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Nothing about COBRA is simple. Even the name of the law is not straightforward. It comes from the Consolidated Omnibus Budget Reconciliation Act under which it was passed back in 1986.

As always, your state may have an even more stringent law. But here's information you need to keep on track with the federal statute:

Who and what's covered

Companies with 20 or more employees that have group health plans are required by COBRA to offer the option of continuing medical coverage to workers who leave.

To determine whether you reach that 20-worker threshold, you have to count part-time workers as a fraction of an employee, and the threshold applies to the number of workers on more than half of your typical business days in the previous calendar year.

Qualified beneficiaries include the employee, spouse and dependent children. Children born or adopted during the coverage period also are entitled to benefits.

Even independent contractors who participate in your group health plan may qualify for COBRA.

The medical benefits under COBRA may include physician care, prescription drugs and dental and vision care, but life insurance isn't included.

The coverage offered to COBRA beneficiaries has to be identical to the coverage offered to other workers.

What triggers coverage? 

  • For employees, qualifying events include voluntary or involuntary job loss, except for "gross misconduct", or a reduction in hours. 
  • For spouses and dependent children, qualifying events are the same as for the employee or in cases of the employee's death, a divorce, a legal separation or the qualification for Medicare. For children, loss of their dependent status under the plan rules also qualifies them for COBRA.

You have to keep group health coverage for an employee using Family and Medical Leave Act time, so that doesn't trigger COBRA. But if the employee does not return to work, that may make him eligible for COBRA.

How long does coverage last?

In cases of termination or reduction in hours, COBRA allows up to 18 months of coverage for the beneficiaries. Spouses and dependent children are entitled to 36 months of coverage under other qualifying events.

If the employee is declared "disabled" under the Social Security Act, he may add 11 months coverage.

Note: You can offer coverage for longer than COBRA requires.

Who pays for coverage?

Employers can choose to pay all, part or none of the COBRA insurance costs. The law lets you charge employees up to 102 percent of the entire cost. The extra 2 percent covers the administrative costs of COBRA. For an 11-month disability extension, the cost can be 150 percent.

Notification rules

Always include COBRA rights in summary plan descriptions. You must also notify the plan administrator within 30 days after an employee is terminated, has hours reduced or becomes eligible for Medicare.

An employee has to notify the plan administrator within 60 days after legal separation, divorce or a child ceasing to be covered as a dependent.

If beneficiaries want the 11-month extension for disabilities, they must notify the plan administrator within 60 days of the disability determination and before the 18-month COBRA period expires. They also must notify the administrator if the person is no longer disabled.

Within 14 days of receiving notice, the plan administrator must, either in person or by first-class mail, notify qualified beneficiaries of their right to choose coverage.

Beneficiaries must have 60 days to choose coverage from the date coverage is lost or they receive notice, whichever is later. If they pay, the coverage is retroactive.

If a beneficiary waives coverage, then changes his mind during the election period, you need to continue coverage only from the date the waiver is revoked.

From the date they choose coverage, beneficiaries have 45 days to pay the initial premium. Afterward, they must have at least a 30-day grace period.

For more information ...

Call us at (800) 543-2055, and we'll fax you a free fact sheet, Employer Obligations Under COBRA.

You can also call the Labor Department's Pension and Welfare Benefits Administration at (800) 998-7542 to request a free copy of the booklet Health Benefits Under COBRA, or find it online at www.dol.gov/dol/pwba/public/pubs/COBRA/cobra99.pdf.

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