What is COBRA?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a set of laws put into place by the Department of Labor (DOL) in order to protect employees from the possibility of losing health insurance coverage.
Under COBRA, employers with a group health plan and 20 or more full-time employees must offer a continuation of group health insurance coverage to qualified beneficiaries for a limited period of time.
COBRA administration and compliance add yet another layer of difficulty to successful employer administration.
Who Can Enroll in COBRA?
Qualified beneficiaries are the individuals entitled to extended group health insurance coverage under COBRA laws. COBRA qualified beneficiaries include:
- Resigned Employees
- Fired Employees
- Employees with reduced work hours
- Employees experiencing qualifying life events
- Dependents and spouse of an eligible employee
There are exceptions to COBRA eligibility. These include:
- Employees terminated for gross misconduct are not covered
- Companies with fewer than 20 employees are not required to provide extended coverage unless mandated by state-specific COBRA laws
What Counts as a Qualifying Event for COBRA Eligibility?
Qualifying events for covered employees include:
- Termination of employment for any reason aside from gross misconduct
- Reduction of employment hours
Qualifying events for beneficiaries include:
- Termination of a covered employee’s employment for any reason aside from gross misconduct
- Reduction of employment hours for a covered employee
- A covered employee becomes entitled to Medicare
- Divorce/legal separation of the spouse from the covered employee
- Death of the covered employee
- Loss of dependent coverage (i.e. if a dependent child turns 26)
Who Pays for COBRA Coverage?
Employees can be required to pay for COBRA continuation coverage, but the amount charged can’t exceed 102% of the cost of the plan.
Noncompliance fines fall into two categories:
- Tax Penalties: $100 per employee (or family member) for each day of noncompliance
- Statutory Penalties: Up to $110 per day
Note: Statutory penalties occur due to ERISA (Employee Retirement Income Security Act) infractions.
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