COBRA Continuation Coverage

COBRA Continuation Coverage

Overview

The federal Consolidated Omnibus Budget Reconciliation Act requires covered employers that have group health plans to continue plan coverage when certain events occur that otherwise would cause qualified beneficiaries to lose coverage. Qualified beneficiaries can include current and retired employees, as well as current and retired employees' spouses and dependents. Employers must continue group health plan coverage for specific lengths of time for qualified beneficiaries who elect COBRA continuation coverage. Employers also must notify qualified beneficiaries about their right to continue group health plan coverage.

This chapter discusses COBRA continuation coverage requirements for private employers.

For more information about group health plan requirements, see chapter Group Health Plan Administration.

For information about COBRA and federal health-care legislation, see the federal Department of Labor's website at

Coverage

Employers

Employers that have 20 or more employees on more than 50 percent of their typical business days in the previous calendar year are subject to the federal Consolidated Omnibus Budget Reconciliation Act, referred to as COBRA (29 U.S.C. §1161(b); Treas. Reg. §54.4980B-2).

To determine if employers have 20 or more employees, employers count all full-time and part-time employees who are eligible to participate in employer-sponsored group health plans. Employers count part-time employees as fractional employees based on the number of hours they work. For example, if employers define full-time employment as eight hours per day or 80 hours per biweekly pay period, a part-time employee working four hours per day or 40 hours per biweekly pay period counts as one-half an employee (Treas. Reg. §54.4980B-2).

When employers' workforces reach 20 or more employees, employers are covered by COBRA beginning on January 1 of the following year. If workforces are reduced below 20 employees, employers must comply with COBRA if qualifying events occur during the time that employers are covered by COBRA (Treas. Reg. §54.4980B-2). For definition and more information about qualifying events, see “Qualifying Events.”

EXAMPLE: Employer has a group health plan and 20 employees on more than 50 percent of its working days in 2015. Employer is covered by COBRA beginning Jan. 1, 2016. One employee resigns on Jan. 31, 2016. Employer doesn't hire a replacement and only has 19 employees for the remainder of 2016. Employer isn't subject to COBRA in 2017. However, employer must offer COBRA continuation coverage to the employee who resigned on Jan. 31, 2016.

Many states have health-care continuation coverage laws that are similar to COBRA, but differ in the scope of coverage. Typically, state health-care continuation coverage laws apply to employers that have fewer than 20 employees. Employers should review applicable state laws and regulations.

Group Health Plans

COBRA applies to employers that have group health plans providing medical care to two or more employees. Medical care means that group health plans provide payment or reimbursement for:

• diagnosis, cure, mitigation, treatment or prevention of diseases;

• any purposes affecting bodily structures or functions;

• transportation primarily for and essential to medical care; and

• insurance covering medical care (I.R.C. §213(d)(1)).

Group health plans can be funded through insurance, self-insurance, reimbursement or any other means (29 U.S.C. §1167; Treas. Reg. §54.4980B-2). Group health plans are considered to be maintained by employers even if employers don't pay to fund plans, such as if employees must pay the full plan premium, so long as plan coverage isn't available at the same cost to individuals who aren't employed by employers (Treas. Reg. §54.4980B-2).

Drug and alcohol treatment programs, on-site health clinics or any other facilities or programs, such as wellness programs, that are intended to alleviate or relieve physical conditions or health problems are considered to be group health plans under COBRA (Treas. Reg. §54.4980B-2; I.R.S. Notice 12-9, 2012-4 I.R.B. 315; I.R.S. Notice 10-69, 2010-44 I.R.B. 576).

The following group health plans aren't subject to COBRA:

• plans maintained by churches;

• federal, state and local government plans;

• medical savings accounts; and

• plans that cover only long-term care services (Treas. Reg. §54.4980B-2).

Employers that are subject to COBRA must provide health-care continuation coverage that is the same as health-care coverage provided by employers' group health plans to current employees (29 U.S.C. §1162). If employers modify coverage for current employees, modified coverage must be provided during COBRA continuation coverage periods (Treas. Reg. §54.4980B-5).

Qualified Beneficiaries

Employers must provide COBRA continuation coverage to group health plan participants who are qualified beneficiaries (29 U.S.C. §1161(a)). Qualified beneficiaries means individuals who are enrolled in employers' group health plans on the day before qualifying events occur (29 U.S.C. §1167). For definition and information about qualifying events, see “Qualifying Events.”

Qualified beneficiaries can include:

• current employees;

• current employees' spouses, former spouses and deceased employees' spouses;

• current employees' dependent children and deceased employees' dependent children; and

• retired employees, their spouses and retired employees' dependent children who lose health care coverage due to employer bankruptcy (29 U.S.C. §1167; Treas. Reg. §54.4980B-3).

Employers must treat employees' same-sex spouses in the same manner as employees' opposite-sex spouses for purposes of COBRA continuation coverage (Obergefell v. Hodges, U.S., No. 14-556, 6/26/15; United States v. Windsor, 570 U.S. 12, 2013 BL 169620, 118 FEP Cases 1417 (2013); DOL Technical Release 2013-04 (Sept. 18, 2013)).

Qualified beneficiaries also include self-employed individuals, independent contractors and corporate directors who provide services to employers if they are enrolled in group health plans (Treas. Reg. §54.4980B-3).

Newly hired employees who aren't enrolled in group health plans aren't qualified beneficiaries under COBRA. Likewise, employees, their spouses and employees' dependents who decline coverage in employers' group health plans aren't qualified beneficiaries under COBRA (Treas. Reg. §54.4980B-3).

EXAMPLE: COBRA-covered employer requires new employees to wait 30 days after their date of hire to enroll in employer's group health plan. Employee who resigns two weeks after date of hire isn't a qualified beneficiary under COBRA because employee never enrolled in employer's group health plan.

EXAMPLE: COBRA-covered employer's group health plan provides medical care for employees, their spouses and employees' dependent children younger than age 26. Married employee with two children younger than age 26 enroll in employer's plan, but employee's spouse doesn't enroll in employer's plan. Employee and dependents, but not employee's spouse, are qualified beneficiaries under COBRA.

Former or retired employees who elect COBRA continuation can elect COBRA coverage for children born or adopted during COBRA continuation periods if employers' group health plans allow current employees to enroll newly-born or adopted children (Treas. Reg. §54.4980B-3).

If employees marry during COBRA continuation periods, employers must allow employees' new spouses to elect COBRA coverage. New spouses aren't qualified beneficiaries, however, and if employees die during COBRA continuation periods, employers can terminate new spouses' COBRA coverage (Treas. Reg. §54.4980B-3).

Qualified beneficiaries each have separate, individual rights to elect or decline COBRA continuation coverage.

Non-COBRA covered plan participants. Employers can, but aren't required to, permit individuals other than employees' spouses and dependent children to enroll in group health plans, such as employees' domestic partners, civil union partners and grandchildren. Such individuals aren't qualified beneficiaries under COBRA and, accordingly, employers can, but aren't required to, offer COBRA continuation coverage to them (Rev. Rul. 13-17, 2013-38 I.R.B. 201).

Duration

Qualifying Events

COBRA requires employers to permit qualified beneficiaries to continue their group health plan benefits when qualifying events occur that cause loss of some or all employer-provided group health plan benefits (29 U.S.C. §1161(a); Treas. Reg. §54.4980B-4). Losing some or all employer-provided group health plan benefits means that health plan benefits are no longer provided under the same terms and conditions (Treas. Reg. §54.4980B-4).

EXAMPLE: COBRA-covered employer permits employees who work at least 32 hours per week to enroll in employer's group health plan. Employee's work hours are reduced to 24 hours per week and employee loses group health coverage. Employer must permit employee to elect COBRA continuation coverage.

The duration of COBRA continuation coverage depends on what qualifying events occur. COBRA continuation coverage begins when qualifying events occur, unless employer group health plans specify that COBRA continuation coverage begins when group health plan coverage is terminated if that date is later than the date qualifying events occur (29 U.S.C. §1165(a); Treas. Reg. §54.4980B-7).

EXAMPLE: Employer's group health plan provides that medical coverage is maintained until the last day of the month in which employees' employment is terminated and COBRA coverage, if elected, begins on the first day of the following month. Employee resigns on March 1 and elects COBRA continuation coverage. Employer must begin COBRA continuation coverage starting April 1 and the duration of employee's COBRA continuation coverage is measured from April 1 not March 1.

Employers can, but aren't required to, provide COBRA continuation coverage for periods longer than the maximum duration required by COBRA (29 U.S.C. §1162(2)). In addition, employers can agree to extend group health plan coverage and delay the date that qualifying events occur. For more information about extending group health plan coverage, see “Severance Agreements.”

Qualifying events for current employees

Employment termination/reduction in hours: Employers must permit employees who lose group health plan coverage because of voluntary or involuntary employment termination or reduction in working hours to elect COBRA continuation coverage for 18 months (29 U.S.C. §1163; Treas. Reg. §54.4980B-7).

Under COBRA, employment termination also includes:

• strikes,

• walkouts,

• layoffs, and

• retirement (Treas. Reg. §54.4980B-4).

Employers can, but aren't required to, provide COBRA continuation coverage to employees who are terminated for gross misconduct (29 U.S.C. §1163).

Military reservists: Employers must permit employees who are called to active military duty, their spouses and military reservists' dependents to elect COBRA continuation coverage for the lesser of:

• 24 months beginning on the date reservists are absent from work, or

• beginning on the date reservists are absent from work and ending on the day after the date reservists don't apply for or don't return to work (38 U.S.C. §4317(a)(1); 20 C.F.R. §1002.164). Employers must permit reservists, their spouses and military reservists' dependents to elect COBRA continuation coverage even if they have health-care coverage provided through TRICARE, a federal Department of Defense health-care program for military members and their families.

Qualifying events for employees' spouses

Employment termination/reduction in hours: Employers must permit employees' spouses who lose group health plan coverage because of employees' voluntary or involuntary termination of employment or reduction in hours to elect COBRA continuation coverage for 18 months (29 U.S.C. §1163; Treas. Reg. §54.4980B-7).

Divorce or legal separation: Employers must permit employees' spouses who lose group health plan coverage because of divorce or legal separation to elect COBRA continuation coverage for 36 months (29 U.S.C. §1163; Treas. Reg. §54.4980B-7).

Death of employees: Employers must permit employees' spouses who lose group health plan coverage because of employee death to elect COBRA continuation coverage for 36 months (29 U.S.C. §1163; Treas. Reg. §54.4980B-7).

Medicare enrollment: Employers must permit employees' spouses who lose group health plan coverage because employees enroll in Medicare to elect COBRA continuation coverage for 36 months (29 U.S.C. §1163; Treas. Reg. §54.4980B-7).

Qualifying events for employees' dependents

Loss of dependent status: Group health plans typically specify ages or other conditions after which employees' dependent children are no longer entitled to group health plan coverage. Employers must permit employees' dependent children who lose group health plan coverage because they are no longer considered to be dependents to elect COBRA continuation coverage for 36 months (29 U.S.C. §1163; Treas. Reg. §54.4980B-7).

Under the federal Patient Protection and Affordable Care Act, certain group health plans must provide coverage for employees' dependent children until they reach age 26. For more information about dependent coverage, see “Dependent Coverage” in chapter Health Plan Eligibility and Enrollment.]

Termination of employment/reduction in hours: Employers must permit employees' dependent children who lose group health plan coverage because of employees' voluntary or involuntary termination of employment or reduction in hours to elect COBRA continuation coverage for 18 months (29 U.S.C. §1163; Treas. Reg. §54.4980B-7).

Divorce or legal separation: Employers must permit employees' dependent children who lose group health plan coverage because of employee divorce or legal separation to elect COBRA continuation coverage for 36 months (29 U.S.C. §1163; Treas. Reg. §54.4980B-7).

Death of employees: Employers must permit employees' dependent children who lose group health plan coverage because of employee death to elect COBRA continuation coverage for 36 months (29 U.S.C. §1163; Treas. Reg. §54.4980B-7).

Qualifying events for retirees

Employer bankruptcy: If employers have group health plans providing coverage for retirees, their spouses and retirees' dependents and employers terminate retiree health plan coverage within one year before or after employers file for bankruptcy, employers must permit retirees, their spouses and retirees' dependents who lose group health plan coverage to elect COBRA continuation coverage (29 U.S.C. §1163; Treas. Reg. §54.4980B-7).

Retired employees can elect COBRA continuation coverage until they die. Retirees' spouses and dependents can elect COBRA continuation until the earlier of the date:

• of spouses or retirees' dependents' death, or

• 36 months after retirees' death (29 U.S.C. §1162; Treas. Reg. §54.4980B-7).

Medicare entitlement: Employer-sponsored retiree health plans sometimes terminate coverage when retirees are eligible to enroll in Medicare. Retirees' dependents who lose coverage under these circumstances can elect COBRA continuation coverage for 36 months (29 U.S.C. §1163; Treas. Reg. §54.4980B-7).

Second Qualifying Events

Qualified beneficiaries who elect COBRA continuation coverage can experience additional, second qualifying events. When second qualifying events occur, employers must permit qualified beneficiaries to extend COBRA continuation coverage for up to 36 months (29 U.S.C. §1162; Treas. Reg. §54.4980B-7).

Additional events are treated as second qualifying events if they:

• cause qualified beneficiaries to lose group health coverage absent initial qualifying events, and

• provide more than 18 months of COBRA continuation coverage.

Second qualifying events include:

• employee death,

• employee divorce or legal separation,

• Medicare entitlement for employees or spouses, and

• loss of dependent child status.

EXAMPLE: Terminated employee and spouse elect COBRA continuation coverage for 18 months. During the COBRA continuation period, former employee dies. Former employee's spouse is entitled to extend COBRA continuation coverage from 18 to 36 months.

EXAMPLE: Employee loses group health coverage due to reduction in hours and elects 18 months of COBRA continuation coverage. During COBRA continuation period, employee is terminated. Employee isn't entitled to extend COBRA continuation coverage because employment termination following reduction in hours isn't a second qualifying event.

Disability Extensions

Employers must permit qualified beneficiaries who become disabled within the first 60 days after electing COBRA continuation coverage to extend group health plan coverage for themselves and their family members for an additional 11 months (total of 29 months) if:

• the COBRA-qualifying event is employment termination or reduction in hours,

• qualified beneficiaries are determined to be disabled by the federal Social Security Administration, and

• disabilities continue during the initial 18 months of COBRA continuation coverage (29 U.S.C. §1162; Treas. Reg. §54.4980B-7).

Qualified beneficiaries must notify employers about disability determinations within 60 days from the latest date on which:

• SSA issues disability determinations;

• qualifying events occur; or

• qualified beneficiaries receive COBRA general notices (29 U.S.C. §1166).

For more information about COBRA general notices, see “Notification Requirements.”

Qualified beneficiaries who experience second qualifying events during disability extension periods can elect COBRA continuation coverage for a maximum of 36 months.

Employers can terminate disability extensions when SSA determines that qualified beneficiaries are no longer disabled. Qualified beneficiaries must notify employers within 30 days if SSA determines that they no longer are considered to be disabled (29 U.S.C. §1162; Treas. Reg. §54.4980B-7).

Severance Agreements

Many employers offer severance benefits to terminated employees and can require such employees to sign written agreements in exchange for severance benefits. Typically, employers that are subject to COBRA include provisions in severance agreements that address group health plan coverage termination and COBRA duration. For example, severance agreements can provide that terminated employees remain covered under employers' group health plans for a specified period of time after their employment is terminated and COBRA continuation coverage, if elected, begins on the day after plan coverage ends. Severance agreements also can provide that employers pay all or a portion of terminated employees' COBRA premiums for a specified period of time. For information about COBRA premiums, see “Premiums.”

EXAMPLE: Employer's severance policy provides that employees whose jobs are eliminated due to reductions in force remain covered under employer's group health plan for three months after employees' final day of employment and COBRA continuation coverage, if elected, begins on the first day after the three month period expires. Employee whose job is eliminated signs the severance agreement and employee's last day of employment is Nov. 15. Employee doesn't lose group health plan coverage until Feb. 15. Employee elects COBRA continuation coverage which begins on Feb. 16 and employee can continue group health plan coverage under COBRA from Feb. 16 for up to 18 months.