurance plan- if your employee’s spouse or legal partner has access to employer-sponsored health coverage, they could explore this as an option to remain insured.
- Exploring the Health Insurance Marketplace- a traditional private insurance option would be to explore plans on the Health Insurance Marketplace. On the marketplace they will be able to browse coverage based on their income, preferred provider, preferred benefits and more.
By complying with COBRA regulations, you will be playing your part in helping an employee and their dependents remain insured after a qualifying event. Such as termination, death, divorce or separation, change in policy and more. It’s vitally important that as an employer, you are aware of the details surrounding COBRA. Such as triggering events, communication policies, length of coverage, payment details, and other similar laws in your state. Additionally, you should encourage your employees to always be in the know about their COBRA coverage details, associated plans costs, as well as other COBRA alternatives.
Have More Questions?
If you want to learn more about group health insurance topics, such as the Consolidated Omnibus Budget Reconciliation Act or compare group insurance quotes for free visit Group-Health-Quotes.com. We have a group of licensed insurance agents who work around the clock to help businesses of all sizes to find affordable and in-depth coverage. Insurance can seem daunting, but it doesn’t have to be. To learn more or to get a free quote today, fill out a form on our website or give us a call at 888-571-0291.