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").
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".
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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."
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
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.
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.
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."
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.
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.
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.
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.
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.
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.
HEALTH INSURANCE CONTINUATION RIGHTS AND ILLINOIS INSURANCE FACTS
When you can no longer be covered under your Group health insurance Plan, due to your termination as an eligible participant, you have the option, at your expense, to continue your medical coverage under the Group Plan for up to 9 months under Illinois Continuation, or up to 18 months under Cobra. In addition, if you have a spouse or dependent child(ren) who were covered under the Group Plan as of the Coverage Termination Date, they also have the option to continue their medical benefits under the Group Plan.
Who will notify me of my right to continue my health benefits?
The employer or Group Plan administrator must notify you of your right to continue your health benefits when certain qualifying events have occurred.
NOTE: In some cases, the spouse, former spouse, dependent child or guardian must notify the employer and/or insurer that a qualifying event has occurred, such as divorce from or death of the covered employee or attainment of the limiting age by the dependent child. If you don’t give proper notification, your continuation rights may be lost.
What coverage is included?
Continuation of coverage does not include any other benefits you may have been receiving prior to your termination date. However, if coverage changes for active employees under the Group Plan, coverage will change in the same manner for persons receiving Continuation/Cobra coverage.
What is the time period for electing coverage?
Once you are offered Continuation/Cobra coverage, you must request such continuation in writing within the ten-day period following the later of: 1) the date of employment termination; or 2) the date you are given written notice of your right to continuation. If you don’t tell the employer you want to continue coverage before the election period expires, you may lose your right to continue coverage.
In no event may you elect Continuation/Cobra more than 60 days after the date of employment termination.
Who can be covered?
You may elect Continuation/Cobra coverage on behalf of your spouse and dependent child(ren) who were covered under the Group Plan on the date of your termination. However, you may not decline coverage on behalf of your spouse. If you decline coverage for yourself, your spouse has an independent right to elect continuation coverage. You or your spouse may elect Continuation/Cobra coverage on behalf of your dependent child(ren). However, if both parents decline coverage, a dependent child has the independent right to elect coverage for him/her self.
Coverage may be elected for children who are born or placed for adoption with a covered employee during the period of the employee’s Continuation/Cobra coverage in accordance with the Group Plan’s enrollment rules.
What about the premium?
You must pay the entire premium for the coverage including the part you used to pay as well as the part the employer paid before the qualifying event. In addition, you may also be required to pay an administrative fee under certain circumstances for Cobra and Spousal Continuation.
How long will benefits continue?
If you elect to purchase these Continuation/Cobra benefits and timely pay the initial premium, benefits will be continued from your termination date until the following (whichever event is earliest):
- 9 months for Illinois Continuation and 18 months for Cobra after your termination date.
- You become a covered employee under a group health plan that has no limitations or exclusions with respect to any preexisting conditions that your (or your dependent(s)) may have.
- You or your dependent(s) become entitled to Medicare.
- You fail to pay the monthly charge for this coverage on time.
- The Group Health Plan is no longer in force.
More information?
This is a summary of your rights and the rights of your spouse and dependent child(ren). Your Group Plan insurance certificate, evidence of coverage or benefit plan summary booklet explains your options and responsibilities in detail. You should read the information now. Don’t wait until you need your continuation rights. If you have specific questions, please contact the Illinois Department of Insurance, Consumer Services at 312-814-2427 or their Office of Consumer Health Insurance toll free at 877-527-9431.
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