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Guide to Navigating COBRA Qualifying Events

Consolidated Omnibus Budget Reconciliation Act (COBRA) qualifying events are common issues that arise for employers and may generate questions about how to navigate through offering qualifying employees with notices and continuation coverage.

It is essential for employers to understand and follow the regulations of COBRA to avoid violations that can result in hefty penalties on their behalf.

COBRA Applicability

Employers that employed 20 or more employees on more than 50% of its typical business days during the previous calendar year are subject to COBRA and must offer continuation coverage when certain qualifying events occur that cause an individual to lose health coverage. Full-time and part-time employees are counted in this determination. Part-time employees are counted as a fraction of a full-time employee, equal to the number of hours that part-time employee worked divided by the hours required to be considered full-time.

COBRA Qualified Beneficiary

To be eligible for COBRA continuation coverage, an individual must be a qualified beneficiary that experiences a qualifying event. A qualified beneficiary is an individual who is covered by the employer’s group health plan on the day before the qualifying event and is either a(n):

  • Employee
  • Retired employee
  • Agent
  • Employee’s spouse
  • Retired employee’s spouse
  • Independent contractor
  • Employee’s dependent child
  • Retired employee’s child
  • Director

COBRA Qualifying Events

Depending on the qualifying event that occurs, qualified beneficiaries are entitled to 18 to 36 months of continuation coverage.

  • 18 Months

    • Voluntary or involuntary termination (except gross misconduct)
    • Reduction in number of hours worked (resulting in loss of coverage)
  • 29 Months

    • Disability after initial qualifying event (11-month extension)
  • 36 Months

    • Death of covered employee (spouse/dependent)
    • Death of qualified beneficiary
    • Second qualifying event (18-month extension)
    • Divorce/legal separation
    • Loss of dependent status
    • Medicare entitlement
    • Employer bankruptcy (for retirees and their dependents)

COBRA Notice Requirements

General Notice

Election Notice

Unavailability Notice

Early Termination Notice

Employer must provide within first 90 of coverage Employer must provide within 14 days after notice of qualifying event Employer must provide within 14 days after request, if received Employer must provide termination date, reason, and rights to elect alternate coverage
Beneficiaries have 60 days after notice to elect COBRA coverage Employer must provide reason why request was denied Employer must give notice as soon as practicable after decision to terminate

COBRA Penalties

  • IRS - Department of Treasury

    • Maximum daily excise tax penalty of $100/up to $200 per day
    • Maximum limit for excise from employer is lesser of 10% of employee health plan cost in previous year or $500,000
  • ERISA - Department of Labor

    • Qualified beneficiaries may sue to recover statutory penalties of $110 per day
  • Office of Civil Rights (OCR) - Department of Health and Human Services (HHS)

    • Penalties up to $50,000 per breach
    • May require written notice to covered employees of COBRA compliance
  • Civil Lawsuit

    • Covered employees and qualified beneficiaries may sue in federal court under ERISA

Frequently Asked Questions

  • Can an employer send one COBRA notice for a married couple and dependent children?

    A single notice for a married couple and dependent is permissible if they reside at the same address. Note that a hand delivered notice to covered employee at work does not meet the requirement for delivery to spouse.

  • Does an employer have to offer COBRA when the employee engaged in gross misconduct?

    Being terminated for gross misconduct disqualifies an employee for COBRA continuation coverage.

  • If an individual waives COBRA initially, can they sign up for it later?

    Qualified beneficiaries can elect COBRA coverage after waiving as long as they do so during the 60 day election period.

  • What benefits must be covered by under COBRA?

    Continuation coverage under COBRA must be identical to the coverage currently available under the plan to similarly situated active employees and their families.

  • How does an employer determine the cost of COBRA coverage?

    For determining COBRA coverage cost, the plan can include the cost paid by employees and employer, plus an additional 2% for administrative cost. The total cost cannot exceed 102% of the cost of the plan for similarly situated active employees under plan.

  • When is entitlement to Medicare a COBRA qualifying event?

    It is rare that entitlement to Medicare is a COBRA qualifying event, but it can extend the maximum COBRA coverage to spouses and dependents if the employee has a termination or reduction in hours within 18 months after becoming entitled to Medicare or 36 months from the date the employee became enrolled in Medicare.

  • Can an employer terminate COBRA coverage for non-payment?

    If a premium payment is not received by first day of a period of coverage, the plan can cancel coverage subject to a 30 day grace period. Failure to make payment in full before the end of grace period could result in losing all COBRA rights.

  • Should an employer offer COBRA to employees who are out on Family and Medical Leave Act (FMLA)?

    FMLA is not a COBRA qualifying event. A COBRA qualifying event may occur after FMLA is exhausted and/or employee taking FMLA decides not to return to work and notifies employer.

  • Can an employer terminate COBRA coverage if the employee enrolls in another group health plan?

    Employers can terminate coverage if a qualified beneficiary begins coverage under another group health plan after electing COBRA continuation coverage

 

DOWNLOAD THE INFOBRIEF: COBRA 101 and FAQ's

 

 

To learn more about navigating COBRA qualifying events or if you have other compliance-related questions, reach out to your OneDigital representative today.

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