Health insurance programs allow workers and their families to take care of essential medical needs. These programs can be one of the most important benefits provided by your employer. There was a time when group health coverage was available only to full-time workers and their families. That changed in 1985 with the passage of health benefit provisions in the Consolidated Omnibus Budget Reconciliation Act (COBRA). Now, terminated employees or those who lose coverage because of reduced work hours may be able to buy group coverage for themselves and their families for limited periods of time. If you are entitled to COBRA benefits, your health plan must give you a notice stating your right to choose to continue benefits provided by the plan. You have 60 days to accept coverage or lose all rights to benefits. Once COBRA coverage is chosen, you are required to pay for the coverage. This booklet is designed to:
* Outline the rules that apply to health plans for employees in
the private sector
* Provide a general explanation of COBRA requirements
* Spotlight your rights to benefits under this law
COBRA contains provisions giving certain former employees, retirees, spouses and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available in specific instances. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer formerly paid a part of the premium. It is ordinarily less expensive, though, than individual health coverage.
The law generally covers group health plans maintained by employers with 20 or more employees in the prior year. It applies to plans in the private sector and those sponsored by state and local governments.{2} The law does not, however, apply to plans sponsored by the Federal government and certain church- related organizations.
Group health plans sponsored by private sector employers generally are welfare benefit plans governed by ERISA and subject to its requirements for reporting and disclosure, fiduciary standards and enforcement. ERISA neither establishes minimum standards or benefit eligibility for welfare plans nor mandates the type or level of benefits offered to plan participants. It does, though, require that these plans have rules outlining how workers become entitled to benefits.
For COBRA purposes, a group health plan ordinarily is defined as a plan that provides medical benefits for the employer's own employees and their dependents through insurance or otherwise (such as a trust, health maintenance organization, self-funded pay-as-you-go basis, reimbursement or combination of these). Medical benefits provided under the terms of the plan and available to COBRA beneficiaries may include:
* Inpatient and outpatient hospital care
* Physician care
* Surgery and other major medical benefits
* Prescription drugs
* Any other medical benefits, such as dental and vision care
Life insurance, however, is not a benefit that must be offered to
individuals for purposes of health continuation coverage.
{1} The original continuation health provisions were contained
in Title X of COBRA, which was signed into law (Public Law
99-272) on April 7, 1986.
{2} Provisions of COBRA covering state and local government
plans are administered by the U.S. Public Health Service within
the Department of Health and Human Services.
* Voluntary or involuntary termination of employment for reasons
other than "gross misconduct"
The types of qualifying events for spouses are:
* Termination of the covered employee's employment for any reason
other than "gross misconduct"
The types of qualifying events for dependent children are:
* Termination of covered employee's employment for any reason
other than "gross misconduct"
Qualified beneficiaries have the right to elect to continue
coverage that is identical to the coverage provided under the
plan. Employers and plan administrators have an obligation to
determine the specific rights of beneficiaries with respect to
election, notification and type of coverage options.
Multiemployer plans may provide for a longer period of time.
The employee, retiree or family member should notify the
plan administrator within 60 days of events consisting of divorce
or legal separation or a child's ceasing to be covered as a
dependent under plan rules.
Disabled beneficiaries must notify plan administrators of
Social Security disability determinations. A notice must be
provided within 60 days of a disability determination and prior
to expiration of the 18-month period of COBRA coverage. These
beneficiaries also must notify the plan administrator within 30
days of a final determination that they are no longer disabled.
Plan administrators, upon notification of a qualifyingevent, must automatically provide a notice to employees and
family members of their election rights. The notice must be
provided in person or by first class mail within 14 days of
receiving information that a qualifying event has occurred.
There are two special exceptions to the notice requirements
for multiemployer plans. First, the time frame for providing
notices may be extended beyond the 14- and 30-day requirements if
allowed by plan rules. Second, employers are relieved of the
obligation to notify plan administrators when employees terminate
or reduce their work hours. Plan administrators are responsible
for determining whether these qualifying events have occurred.
A covered employee or the covered employee's spouse may
elect COBRA coverage on behalf of any other qualified
beneficiary. Each qualified beneficiary, however, may
independently elect COBRA coverage. A parent or legal guardian
may elect on behalf of a minor child.
A waiver of coverage may be revoked by or on behalf of a
qualified beneficiary prior to the end of the election period. A
beneficiary may then reinstate coverage. Then, the plan need only
provide continuation coverage beginning on the date the waiver is
revoked.
John Q. participates in the group health plan maintained by the
ABC Co. John is fired reason other than gross misconduct and his
health coverage is terminated. John may elect and pay for a
maximum of 18 months of coverage by the employer's group health
plan at the group rate. (See Paying for COBRA Coverage.)
Example 2:
Day laborer David P. has health coverage through his wife's plan
sponsored by the XYZ Co. David loses his health coverage when he
and his wife become divorced. David may purchase health coverage
with the plan of his former wife's employer. Since in this case
divorce is the qualifying event under COBRA, David is entitled to
a maximum of 36 months of COBRA coverage.
Example 3:
RST, Inc. is a small business which maintained an insured group
health plan for its 10 employees in 1987 and 1988. Mary H., a
secretary with six years of service, leaves in June 1988 to take
a position with a competing firm which has no health plan. She is
not entitled to COBRA coverage with the plan of RST, Inc. since
the firm had fewer than 20 employees in 1987 and is not subject
to COBRA requirements.
Example 4:
Jane W., a stock broker, left a brokerage firm in May 1990 to
take a position with a chemical company. She was five months
pregnant at the time. The health plan of the chemical company has
a pre-existing condition clause for maternity benefits. Even
though Jane signs up for the new employer's plan, she has the
right to elect and receive coverage under the old plan for COBRA
purposes because the new plan limits benefits for preexisting
conditions.
For example, a beneficiary may have had medical,
hospitalization, dental, vision and prescription benefits under
single or multiple plans maintained by the employer. Assuming a
qualified beneficiary had been covered by three separate health
plans of his former employer on the day preceding the qualifying
event, that individual has the right to elect to continue
coverage in any of the three health plans.
If a plan provides both core and non-core benefits,
individuals may generally elect either the entire package or just
core benefits. Individuals do not have to be given the option to
elect just the non-core benefits unless those were the only
benefits carried under that particular plan before a qualifying
event.
Non-core benefits are vision and dental services, except
where they are mandated by law in which case they become core
benefits. Core benefits include all other benefits received by a
beneficiary immediately before qualifying for COBRA coverage.
Beneficiaries may change coverage during periods of open
enrollment by the plan.
Coverage begins on the date that coverage would otherwise
have been lost by reason of a qualifying event and can end when:
Special rules for disabled individuals may extend the
maximum periods of coverage. If a qualified beneficiary is
determined under Title II or XVI of the Social Security Act to
have been disabled at the time of a termination of employment or
reduction in hours of employment and the qualified beneficiary
properly notifies the plan administrator of the disability
determination, the 18-month period is expanded to 29 months.
Although COBRA specifies certain maximum required periods of
time that continued health coverage must be offered to qualified
beneficiaries, COBRA does not prohibit plans from offering
continuation health coverage that goes beyond the COBRA periods.
Some plans allow beneficiaries to convert group health
coverage to an individual policy. In this case, you must be given
the option to enroll in a conversion health plan. You usually
must enroll in the plan within 180 days before your COBRA
coverage ends. The premium is generally not at a group rate. The
conversion option, however, is not available if you end COBRA
coverage before reaching the maximum period of entitlement or it
is unavailable under the plan.
For disabled beneficiaries, the premium may be increased
after 18 months to 150 percent of the plan's total cost of
coverage for the last 11 months of continuation coverage.
Premiums due may be increased if the costs to the plan
increase but generally must be fixed in advance of each 12-month
premium cycle. The plan must allow you to elect to pay premiums
on a monthly basis if requested by you.
The initial premium payment must be made within 45 days
after the date of the COBRA election by the qualified
beneficiary. Payment must cover the period of coverage from the
date of COBRA election retroactive to the date of the qualifying
event. Premiums for successive periods of coverage are due on the
date stated in the plan with a minimum 30-day grace period for
payments. No payment, however, need be made earlier than 45 days
after the date of the election.
The due date may not be prior to the first day of the period
of coverage. For example, the due date for the month of January
could not be prior to January 1 and coverage for January could
not be cancelled if payment is made by January 31.
Premiums for the rest of the COBRA period must be made
within 30 days of the due date for each such premium or such
longer period as provided by the plan.
COBRA beneficiaries remain subject to the rules of the plan
and therefore must satisfy all costs related to deductibles,
catastrophic and other benefit limits.
You should submit a written claim for benefits to whomever
is designated to operate the health plan (employer, plan
administrator, etc.). If the claim is denied, notice of denial
must be in writing and furnished generally within 90 days after
the claim is filed. The notice should state the reasons for the
denial. any additional information needed to support the claim
and procedures for appealing the denial.
You have 60 days to appeal a denial and must receive a
decision on the appeal within 60 days after that unless the plan:
The Labor Department's interpretative and regulatory
responsibility is limited to the disclosure and notification
requirements. If you need further information on your election or
notification rights with a private sector plan, write to:
The U.S. Public Health Service, located in the Department of
Health and Human Services, has published Title XXII of the Public
Health Service Act entitled "Requirements for Certain Group
Health Plans for Certain State and Local Employees." Information
about COBRA provisions concerning public sector employees is
available from the:
U.S. Public Health Service
Federal employees are covered by a law similar to COBRA.
Those employees should contact the personnel office serving their
agency for more information on temporary extensions of health
benefits.
Workers need to be aware of changes in health care laws to
preserve their benefit rights. A good starting point is reading
your plan booklet. Most of the specific rules on COBRA benefits
can be found there or with the person who manages your plan.
Be sure to periodically contact the health plan to find out
about any changes in the type or level of benefits offered by the
plan.
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QUALIFYING EVENTS
"Qualifying events" are certain types of events that would cause,
except for COBRA continuation coverage, an individual to lose
health coverage. The type of qualifying event will determine who
the qualified beneficiaries are and the required amount of time
that a plan must offer the health coverage to them under COBRA. A
plan, at its discretion, may provide longer periods of
continuation coverage.
The types of qualifying events for employees are:
* Reduction in the number of hours of employment
* Reduction in the hours worked by the covered employee
* Covered employee's becoming entitled to Medicare
* Divorce or legal separation of the covered employee
* Death of the covered employee
* Reduction in the hours worked by the covered employee
* Loss of "dependent child" status under the plan rules
* Covered employee's becoming entitled to Medicare
* Divorce or legal separation of the covered employee
* Death of the covered employee
PERIODS OF COVERAGE{3}
Qualifying Events Beneficiary Coverage
Termination Employee 18 month{4}
Reduced hours Spouse
Dependent child
Employee Spouse 36 months
entitled to Dependent child
Medicare
Divorce
or legal separation
Death of covered
employee
Loss of "dependent Dependent child 36 months
child" status
{3} The Omnibus Budget Reconciliation Act of 1986 contained
amendments to the Internal Revenue Code and ERISA affecting
retirees and family members who receive post-retirement health
coverage from employers involved in bankruptcy proceedings begun
on or after July 1, 1986. This booklet does not address that
group.
{4} In the case of individuals who qualify for Social Security
disability benefits, special rules apply to extend coverage an
additional 11 months.
YOUR RIGHTS: NOTICE AND ELECTION PROCEDURES
COBRA outlines procedures for employees and family members to
elect continuation coverage and for employers and plans to notify
beneficiaries. The qualifying events contained in the law create
rights and obligations for employers, plan administrators and
qualified beneficiaries.NOTICE PROCEDURES
General Notices
An initial general notice must be furnished to covered employees,
their spouses and newly hired employees informing them of their
rights under COBRA and describing provisions of the law.
COBRA information also is required to be contained in the
summary plan description (SPD) which participants receive. ERISA
requires that SPDs containing certain plan information and
summaries of material changes in plan requirements be furnished
to participants in modified and updated SPDs. Plan administrators
must automatically furnish the SPD booklet 90 days after a person
becomes a participant or beneficiary or within 120 days after the
plan is subject to the reporting and disclosure provisions of the
law.Specific Notices
Specific notice requirements are triggered for employers,
qualified beneficiaries and plan administrators when a qualifying
event occurs. Employers must notify plan administrators within 30
days of an employee's death, termination, reduced hours of
employment, entitlement to Medicare or a bankruptcy.ELECTION
The election period is the time frame during which each qualified
beneficiary may choose whether to continue health care coverage
under an employer's group health plan. Qualified beneficiaries
have a 60-day period to elect whether to continue coverage. This
period is measured from the later of the coverage loss date or
the date the notice to elect COBRA coverage is sent. COBRA
coverage is retroactive if elected and paid for by the qualified
beneficiary.HOW COBRA COVERAGE WORKS
Example 1:COVERED BENEFITS
Qualified beneficiaries must be offered benefits identical to
those received immediately before qualifying for continuation
coverage.DURATION OF COVERAGE
COBRA establishes required periods of coverage for continuation
health benefits. A plan, however, may provide longer periods of
coverage beyond those required by COBRA. COBRA beneficiaries
generally are eligible to pay for group coverage during a maximum
of 18 months for qualifying events due to employment termination
or reduction of hours of work. Certain qualifying events, or a
second qualifying event during the initial period of coverage,
may permit a beneficiary to receive a maximum of 36 months of
coverage.
* The last day of maximum coverage is reached
* Premiums are not paid on a timely basis
* The employer ceases to maintain any group health plan
* Coverage is obtained with another employer group health plan
that does not contain any exclusion or limitation with respect
to any pre-existing condition of such beneficiary
* A beneficiary is entitled to Medicare benefitsPAYING FOR COBRA COVERAGE
Beneficiaries may be required to pay the entire premium for
coverage. It cannot exceed 102 percent of the cost to the plan
for similarly situated individuals who have not incurred a
qualifying event. Premiums reflect the total cost of group health
coverage, including both the portion paid by employees and any
portion paid by the employer before the qualifying event, plus
two percent for administrative costs.CLAIMS PROCEDURES
Health plan rules must explain how to obtain benefits and must
include written procedures for processing claims. Claims
procedures are to be included in the SPD booklet.
ROLE OF THE FEDERAL GOVERNMENT
Continuation coverage laws are administered by several agencies.
The Departments of Labor and the Treasury have jurisdiction over
private sector health plans. The United States Public Health
Service administers the continuation coverage law as it affects
public sector health plans.
U.S. Department of Labor
The Internal Revenue Service, which is in the Department of
the Treasury, is responsible for publishing regulations on COBRA
provisions relating to eligibility and premiums. Both Labor and
Treasury share jurisdiction for enforcement.
Pension and Welfare Benefits Administration
Division of Technical Assistance and Inquiries
200 Constitution Ave., N.W.
(Room N-5658)
Washington, D.C. 20210
Office of the Assistant Secretary for Health
Grants Policy Branch (COBRA)
5600 Fishers Lane
(Room 17A-45)
Rockville, Maryland 20857CONCLUSION
Rising medical costs have transformed health benefits from a
privilege to a household necessity for most Americans. The COBRA
law creates an opportunity for persons to retain this important
benefit.