Most Misunderstood COBRA Components


As workforces evolve, it is imperative for employers to stay abreast of fluctuating healthcare mandates, and changes in employment law as they are introduced. Signed into law by President Reagan in 1985 and effective April 7, 1986, the Consolidated Omnibus Budget Reconciliation Act (COBRA) establishes insurance continuity for workers paying premiums under group policies. When an employee leaves the company, an employer will provide the same level of insurance for a predetermined number of days, months or years.

Between the original COBRA Act, and the several additions by the Obama administration, many components of this law may be misunderstood. We discuss several of them here.

Notification and Eligibility

Generally, federal law requires COBRA to be made available to employees and loved ones covered by employees when certain qualifying events transpire, provided the company has greater than 20 employees and provides group health coverage. Qualifying events may include loss of employment, death of a covered employee, a covered employee becoming eligible for Medicare, or a dependent child ceasing dependency on covered parent. Employers generally count their full-time employees toward that 20, but COBRA counts two employees who work half of full time hours as one provided their combined weekly work time equals 40 hours.

Employers must also notify employees and insurance carriers within reasonable time frames once employees qualify for COBRA benefits. The levels of notice under COBRA guidelines are:

  • Initial notice: This must be provided within 90 days of an employee’s enrollment in insurance. COBRA rules specify the verbiage this notice must contain, noting that the layman must understand his or her rights.
  • Election notice: Must be sent to enrolled employee or qualified beneficiary within 14 days after notice is received by plan administrator that a qualifying event occurred.
  • Notice of Unavailability: Generally sent by plan administrator if an employee is denied after reporting a qualifying event. Timeline for notice follows election notice guidelines.
  • Notice of Early Termination: All COBRA enrollees must be informed should their benefits cease unexpectedly. This notice must be sent as soon as practicable and will contain specific dates of expected coverage termination.

Failing to give sufficient notice is penalized at $110 per day the notice is delinquent by the Department of Labor, with additional fines and fees by the Internal Revenue Service possible.

Conveying COBRA Information

Conveying accurate information is as integral to COBRA as the benefits themselves. Employers cannot write their own COBRA rules or discount the necessity to convey information. Many documented legal issues have arisen out of an employer’s failure to comply with information standards.

The final rules regarding implementation of COBRA notice requirements mandate that specific notice formats must be used.

Can You Make Changes to COBRA Coverage?

Employers must offer employees the same level of insurance they had prior to their qualifying event. The only way employers can legitimately change COBRA coverage is by altering the group insurance plan for the entire workforce.

Qualifying beneficiaries must also receive adequate coverage until their period of eligibility expires, unless termination for just cause (death, lack of premium payments) is merited.

Providing insufficient coverage to employees and their beneficiaries could result in penalties, too.

The information provided gives a general idea what employers should expect regarding COBRA compliance and regulations. With vast amounts of information available, we encourage employers to discuss this area of employment law with the experienced employment lawyers at Simon Paschal PLLC.

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