Editor's note: Katie Clarey, who is a couple years into covering HR, continues to educate herself and readers on the building blocks of the field with her series, Back to Basics. If you're new to the field (or just need a little refresher), follow along as she speaks with experts and lays out the basics of federal employment law. Today, however, Reporter Sheryl Estrada is subbing in, digging in to the basics of COBRA.
Alan had a full-time job as a sous chef at a restaurant. After two years, the owner announced the days of operation would decrease from seven to four per week, resulting in a reduction of staff. Alan’s position was eliminated.
The health insurance coverage provided by Alan’s employer allowed him to keep his diabetes under control through consistent doctor visits and prescribed medication. Alan believed he could quickly get another part-time job. But he knew it could take a few months before landing a full-time, traditional position that offered health insurance. How can Alan maintain health coverage? The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a possible solution.
What is COBRA?
COBRA is a federal law that requires group health plans maintained by employers with 20 or more employees to temporarily continue health coverage for qualified beneficiaries when a qualifying event occurs, Tzvia Feiertag, member of the firm in the Employee Benefits/Executive Compensation practice at Epstein Becker & Green, P.C., told HR Dive. COBRA can be administered through an employer or an outside vendor, Feiertag said. However, compliance with the law is the responsibility of the employer, she added.
Qualified events under COBRA include terminations, for any reason other than "gross misconduct" per U.S. Department of Labor (DOL) guidance, and hour reductions which result in loss of health coverage. It can also include death of a covered employee, divorce or legal separation, Medicare entitlement and loss of dependent status. Although there isn’t a qualifying factor for furloughs, it’s possible that a furloughed employee can also have a COBRA right, Feiertag explained. If an employees’ hours are reduced, under that employer’s plan, they could be eligible, she said. "So, for that period of time they’re furloughed, they could continue to get coverage, if they were to elect COBRA," Feiertag said.
Employers must provide an initial notice to beneficiaries (the employee, covered spouses, dependent children) explaining the right to elect COBRA to continue to receive health coverage, Feiertag said. The employer must then notify the health plan provider within 30 days of the event, "if the qualifying event is the covered employee's termination or reduction of hours of employment, death, entitlement to Medicare or bankruptcy of a private-sector employer," according to DOL. Within 14 days of receiving a notice of a qualifying event, the health insurance carrier must give the qualified beneficiaries an COBRA election notice.
Upon receiving the election notice, beneficiaries have 60 days to choose whether or not to elect continuation coverage, Feiertag said. Continuation of health coverage under COBRA must be the same as the coverage currently available under the plan. Based on the type of qualifying event, COBRA can provide either an 18-month or a 36-month period where an individual gets to continue their coverage, Feiertag said.
Notably, DOL issued a new model for a COBRA general notice and election notice May 1 to assist Medicare-eligible individuals. "I counsel employers to really work with a COBRA administrator," Feiertag said. "There’s a lot of pitfalls in not meeting the deadline requirements. Working together with a COBRA administrator makes it easier for an employer to manage."
Who pays the COBRA premium?
"Group health plans can require qualified beneficiaries to pay for COBRA continuation coverage, although plans can choose to provide continuation coverage at reduced or no cost," DOL guidance states.
The maximum cost cannot exceed 102% of the cost to the plan for individuals covered under the plan who have not incurred a qualifying event, Feiertag said. However, employers may choose to subsidize the COBRA cost, Feiertag said. For example, employers who are financially struggling and have no choice but to furlough employees may choose to offer a COBRA subsidy to ensure employees' needs are being met and there isn’t a gap in coverage, she said.
But employers "need to be mindful of potential non-discrimination issues when doing that," she added. Paying the COBRA costs for all employees who are eligible as a result of a qualifying event may be acceptable as opposed to only paying the costs for certain employees who are eligible, for example, Feiertag said.
"During COVID-19 pandemic, what’s happened is some insurance carriers are allowing employers to keep furloughed employees on an active rate," she said. For self-insured employers, they’ve been able to get their carrier to improve that as well, she added.
In general, even for those working with an outside vendor, there has been recent litigation over COBRA notices, Feiertag said. One way for an employer or COBRA administrator to stay on top of the law is to go back to the initial notice and election notice, "even if you’re going through a vendor," and make sure that they are up to date, she said. Make sure the notices are consistent with the terms of your plan, and that you understand the terms of your plan — "especially the tricky areas like furloughs," she added.