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There was a time when group health coverage was available only to
full-time workers and their families. That changed in 1986 with the
passage of health benefit provisions in the Consolidated Omnibus Budget
Reconciliation Act (COBRA). Now, terminated employees or those who lose
coverage because of reduced work hours may be able to buy group coverage
for themselves and their families for limited periods of time.
If you are entitled to COBRA benefits, your health plan must give
you a notice stating your right to choose to continue benefits provided
by the plan. You have 60 days to accept coverage or lose all rights to
benefits. Once COBRA coverage is chosen, you are required to pay for the
coverage.
WHAT IS THE CONTINUATION HEALTH LAW?
Congress passed the landmark Consolidated Omnibus Budget Reconciliation
Act (COBRA){1} health benefit provisions in 1986. The law amends the
Employee Retirement Income Security Act (ERISA), the Internal Revenue
Code and the Public Health Service Act to provide continuation of group
health coverage that otherwise would be terminated.
COBRA contains provisions giving certain former employees,
retirees, spouses and dependent children the right to temporary
continuation of health coverage at group rates. This coverage, however,
is only available in specific instances. Group health coverage for COBRA
participants is usually more expensive than health coverage for active
employees, since usually the employer formerly paid a part of the
premium. It is ordinarily less expensive, though, than individual health
coverage.
The law generally covers group health plans maintained by employers
with 20 or more employees in the prior year. It applies to plans in the
private sector and those sponsored by state and local governments.{2}
The law does not, however, apply to plans sponsored by the Federal
government and certain church- related organizations.
Group health plans sponsored by private sector employers generally
are welfare benefit plans governed by ERISA and subject to its
requirements for reporting and disclosure, fiduciary standards and
enforcement. ERISA neither establishes minimum standards or benefit
eligibility for welfare plans nor mandates the type or level of benefits
offered to plan participants. It does, though, require that these plans
have rules outlining how workers become entitled to benefits.
Under COBRA, a group health plan ordinarily is defined as a plan
that provides medical benefits for the employer's own employees and
their dependents through insurance or otherwise (such as a trust, health
maintenance organization, self-funded pay-as-you-go basis, reimbursement
or combination of these). Medical benefits provided under the terms of
the plan and available to COBRA beneficiaries may include:
- Inpatient and outpatient hospital care
- Physician care
- Surgery and other major medical benefits
- Prescription drugs
- Any other medical benefits, such as dental and vision care
Life insurance, however, is not covered under COBRA.
WHO IS ENTITLED TO BENEFITS?
There are three elements to qualifying for COBRA benefits. COBRA
establishes specific criteria for plans, beneficiaries and events which
initiate the coverage.
PLAN COVERAGE
Group health plans for employers with 20 or more employees on more than
50 percent of the working days in the previous calendar year are subject
to COBRA. The term "employees" includes all full-time and part-time
employees, as well as self-employed individuals. For this purpose, the
term employees also includes agents, independent contractors and
directors, but only if they are eligible to participate in a group
health plan.
BENEFICIARY COVERAGE
A qualified beneficiary generally is any individual covered by a group
health plan on the day before a qualifying event. A qualified
beneficiary may be an employee, the employee's spouse and dependent
children, and in certain cases, a retired employee, the retired
employee's spouse and dependent children.
QUALIFYING EVENTS
"Qualifying events" are certain types of events that would cause, except
for COBRA continuation coverage, an individual to lose health coverage.
The type of qualifying event will determine who the qualified
beneficiaries are and the required amount of time that a plan must offer
the health coverage to them under COBRA. A plan, at its discretion, may
provide longer periods of continuation coverage.
The types of qualifying events for employees are:
- Voluntary or involuntary termination of employment for reasons other
than "gross misconduct"
- Reduction in the number of hours of employment
The types of qualifying events for spouses are:
- Termination of the covered employee's employment for any reason other
than "gross misconduct"
- Reduction in the hours worked by the covered employee
- Covered employee's becoming entitled to Medicare
- Divorce or legal separation of the covered employee
- Death of the covered employee
The types of qualifying events for dependent children are the same as
for the spouse with one addition:
Loss of "dependent child" status under the plan rules.
YOUR RIGHTS: NOTICE AND ELECTION PROCEDURES
COBRA outlines procedures for employees and family members to elect
continuation coverage and for employers and plans to notify
beneficiaries. The qualifying events contained in the law create rights
and obligations for employers, plan administrators and qualified
beneficiaries.
Qualified beneficiaries have the right to elect to continue
coverage that is identical to the coverage provided under the plan.
Employers and plan administrators have an obligation to determine the
specific rights of beneficiaries with respect to election, notification
and type of coverage options.
NOTICE PROCEDURES
General Notices
An initial general notice must be furnished to covered employees, their
spouses and newly hired employees informing them of their rights under
COBRA and describing provisions of the law.
COBRA information also is required to be contained in the summary
plan description (SPD) which participants receive. ERISA requires
employers to furnish modified and updated SPDs containing certain plan
information and summaries of material changes in plan requirements. Plan
administrators must automatically furnish the SPD booklet 90 days after
a person becomes a participant or beneficiary begins receiving benefits
or within 120 days after the plan is subject to the reporting and
disclosure provisions of the law.
Specific Notices
Specific notice requirements are triggered for employers, qualified
beneficiaries and plan administrators when a qualifying event occurs.
Employers must notify plan administrators within 30 days after an
employee's death, termination, reduced hours of employment, entitlement
to Medicare. Multiemployer plans may provide for a longer period of
time.
A qualified beneficiary must notify the plan administrator within 60
days after events such as divorce or legal separation or a child's
ceasing to be covered as a dependent under plan rules.
Disabled beneficiaries must notify plan administrators of Social
Security disability determinations. A notice must be provided within 60
days of a disability determination and prior to expiration of the
18-month period of COBRA coverage. These beneficiaries also must notify
the plan administrator within 30 days of a final determination that they
are no longer disabled.
Plan administrators, upon notification of a qualifying event, must
automatically provide a notice to employees and family members of their
election rights. The notice must be provided in person or by first class
mail within 14 days of receiving information that a qualifying event has
occurred.
There are two special exceptions to the notice requirements for
multiemployer plans. First, the time frame for providing notices may be
extended beyond the 14- and 30-day requirements if allowed by plan
rules. Second, employers are relieved of the obligation to notify plan
administrators when employees terminate or reduce their work hours. Plan
administrators are responsible for determining whether these qualifying
events have occurred.
ELECTION
The election period is the time frame during which each qualified
beneficiary may choose whether to continue health care coverage under an
employer's group health plan. Qualified beneficiaries have a 60-day
period to elect whether to continue coverage. This period is measured
from the later of the coverage loss date or the date the notice to elect
COBRA coverage is sent. COBRA coverage is retroactive if elected and
paid for by the qualified beneficiary.
A covered employee or the covered employee's spouse may elect COBRA
coverage on behalf of any other qualified beneficiary. Each qualified
beneficiary, however, may independently elect COBRA coverage. A parent
or legal guardian may elect on behalf of a minor child.
A waiver of coverage may be revoked by or on behalf of a qualified
beneficiary prior to the end of the election period. A beneficiary may
then reinstate coverage. Then, the plan need only provide continuation
coverage beginning on the date the waiver is revoked.
HOW COBRA COVERAGE WORKS
Example 1:
John Q. participates in the group health plan maintained by the ABC Co.
John is fired reason other than gross misconduct and his health coverage
is terminated. John may elect and pay for a maximum of 18 months of
coverage by the employer's group health plan at the group rate. (See
Paying for COBRA Coverage.)
Example 2:
Day laborer David P. has health coverage through his wife's plan
sponsored by the XYZ Co. David loses his health coverage when he and his
wife become divorced. David may purchase health coverage with the plan
of his former wife's employer. Since in this case divorce is the
qualifying event under COBRA, David is entitled to a maximum of 36
months of COBRA coverage.
Example 3:
RST, Inc. is a small business which maintained an insured group health
plan for its 10 employees in 1987 and 1988. Mary H., a secretary with
six years of service, leaves in June 1988 to take a position with a
competing firm which has no health plan. She is not entitled to COBRA
coverage with the plan of RST, Inc. since the firm had fewer than 20
employees in 1987 and is not subject to COBRA requirements.
Example 4:
Jane W., a stock broker, left a brokerage firm in May 1990 to take a
position with a chemical company. She was five months pregnant at the
time. The health plan of the chemical company has a pre-existing
condition clause for maternity benefits. Even though Jane signs up for
the new employer's plan, she has the right to elect and receive coverage
under the old plan for COBRA purposes because the new plan limits
benefits for preexisting conditions.
COVERED BENEFITS
Qualified beneficiaries must be offered benefits identical to those
received immediately before qualifying for continuation coverage.
For example, a beneficiary may have had medical, hospitalization,
dental, vision and prescription benefits under single or multiple plans
maintained by the employer. Assuming a qualified beneficiary had been
covered by three separate health plans of his former employer on the day
preceding the qualifying event, that individual has the right to elect
to continue coverage in any of the three health plans.
Non-core benefits are vision and dental services, except where they
are mandated by law in which case they become core benefits. Core
benefits include all other benefits received by a beneficiary
immediately before qualifying for COBRA coverage.
If a plan provides both core and non-core benefits, individuals may
generally elect either the entire package or just core benefits.
Individuals do not have to be given the option to elect just the
non-core benefits unless those were the only benefits carried under that
particular plan before a qualifying event.
A change in the benefits under the plan for active employees may
apply to qualified beneficiaries. Beneficiaries also may change coverage
during periods of open enrollment by the plan.
DURATION OF COVERAGE
COBRA establishes required periods of coverage for continuation health
benefits. A plan, however, may provide longer periods of coverage beyond
those required by COBRA. COBRA beneficiaries generally are eligible to
pay for group coverage during a maximum of 18 months for qualifying
events due to employment termination or reduction of hours of work.
Certain qualifying events, or a second qualifying event during the
initial period of coverage, may permit a beneficiary to receive a
maximum of 36 months of coverage.
Coverage begins on the date that coverage would otherwise have been
lost by reason of a qualifying event and can end when:
- The last day of maximum coverage is reached
- Premiums are not paid on a timely basis
- The employer ceases to maintain any group health plan
- Coverage is obtained with another employer group health plan that does
not contain any exclusion or limitation with respect to any
pre-existing condition of such beneficiary
- A beneficiary is entitled to Medicare benefits
Special rules for disabled individuals may extend the maximum
periods of coverage. If a qualified beneficiary is determined under
Title II or XVI of the Social Security Act to have been disabled at the
time of a termination of employment or reduction in hours of employment
and the qualified beneficiary properly notifies the plan administrator
of the disability determination, the 18-month period is expanded to 29
months.
Although COBRA specifies certain maximum required periods of time
that continued health coverage must be offered to qualified
beneficiaries, COBRA does not prohibit plans from offering continuation
health coverage that goes beyond the COBRA periods.
Some plans allow beneficiaries to convert group health coverage to
an individual policy. If this option is available from the plan under
COBRA, it must be offered to you. In this case, the option must be
given for the beneficiary to enroll in a conversion health plan within
180 days before COBRA coverage ends. The premium is generally not at a
group rate. The conversion option, however, is not available if the
beneficiary ends COBRA coverage before reaching the maximum period of
entitlement.
PAYING FOR COBRA COVERAGE
Beneficiaries may be required to pay the entire premium for coverage. It
cannot exceed 102 percent of the cost to the plan for similarly situated
individuals who have not incurred a qualifying event. Premiums reflect
the total cost of group health coverage, including both the portion paid
by employees and any portion paid by the employer before the qualifying
event, plus two percent for administrative costs.
For disabled beneficiaries receiving an additional 11 months of
coverage after the initial 18 months, the premium for those additional
months may be increased to 150 percent of the plan's total cost of
coverage.
Premiums due may be increased if the costs to the plan increase but
generally must be fixed in advance of each 12-month premium cycle. The
plan must allow you to elect to pay premiums on a monthly basis if you
ask to do so.
The initial premium payment must be made within 45 days after the
date of the COBRA election by the qualified beneficiary. Payment
generally must cover the period of coverage from the date of COBRA
election retroactive to the date of the qualifying event. Premiums for
successive periods of coverage are due on the date stated in the plan
with a minimum 30-day grace period for payments.
The due date may not be prior to the first day of the period of
coverage. For example, the due date for the month of January could not
be prior to January 1 and coverage for January could not be canceled if
payment is made by January 31.
Premiums for the rest of the COBRA period must be made within 30
days after the due date for each such premium or such longer period as
provided by the plan. The plan, however, is not obligated to send
monthly premium notices.
COBRA beneficiaries remain subject to the rules of the plan and
therefore must satisfy all costs related to deductibles, catastrophic
and other benefit limits.
CLAIMS PROCEDURES
Health plan rules must explain how to obtain benefits and must include
written procedures for processing claims. Claims procedures are to be
included in the SPD booklet.
You should submit a written claim for benefits to whomever is
designated to operate the health plan (employer, plan administrator,
etc.). If the claim is denied, notice of denial must be in writing and
furnished generally within 90 days after the claim is filed. The notice
should state the reasons for the denial, any additional information
needed to support the claim and procedures for appealing the denial.
You have 60 days to appeal a denial and must receive a decision on
the appeal within 60 days after that unless the plan:
- provides for a special hearing, or
- the decision must be made by a group which meets only on a
periodic basis
Contact the plan administrator for more information on filing a claim
for benefits. Complete plan rules are available from employers or
benefits offices. There can be charges up to 25 cents a page for copies
of plan rules.
COORDINATION WITH OTHER BENEFITS
The Family and Medical Leave Act (FMLA), effective August 5, 1993,
requires an employer to maintain coverage under any "group health plan"
for an employee on FMLA leave under the same conditions converge would
have been provided if the employee had continued working. Coverage
provided under the FMLA is not COBRA coverage, and FMLA leave is not a
qualifying event under COBRA. A COBRA qualifying event may occur,
however, when an employer's obligation to maintain health benefits under
FMLA ceases, such as when an employee notifies an employer of his or her
intent not to return to work.
Further information on FMLA is available from the nearest office of the
Wage and Hour Division, listed in most telephone directories under U.S.
Government, Department of Labor, Employment Standards Administration.
ROLE OF THE FEDERAL GOVERNMENT
Continuation coverage laws are administered by several agencies. The
Departments of Labor and the Treasury have jurisdiction over private
sector health plans. The United States Public Health Service administers
the continuation coverage law as it affects public sector health plans.
The Labor Department's interpretative and regulatory responsibility is
limited to the disclosure and notification requirements. If you need
further information on your election or notification rights with a
private sector plan, write to the nearest office of the Pension and
Welfare Benefits Administration (See Field Directory at end of document)
or:
U.S. Department of Labor
Pension and Welfare Benefits Administration
Division of Technical Assistance and Inquiries
200 Constitution Ave., N.W.
(Room N-5619)
Washington, D.C. 20210
The Internal Revenue Service, which is in the Department of the
Treasury, is responsible for publishing regulations on COBRA provisions
relating to eligibility and premiums. Both Labor and Treasury share
jurisdiction for enforcement.
The U.S. Public Health Service, located in the Department of Health
and Human Services, has published Title XXII of the Public Health
Service Act entitled "Requirements for Certain Group Health Plans for
Certain State and Local Employees." Information about COBRA provisions
concerning public sector employees is available from the:
U.S. Public Health Service Office of the Assistant Secretary for Health
Grants Policy Branch (COBRA) 5600 Fishers Lane (Room 17A-45) Rockville,
Maryland 20857
Federal employees are covered by a law similar to COBRA. Those
employees should contact the personnel office serving their agency for
more information on temporary extensions of health benefits.
CONCLUSION
Rising medical costs have transformed health benefits from a privilege
to a household necessity for most Americans. COBRA creates an
opportunity for persons to retain this important benefit.
Workers need to be aware of changes in health care laws to preserve
their benefit rights. A good starting point is reading your plan
booklet. Most of the specific rules on COBRA benefits can be found there
or with the person who manages your health benefits plan.
Be sure to periodically contact the health plan to find out about
any changes in the type or level of benefits offered by the plan.
Thanks to:
www.firstgov.gov
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