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What Employers Need to Know About COBRA

Many companies struggle with meeting COBRA’s requirements. Failure to meet these requirements can lead to significant penalties for the employer. Therefore, it is very important that employers have an understanding of their responsibilities under COBRA and how to meet those responsibilities.

Below are commonly asked questions regarding COBRA:

What is COBRA?

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) is a federal Act allows the temporary continuation of group health coverage to employees, spouses and dependents that meet certain qualifying COBRA events.

Who Has to Comply?

COBRA requires employers with at least 20 employees on more than 50 percent of its typical business days in the prior calendar year. The calculation includes both full time and part time employees.   Part time employees are included in the calculation as a fraction of a full time employee. The fraction would be equal to the number of hours the part time employee worked divided by the number of hours an employee must work to be considered a full time employee.

What Are The Penalties for Non Compliance?

Non-Compliance with COBRA can lead to significant penalties for employers. Penalties for non-compliance can include:

  • Excise tax penalties of $100 per day ($200 if more than one family member is affected)
  • Statutory penalties of up to $110 per day under ERISA
  • Lawsuits

What Are Qualifying Events and How Long is Coverage Continued?

There are several qualifying events and employee, spouse and/or dependent might be eligible for. The length of coverage will vary based upon the qualifying event. The different qualifying events and related lengths of coverage are as follows:

Qualifying Events

Who is Entitled to Coverage

Length of Coverage

Voluntary Termination

Employee, spouse, and dependent(s)

18 months (29 months for disabled)

Involuntary Termination (except for gross misconduct)

Employee, spouse, and dependent(s)

18 months (29 months for disabled)

Reduction of Hours of Employee Causing Loss of Coverage

Employee, spouse, and dependent(s)

18 months (29 months for disabled)

Employee Enrollment in Medicare

Spouse and dependent(s)

36 months

Employee Divorce or Legal Separation

Former spouse and dependent(s)

36 months

Employee Death

Surviving spouse and dependent(s)

36 months

Dependent Loss of Coverage (marriage or age)

Dependent

36 months

What Notifications Must Be Provided to the Covered Employee?

COBRA requires different types of notifications to be sent to the covered employee throughout the process.  The primary notifications include:

General Notice

The General Notice must be provided to the covered employee and their spouse if they are covered under the plan. The General Notice is typically provided to the covered employee and covered spouse as part of the Summary Plan Description.  It must be provided to no later than:

  • 90 days after the covered employee or spouse becomes covered under the plan or
  • Date on which the plan administrator must furnish the COBRA Election Notice due to a qualifying event

The General Notice must include information such as the name of the plan and the rights afforded to them under COBRA. To ensure the general notice is compliant, it is suggested that you utilize the Model General Notice of COBRA Continuation Coverage Rights provided by the Department of Labor. If properly completed, the use of the Model General Notice will be considered by the Department of Labor as a good faith compliance with the general notice content requirements under COBRA.

COBRA Election Notice

After receiving notice of a qualifying event, the qualified beneficiaries must be provided with an election notice. The election notice must be provided to the qualified beneficiaries within 14 days after receiving notice of a qualifying event.

The election notice will describe the qualified beneficiaries’ rights to continuing coverage and the process to elect the coverage if they wish. It is suggested that employers utilize the Model Election Notice provided by the Department of Labor. It will include all information required to be included in the election notice. If it is filled out appropriately, the Department of Labor considers it a good faith compliance effort to meet the election notice content requirements under COBRA.

How Does the COBRA Election Process Work?

Once provided the COBRA Election Notice, the qualified beneficiaries have 60 days to choose to elect COBRA. The 60 day period begins from the latter of the date the election notice was provided or the date on which the qualified beneficiaries would otherwise lose coverage due to the qualifying event. While the qualified beneficiary has 60 days to elect the coverage, the coverage will be retroactive to the date of loss of coverage.

One issue that is commonly raised is whether an employer has to allow a qualified beneficiary to elect COBRA if they have previously revoked the COBRA coverage during the election period. The qualified beneficiary has the right to waive their revocation as long as it is done within the 60 day election period. Therefore, if COBRA is waived on day 15 of the election period and the employee decides to revoke that waiver and elect coverage under COBRA on day 45 of the election period they can certainly do that.

How Much Can I Charge for COBRA?

It is at the discretion of the employer how much a qualified beneficiary is charged for COBRA. However, the amount can not exceed 102% of the cost of the coverage. The premium charged should stay consistent for each 12 month premium period unless there is an increase in the plan premiums during that period.

If a qualified beneficiary receives the 11 month extension due to disability, the premiums for the additional 11 months can be increased to 150% of the cost of the coverage.

When Must COBRA Premiums Be Paid?

The initial premium payment must cover the period from the first day of the COBRA coverge. Therefore, if the election is not made until the 30th day of the election period, the payment must still cover from the first day the COBRA coverage goes into effect.  The initial premium payment must be received by the plan with 45 days of when the election is made. Therefore, the qualified beneficiary is not required to pay the premium due at the time of the election. If payment is not made within the 45 day period, the plan can terminate the qualified beneficiaries COBRA rights.

Subsequent payments can be made monthly if the employee requests or another frequency (weekly, etc.) as agreed upon by the qualified beneficiary and the plan. However, the qualified beneficiary must receive a grace period of 30 days after the due date to receive the required payment. If the required payment is not received by the end of the 30 day grace period, the plan can terminate coverage.

When Does COBRA Coverage End?

There are many reasons that cause an end to a qualified beneficiary’s COBRA rights. Some of the most common are:

  • End of the Maximum COBRA Period
  • Premiums are not paid timely
  • After COBRA election, coverage is obtained from another group plan
  • After COBRA election, beneficiary becomes entitled to Medicare
  • Employer no longer offers a health plan

Chris Cooley is co-founder of MyHRConcierge and SMB Benefits Advisors. Clients rely on him for HR compliance and administration, workforce management and benefits advisory solutions. Cooley’s companies specialize in helping small to medium businesses throughout the U.S. He can be reached at 877-946-7637, ext. 108 or at ccooley@smbba.com.


Chris Cooley | 07/11/2017