3 COBRA Basics You Need To Know
The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires large employers (20+ employees) to offer qualifying employees and family members the opportunity to continue group health coverage if lost as a result of a COBRA qualifying event. The purpose of COBRA is to help employees and their family members bridge the gap between group health coverage and coverage from another source, avoiding a period without insurance.
COBRA can be complex, and employers often outsource COBRA to Third-Party Administrators (TPAs). Despite this, there are a number of basics all plan sponsors should understand. To help with developing basic compliance knowledge, below are three COBRA basics you need to know.
- COBRA Applies to All Group Health Plans – Employers subject to COBRA must offer continuation of all group health plans upon the occurrence of a COBRA qualifying event. ERISA defines group health plan as an “employee welfare benefit plan providing medical care (as defined in section 213(d) of the Internal Revenue Code of 1986) to participants or beneficiaries directly or through insurance, reimbursement, or otherwise.”Clearly, the requirement applies to a major medical plan. In addition, most employers understand dental and vision plans are included in the definition of group health plan. Other benefits are included in the definition as well. For example, Health Reimbursement Arrangements (HRAs) and health Flexible Spending Arrangements (FSAs) are group health plans, although health FSAs are often subject to a limited version COBRA. Plan sponsors are often surprised to learn certain wellness programs, employee assistance programs, telemedicine benefits, and on-site clinics may be subject to COBRA depending on the specific benefits available. Before offering continuation coverage, it is important to recognize the various benefits subject to COBRA.
- The Initial (General) Notice and the Election Notice Are the Most Important COBRA Notices – There are a number of required and optional COBRA notices, but none more important than the initial notice and election notice. The initial notice should be distributed by the plan administrator to plan participants upon enrollment in the plan and outlines the basic COBRA duties of the plan sponsor and the rights and responsibilities of future COBRA beneficiaries. Failing to distribute an initial notice could result in a penalty of $110 per day and make it difficult for the plan to enforce notice deadlines that apply to the participant.The election notice communicates rights and responsibilities to a specific COBRA beneficiary and gives the beneficiary the opportunity to elect continuation coverage and the deadlines and rules for doing so. The election notice should be provided upon loss of coverage as a result of a COBRA qualifying event. There are a number of consequences that could arise from a failure to furnish an election notice, including a penalty of $110 per day and potential liability for health claims of the beneficiary. It is critical that both the initial and election notices are provided at the appropriate time.
- COBRA Beneficiaries Can Be Charged a Premium, Generally Not Exceeding 102% of the Cost of Coverage – There is no requirement to provide COBRA continuation coverage at reduced or no cost, even if the employer was contributing to premiums during non- COBRA coverage. Plan sponsors are permitted to charge beneficiaries a premium to continue coverage. For most COBRA beneficiaries, the maximum COBRA premium that can be charged is 102% of the “applicable premium.” For insured plans, the applicable premium is straightforward – the premium charged by the insurance company. Determining the premium for self-insured plans is more complex, and multiple methods are available.