COBRA

 

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires that covered employers provide former employees and dependents who lose group health benefits with an opportunity to continue group health insurance coverage. Individuals who are eligible for health coverage under COBRA are known as “qualified beneficiaries.” 

 

Common COBRA Questions: Administration

How long are qualified beneficiaries entitled to COBRA?

18 Months

Where a loss of coverage is a result of an Employee’s termination of employment (other than by reason of gross misconduct) or reduction in hours, qualified beneficiaries are entitled to continue coverage for a maximum of 18 months.

36 Months

Where a loss of coverage is a result of any of the following, qualified beneficiaries are entitled to continue coverage for a maximum of 36 months:

  • Death of a covered employee;
  • Divorce or legal separation of a covered employee from the covered employee’s spouse;
  • A covered employee becoming entitled to Medicare benefits; and
  • A dependent child ceasing to be a dependent child under the terms of the health plan.

29 Months

Where a loss of coverage is a result of an employee’s termination of employment (other than by reason of gross misconduct) or reduction in hours and a qualified beneficiary is determined by the Social Security Administration to be disabled before, at, or within 60 days of the date of the qualifying event, all qualified beneficiaries within that family are entitled to COBRA for a maximum period of 29 months. To benefit from this extension, any qualified beneficiary within the family must notify the Plan Administrator as required by the reasonable procedures established by the Plan Administrator.

Where a qualified beneficiary was determined disabled by the Social Security Administration prior to the qualifying event, the qualified beneficiary is considered to meet the statutory requirement of being disabled “within the first 60 days of COBRA coverage.”

Lifetime Benefits

Where a loss of coverage is a result of an employer’s filing for bankruptcy under Chapter 11, covered employees who retired on or before the date of substantial elimination of group health plan coverage, the spouse, surviving spouse or dependent child of such covered employee covered under the plan on the day before the bankruptcy qualifying event are entitled to continue COBRA coverage for life. Where an employer has filed for Chapter 11 bankruptcy, but no longer sponsors a health plan, qualified beneficiaries are not entitled to continue coverage since no health plan exists.

How long are qualified beneficiaries entitled to COBRA when the employee/qualified beneficiary was enrolled in Medicare prior to a termination or reduction in hours?

If the employee was enrolled in Medicare prior to his or her termination or reduction in hours (that is, retirement), the employee is entitled to 18 months of COBRA continuation coverage.

Where the spouse or dependent is covered under the plan on the day before the employee’s termination or reduction in hours, the spouse and dependent are entitled to COBRA continuation coverage for the longer of:

  • 18 months from the date of the employee’s termination or reduction in hours; or
  • 36 months from the date the employee became enrolled in Medicare.

How long are qualified beneficiaries entitled to COBRA when the employee/qualified beneficiary was enrolled in Medicare after a termination or reduction in hours?

If the employee enrolls in Medicare after his or her termination or reduction in hours (that is, retirement), the employee loses COBRA continuation coverage.

A spouse or dependent covered under the plan at the time of the termination or reduction in hours is entitled to 18 months of coverage from the date of the termination or reduction in hours.

Under COBRA, is entitlement to Medicare a second qualifying event?

In February 2004, the IRS released Revenue Ruling 2004-22, which intended to clarify when entitlement to Medicare is a second qualifying event. Because the IRS ruling differs from case law on this same issue, many benefit experts were surprised by the IRS’ conclusion.

The IRS held that Medicare entitlement of a covered employee is not a second qualifying event for a qualified beneficiary, unless the Medicare entitlement would have resulted in a loss of coverage for the qualified beneficiary under a health plan (not including COBRA coverage).

The IRS reasoned that the Medicare Secondary Payer (MSP) provisions of the Social Security Act prohibit an employer from terminating an employee’s participation in a health plan solely based upon the individual’s eligibility for Medicare. Therefore, since an active employee cannot be terminated from the health plan solely because he or she is age 65 or older, entitlement to Medicare is not a qualifying event when it does not cause a loss of coverage.

When may COBRA be terminated?

COBRA continuation coverage will terminate before the maximum coverage (that is, 18, 29, 36 months) period if:

  • COBRA premiums are not made in a timely manner;
  • The employer ceases to provide a health plan to any employee;
  • After electing COBRA continuation coverage, the qualified beneficiary first becomes covered under any other health plan that does not contain a pre-existing condition limitation or where the plan’s pre-existing condition limitation is satisfied as a result of the application of creditable coverage as required by HIPAA; or
  • After electing COBRA continuation coverage, the qualified beneficiary first becomes entitled to Medicare (Part A or B).

Provided that a qualified beneficiary has received no less than 18 months of COBRA continuation coverage, COBRA continuation coverage will terminate where COBRA coverage was extended to 29 months due to a disability as determined by the Social Security Administration and the Social Security Administration later determines that the qualified beneficiary is no longer disabled.

Where an individual is covered under COBRA, but not a qualified beneficiary, the individual loses coverage when the qualified beneficiary is no longer covered under COBRA.

A health plan may also terminate a qualified beneficiary’s COBRA continuation coverage on the same basis that the plan terminates, for cause, the coverage of similarly situated non-COBRA qualified beneficiaries. For example, if a health plan terminates the coverage of an active employee for the submission of a fraudulent claim, then a qualified beneficiary’s COBRA continuation coverage may be terminated for the same reason.