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This is a summary of one of many laws that regulate employment in the United States and its territories. Employers should consult an attorney who specializes in employment law about questions about COBRA and how it may affect your organization. COBRA COBRA is an acronym for the Consolidated Budget Reconciliation Act. Budget reconciliation Acts used to be an accounting exercise by Congress -- with pages and pages of columns and columns of numbers. One day in 1985, lawmakers discovered that they could use a Budget Reconciliation Act to make law. Here's what they came up with: The COBRA law, first enacted in 1985, has been amended by subsequent tax bills and other legislation, most importantly the Health Insurance Portability and Accountability Act (HIPAA). This summary covers only the basics of COBRA; -- cross-research HIPAA, ERISA, FMLA, ADA and other related Acts will be necessary. No COBRA decisions should be made without the advice of an attorney who specializes in employment law. Most employers with group health plans are required to offer employees the opportunity to temporarily continue their group health care coverage under their employer's plan if their coverage otherwise would cease due to a termination, layoff, or other change in employment status. These "COBRA" health care continuation requirements -- were enacted as part of the Consolidated Omnibus Budget Reconciliation Act of 1985 -- generally entitle employees (as well as covered spouses and dependents) to extend (at their own expense) their employer-provided health care coverage for a period of:
The range of employers affected by COBRA is very broad, with exemptions available only for employers that normally employ fewer than 20 employees, and church plans, and plans maintained by the U.S. government. Although employers are permitted to charge COBRA beneficiaries a premium for continuation coverage of up to 102 percent of the cost of the coverage to the plan (150 percent in the case of certain disabled employees), the 2 percent "mark up' usually does not cover the full cost of administering COBRA. Employers that violate the COBRA requirements are subject to a penalty of $100 per affected employee for each day that the violation continues. And plan administrators who fail to provide required COBRA notices to employees may be personally liable for a civil penalty of up to $100 a day for each day the notice is not provided. COBRA is one of the more administratively complex pieces of legislation in the employee benefits area. This complexity is underscored by the fact that COBRA has been subject to numerous legislative changes in recent years, which have outdated parts of the proposed regulations originally issued by IRS in 1987. These modifications to COBRA's requirements are noted in this summary. Basic Terms and Concepts COBRA requires an employer to offer employees and their dependents the opportunity to continue their group health coverage under the employer's plan when certain events occur that otherwise would cause them to lose their job-related health plan coverage. Important terms used for COBRA administration purposes include: * "Qualifying event", which refers to the specific events (an employee's termination, layoff, or death) that would cause a loss of employer-provided coverage and thus trigger the coverage-continuation option. * "Qualified beneficiary", is the term used to refer to an employee or a employee's spouse or dependent who is or was covered under the employer-provided health plan and has experienced a qualifying event. COBRA imposes a host of rules governing the obligations and duties of both employers and qualified beneficiaries involved in coverage-continuation situations. Specific rules under COBRA deal with issues like: the length of the required coverage period; notification requirements for employers and plan administrators; procedures for electing continuation coverage; premiums the employer may require beneficiaries to pay; and the circumstances under which an employer may terminate COBRA coverage short of the full continuation period. How COBRA Rights Are Triggered An employer's obligation to offer COBRA coverage is triggered by the occurrence of a qualifying event. Specifically, COBRA recognizes a qualifying event as a loss of employer-provided health coverage due to one of the following reasons:
* The death of a covered employee. An employee called to military duty also has COBRA
continuation rights. The Internal Revenue Service has ruled that the termination
of health coverage arising from an employee's being called to active military
duty triggers an employer's obligation to offer health care continuation
coverage, unless the employer continues normal coverage while the employee is on
military leave.
The normal COBRA coverage continuation period is either 18 or 36 months. Special coverage periods are available to qualified beneficiaries who are disabled at the time of a qualifying event or are retirees (or are a retiree's widow or widower) and would lose their health plan coverage due to the bankruptcy of the sponsoring employer. An 18-month period of continuation coverage is available to covered employees and their spouses and dependents in cases where coverage is lost due to the employee's termination or reduction of hours. A special 29-month period of coverage (the basic 18-month period of continuation coverage, plus an additional 11 months) is available for beneficiaries who are disabled at the time of the qualifying event. A 36-month period of continuation coverage is available for spouses and dependents where coverage is lost due to circumstances such as the employee's entitlement to Medicare, divorce or legal separation, or death. The 36-month continuation period also applies to cases where dependent children reach the maximum age for coverage under an employer's plan. Special "multiple qualifying event" rules permit qualified beneficiaries who receive COBRA continuation coverage upon a covered employee's termination or reduction in hours to extend the length of their coverage if a second qualifying event -- divorce or death of the covered employee -- occurs during the initial 18 month period. In general, the extension cannot exceed 36 months from the date of the first qualifying event. When an employer files for bankruptcy and the company's retirees -- or their widows or widowers -- lose health coverage under the employer's health care plan within a year before or after the event, the employer must make available the coverage-continuation option to these people and any covered spouses or dependents until the retiree or widow/widower dies. Upon the death of the covered retiree or widow/widower, spouses and dependents may continue coverage for an additional 36 months. Employers Subject to COBRA Requirements COBRA applies to any employer that employed 20 or more employees on a typical business day during the preceding calendar year. Churches and the federal government are not covered by COBRA. Group health plans maintained by state governments must comply with COBRA if the state receives federal money under the Public Health Service Act. This is because the COBRA law not only amended the Employee Retirement Income Security Act (from which government plans are exempt), but also added parallel requirements to the Public Health Service Act. Since all states receive PHSA funds, the COBRA requirements extend to virtually all state and local government employers, except those that qualify for the small employer exemption. This portion of the law makes no reference to territorial governments. Small Employer Exemption Small employers that normally employ fewer than 20 employees are exempt from COBRA. An employer is considered as "normally' employing fewer than 20 employees if it had fewer than 20 employees on at least 50 percent of its working days during the preceding calendar year. To apply the 20-employee limit, the employer must count agents, independent contractors, and corporate directors if those people are eligible to participate in a group health plan maintained by the employer. Part-time employees must be counted as employees regardless of the number of hours they work. When an employer increases its workforce to a point where it normally employs 20 or more employees, the plan becomes fully subject to COBRA at the beginning of next calendar year. If an employer's workforce drops below 20 employees, employees remain eligible for COBRA coverage during the calendar year after the year in which the employer had at least 20 employees. Plans maintained jointly by several small employers remain eligible for the small-employer exemption as long as each participating employer normally employs fewer than 20 employees. Where one or more of these employers exceeds the 19-employee limitation, the whole plan becomes subject to COBRA in the next calendar year. A special rule allows this kind of plan to retain its exempt status if any employers that exceed the 19-employee limit withdraw from the plan before February 1 of the year following the year in which the limit was exceeded. Types of Plans Affected The coverage continuation rules apply to any type of employer-provided group health plan, whether insured or self-insured, funded or unfunded. A health plan is considered to be "employer-provided" if the coverage under the plan would not be available at the same cost to employees or independent contractors if those persons did not perform services for the plan sponsor. Under COBRA, a health plan is any type of plan maintained by an employer to provide medical care to employees, former employees, or the families of those employees or former employees. A health plan may include health benefits or reimbursements provided through a cafeteria or flexible benefit plan, as well as health and medical services provided through a health maintenance organization (HMO) or preferred provider organization (PPO). In addition, the COBRA rules generally treat drug or alcohol treatment programs as health plans. Health care flexible spending accounts (called FSAs) qualify as group health plans under COBRA rules, although employees generally would not have any incentive to elect continuation coverage under an FSA. This is because FSAs usually are financed through pre-tax deductions from an employee's pay. Since employers are permitted to charge COBRA beneficiaries a 2-percent "markup" over their regular plan contributions (to partially cover administrative costs), employees electing an FSA as their COBRA plan essentially end up paying $1.02 for each $1.00 of coverage. COBRA has no exemptions for plans covered by union contracts. Union-sponsored plans under which employees pay all the costs of their coverage are exempt from COBRA coverage continuation requirements. Arrangements not treated as health plans under the COBRA rules include: * On-site medical facilities are not treated as covered plans if the medical care (primarily first aid) provided by these facilities occurs during the employer's working hours for the treatment of health conditions, illnesses, or injuries that occur during those hours; the medical care is available only to the employer's current employees; and employees are not charged for the use of the facility. * Discount programs for merchandise, such as drugs or eyeglasses, generally are not affected by COBRA. These programs are not treated as medical plans as long as they are accessible to and used by employees without regard to health needs. * Exercise or fitness facilities normally accessible to and used by employees for reasons other than relief of health or medical problems do not constitute medical care and are not affected by COBRA. Qualified Beneficiaries A "qualified beneficiary" is as any person who, on the day before a qualifying event, is covered under an employer's group health plan by virtue of being either a covered employee, the spouse of a covered employee, or the dependent child of a covered employee. COBRA defines "covered employee" as a person who is or was covered under a group health plan as a result of having performed services for one or more persons maintaining the plan. Although COBRA continuation coverage rights generally arise out of an employment relationship, COBRA's definition of "covered employee" is designed to be sufficiently broad so that independent contractors, partners, and other non-employees may have continuation coverage rights if they are covered by a plan as a result of services performed for the plan sponsor. Dependents acquired by a COBRA beneficiary during a period of continuation coverage (a spouse who marries a qualified beneficiary after they have already started to receive continuation coverage), must be permitted to elect coverage for the remaining period of the qualified beneficiary's coverage period, if this is allowed for the "acquired" dependents of active employees. Dependents acquired after a qualifying event do not gain status as a "qualified beneficiary.' Qualifying Events COBRA privileges arise whenever there is a "qualifying event" -- one of a number of events that causes a loss of employer-sponsored health care coverage. There does not have to be a complete loss of coverage to trigger a qualified beneficiary's COBRA rights. For example, a retiring employee may be offered continued employer-sponsored coverage, but under a plan that provides somewhat different coverage than that provided to active employees. Even though some type of coverage is offered to the retiring employee, COBRA election rights would be triggered since the employee lost the original coverage as a result of their retirement. The specific events for which employees or their dependents are entitled to COBRA continuation coverage are: * Death of the employee -- When employees who are covered under their employer's health care plan die, their spouse and dependents who would lose their health plan coverage as a result of the employee's death have the right under COBRA to elect to continue their coverage under the employer's plan. * Termination of employment -- Employees and other qualified beneficiaries are entitled to elect COBRA continuation coverage upon a loss of coverage resulting from an employee's termination of employment, unless such termination occurs as a result of "gross misconduct". Qualified beneficiaries retain their COBRA election rights whether they are discharged or terminate voluntarily. Except for cases of gross misconduct, the facts surrounding a termination or reduction of hours are irrelevant. That means strikes, walkouts, and layoffs are all qualifying events if they result in a loss of coverage under an employer's plan. Retirement also constitutes a qualifying event if an employer's plan ceases coverage at that time. * Reduction of employment -- The COBRA rules treat a loss of coverage caused by a reduction in working hours the same as a coverage loss due to termination of employment. COBRA continuation rights convey to employees and other qualified beneficiaries whenever employees would lose coverage because their work hours are reduced below the level required for coverage under the plan -- regardless of whether the hours reduction is voluntary or required by the employer. * Employee's divorce or legal separation -- The spouse of a covered employee who loses coverage under an employer's health plan as a result of divorce or legal separation is allowed to have COBRA continuation coverage under the employer's plan. Dependent children who lose coverage because of a divorce or legal separation may make elections for COBRA coverage. The covered employee or spouse is responsible for notifying the employer or plan administrator of the occurrence of the divorce or legal separation. * Employee's eligibility for Medicare -- The spouse and dependents of a former employee are eligible to elect up to 36 months of COBRA coverage if they lose coverage as a result of the employee becoming entitled to Medicare. People generally become eligible for Medicare benefits at age 65, but only become "entitled" to Medicare benefits after they enroll in the program. * Loss of dependent child status -- Group health care plans typically specify an age at which an employee's child loses eligibility as a child dependent under the plan. COBRA rules allow dependents to elect continuation coverage when they lose eligibility under the plan. * Bankruptcy of the employer -- When retirees (or their widows or widowers) lose health plan coverage because the employer files for bankruptcy, the employer is responsible for providing COBRA coverage for those persons and their covered spouses or dependents. A loss of health plan coverage is treated as a loss of coverage due to bankruptcy if the health plan beneficiaries lose their coverage during the period one year before or one year after the sponsoring employer files for bankruptcy. When someone loses health plan coverage due to bankruptcy, the employer must provide continuation coverage until the earlier of: * the death of the retiree (or widow/widower); * the coverage of the beneficiary under another plan; * or the failure of the beneficiary to pay the required COBRA premium. The continuation coverage period does not end when the beneficiary becomes eligible for or entitled to Medicare. When the death of the retiree or widow/widower causes coverage to cease for a surviving spouse and/or dependents, the spouse and dependents may elect to remain covered for up to 36 months after the retiree's or widow/widower's death. Military Duty Employers are not obligated to continue benefits to employees who serve in the National Guard or a military reserve unit when they are called to active duty. Employers that terminate the health care coverage of Guard members or reservists who are called to active duty must offer these employees and their dependents the opportunity to elect COBRA continuation coverage and notify them of their COBRA rights. Military benefit plans do not constitute group health insurance plans within the meaning of COBRA. Therefore, employers may not terminate COBRA coverage even though reservists or their dependents become covered under military plans. "Gross Misconduct" Exception COBRA permits employers to deny continuation coverage to employees who are terminated for gross misconduct. The problem for employers is: neither the law nor the IRS regulations specifically define what constitutes "gross misconduct". In view of COBRA's costly penalties and the absence of any legal definition or guidelines on what constitutes "gross misconduct," employers should apply the "gross-misconduct" exception only in very clear-cut cases of egregious or outrageous misconduct. The "gross misconduct" exception was intended for
use in only extreme cases of employee misconduct. Consult your attorney to see
if they can defend a COBRA denial on the basis of what YOU think is "gross
misconduct". Assault and theft are "gross misconduct" talking
back to a supervisor is not. Qualified beneficiaries entitled to 18 months of COBRA continuation coverage due to a covered employee's termination or reduction in hours can extend the length of their coverage period if a second qualifying event occurs during the initial 18 month period. The extension generally cannot exceed 36 months from the date of the first qualifying event and applies to people who were qualified beneficiaries under the plan as of the first qualifying event and who were covered under the plan at the time of the second qualifying event. An exception to the general rule governing multiple qualifying events applies in cases where employees become entitled to Medicare before the expiration of an existing period of continuation coverage that was triggered by a change in employment status. Under COBRA, qualified beneficiaries generally are eligible for 18 months of COBRA coverage when an employee loses health plan coverage due to a termination of employment or a reduction in working hours. Under a special exception added to COBRA in 1989 (P.L. 101-239), if a COBRA-covered employee becomes entitled to or eligible for Medicare before the expiration of the 18-month period, the employee's COBRA coverage ends, but other qualified beneficiaries (the employee's spouse and dependents) become eligible for an additional 36 months of continuation coverage. The 36-month continuation coverage period begins when the employee becomes entitled to or eligible for Medicare, rather than on the date of the original qualifying event. Terminating COBRA Coverage COBRA coverage may be terminated before the end of the applicable coverage period when: * All health plans are terminated -- If the employer no longer provides group health coverage to any of its employees, it is not obligated to provide continuation coverage. For instance, a plant closing generally results in termination of employment and loss of health coverage. If the employer offers no other health benefit plans after the closing, employees have no rights to continuation coverage. If the employer maintains other plans for other operations or divisions, employees retain their right to elect continuation coverage. * Beneficiary fails to pay COBRA premium -- When a beneficiary fails to make "timely payment" of any required COBRA premium, the employer may terminate continuation coverage short of the full coverage period. A qualified beneficiary's initial premium payment after choosing COBRA coverage is considered timely if received within 45 days of their decision. A premium is considered "timely" if it is paid within:
* the longer of 30 days from the due date; Under this rule, an employer is barred from terminating continuation coverage, whether or not the beneficiary actually is affected by the particular preexisting conditions excluded under the employee's new health plan coverage. * Beneficiary entitled to Medicare -- When certain qualified beneficiaries become entitled to Medicare, an employer may terminate their continuation coverage. Employers also should note that people generally become "eligible" for Medicare at age 65, but become "entitled" to Medicare benefits only after enrolling in the program. * Beneficiary determined to no longer be disabled -- This rule applies to disabled beneficiaries who were granted an additional 11 months of continuation coverage over the basic 18-month continuation coverage period. The plan administrator may terminate the continuation coverage of these people at the beginning of the next month after there has been a determination (in accordance with Title II or Title XVI of the Social Security Act) that the person is no longer disabled. Qualified beneficiaries are required to notify the plan administrator within 30 days of these determinations. COBRA Election Procedures The regulations do not require that beneficiaries make their elections on a specific form. Most employers use a carefully worded election form accompanied by an explanation of the COBRA law to help document that the beneficiaries were fully notified of their rights. Qualified beneficiaries may waive their rights to continuation coverage rather than make a COBRA election. But they must be permitted to revoke their waiver if they change their minds and decide to elect COBRA coverage during the 60-day election period. If a qualified beneficiary revokes a waiver, coverage does not have to be provided for any period before the waiver. The time limit on the election period qualified beneficiaries are allowed to exercise their COBRA rights is 60 days. This election period begins on the later of: * The date that the qualified beneficiary would lose coverage
as a result of a qualifying event; or "Identical Coverage" Requirement As a general rule, COBRA coverage must be identical to the health coverage provided to "similarly situated" beneficiaries under the plan to whom a qualifying event has not occurred. Certain exceptions to the general rule give employees the right to select just "core coverage" (all coverage except dental and vision benefits) or core coverage plus any "non-core benefits" that the qualified beneficiary was receiving immediately before the qualifying event. The continuation coverage provided to qualified beneficiaries must be identical to coverage provided "similarly situated" employees in terms of: * Deductibles and Co-insurance -- Deductibles and co-insurance amounts applicable to qualified beneficiaries may not be any greater than those for active employees -- even though the employer may charge COBRA beneficiaries a higher premium. In addition, if continuation coverage is elected, expenses already credited to the deductible for that year must be carried forward into the continuation coverage period. * Plan Options -- Plan options, such as "conversion" features, must be offered to qualified beneficiaries if they are offered to similarly situated employees. Conversion features generally enable terminating employees to convert their group health coverage to individual health coverage without regard to pre-existing conditions and without having to demonstrate "proof of insurability." Where a conversion option exists, qualified beneficiaries must be notified within 180 days before the end of the continuation period that the option is available.
* Plan Limitations -- The continuation coverage
provided to qualified beneficiaries must have the same benefit limits and limits
on "out-of-pocket" expenses applicable to similarly situated
employees. And, like deductibles, any amounts already credited to the limits
before a qualifying event are carried forward into the continuation coverage
period.
In some cases a COBRA beneficiary may have received coverage under a "region-specific" plan -- an HMO that primarily serves a single metropolitan area -- before a qualifying event. In these cases, the coverage provided under the plan may be of little value to the beneficiary leaving the plan's service area following the qualifying event. COBRA regulations include a rule that permits beneficiaries who are relocating to an area not served by a region-specific plan to elect alternative coverage serving the region to which they relocate if active employees ordinarily are given the opportunity when they transfer outside the area served by the plan in which they participate. Core and Non-Core Benefits COBRA rules prohibit an employer from requiring a qualified beneficiary to continue all the coverage they were receiving under a plan before a qualifying event. A plan must offer beneficiaries the choice of either "core-coverage only" or core coverage plus "non-core coverage." "Core coverage" is defined by IRS regulations as: all the health coverage received by a beneficiary, except dental and vision benefits. Dental and vision benefits are the only types of coverage defined as "non-core coverage." Dental and vision care will be treated as core coverage where such benefits are required by law. COBRA rules provide two exceptions under which employers do not have to offer core coverage separately from non-core coverage: * "De minimis" non-core benefits -- "de minimis" is lawyer-speak for "insignificant". An employer does not have to offer core coverage separately from "core plus non-core coverage" if non-core benefits offered under a plan constitute a "de minimis" portion of the total benefits provided under the plan. Non-core benefits are considered "de minimis" only if the applicable premium for core coverage would be at least 95 percent of the applicable premium for core coverage and non-core coverage combined. * Other "core-coverage" plan -- Where a qualified beneficiary was covered under a plan that included both core and non-core coverage before a qualifying event, the employer does not have to offer core coverage separately from non-core coverage, if the employer offers at least one other plan made up solely of core-only coverage for similarly situated active employees; and allows the qualified beneficiaries to elect COBRA coverage under that core-only plan and any other group health plan available to similarly situated employees. Beneficiaries' Election Rights Each qualified beneficiary may make an independent election to receive COBRA coverage. For example, although a former employee may want continuation coverage for themselves, their spouse and dependents may elect COBRA coverage independently of the employee. If there is a choice among types of coverage under a plan, each qualified beneficiary is allowed to make a separate election from among the various types of coverage offered under the plan. So, even if the employee elects certain coverage, the spouse or other dependent may choose different coverage. Although a plan must permit beneficiaries to make separate COBRA decisions, the covered employee (or spouse in the case of the employee's death, divorce or legal separation from the spouse) is permitted to make the election on behalf of other qualified beneficiaries affected by the qualifying event. In these cases, the decision of the employee or spouse is binding on the other qualified beneficiaries in the family and the other family members lose their right to make an independent election. It is essential that employers provide written notice of COBRA rights to all departing employees. A separate notice to spouses/dependants -- sent by registered mail -- is also recommended. Separate Plan Rules Qualified beneficiaries have the right to make a separate COBRA election for each plan they were covered under before a qualifying event. This requires an employer to divide its health care program into separate health plans as determined under these guidelines: * Each benefit level or option offered under an arrangement will be treated as a separate group health plan. * An insured health arrangement may be treated as more than one plan where there are multiple insurance contracts between the insurer and the plan sponsor, even if the coverage under the separate contracts is identical. * A self-funded health care arrangement may be treated as more than one plan if segments of the arrangement have assets available only to pay the benefits of their respective segment. * Multiple-employer welfare plans must be treated as a separate group health plan for each participating employer. * Union insurance arrangements must be treated as a separate group health plan from any non-union plan offered by the same employer. Notification Requirements COBRA notification requirements fall into four general categories: 1. A written notice of COBRA rights must be distributed to each employee and spouse when they first enter the health plan. The Department of Labor has issued a model notice for employers to use for this purpose. Employers will be considered as having demonstrated good-faith compliance with the law if the notice is mailed, first class (we suggest registered, return receipt mail) to the covered employee's and spouse's last known address(es). In addition to providing employees with special written notices, employers also should incorporate an brief explanation of COBRA rights in the plan's summary plan description that was originally provided to employees. 2. In cases where the employer is not the plan administrator, the employer is responsible for notifying the plan administrator of certain qualifying events. The employer has 30 days from the date coverage ceases (if it is provided for under the terms of the plan) or the date of the death of the covered employee; the covered employee's termination (for reasons other than gross misconduct); the covered employee becoming entitled to or eligible for Medicare and the employer's bankruptcy. Multi-employer plans are permitted to take more than 30 days to notify the plan administrator if permitted by the terms of the plan. 3. The administrator of the health plan is obligated to notify qualified beneficiaries of their COBRA rights when a qualifying event occurs. This notice must be provided within 14 days of receiving notice of any qualifying event. Multi-employer plan administrators are allowed more than 14 days to notify qualified beneficiaries as long as the length of the notification period is spelled out in the plan document and summary plan description. 4. COBRA requires spouses who become divorced or legally separated from a covered employee and dependents who lose their "dependent status" under the employer's plan to notify the plan administrator that these qualifying events have occurred. This notice must be made within 60 days of the qualifying
event or the date the qualified beneficiary would lose coverage as a result of
the qualifying event, whichever is later. The group health plan does not have to
offer the qualified beneficiary the opportunity to elect COBRA coverage if the
covered employee or qualified beneficiary fails to make the required
notification. Qualifying beneficiaries who are disabled at the time they experience a change in employment status are eligible for an extra 11 months of continuation coverage beyond the regular 18-month period. To qualify for this extended period of COBRA coverage, disabled qualified beneficiaries must notify the plan administrator of their disability status within 60 days of their disability determination. This notice must be given no later than the end of the regular 18-month COBRA coverage period that applies whenever there is a change in employment status. Where there is a subsequent determination that the person is no longer is disabled, they are required to notify the plan administrator within 30 days of that determination. The plan administrator then may terminate COBRA coverage at the beginning of the next month after the determination that a beneficiary is no longer disabled. Premium Payment Rules A group health plan must allow qualified beneficiaries the option of paying for COBRA continuation coverage in monthly installments. Plans may allow beneficiaries to pay COBRA premiums at other intervals. Where a beneficiary fails to make "timely payment" of a required COBRA premium, the employer may terminate the beneficiary's continuation coverage short of the full coverage period. A premium will be considered timely where it is paid within the longer of 30 days from the due date, the period specified in the plan document, or the period permitted for the employer to make premium payments on behalf of similarly situated active employees to the insurer, HMO, or other entity providing plan benefits. A group health plan may not require payment of any COBRA premium until 45 days after the qualified beneficiary makes the initial election of COBRA coverage. Employers may collect premiums for this period on a retroactive basis. Amount of COBRA Premiums The premium charged to the employee or beneficiary for COBRA continuation coverage is based on the applicable premium cost under the plan for "similarly situated" employees. Usually, employers are permitted to charge qualified beneficiaries up to 102 percent of the applicable plan premium cost. The additional 2 percent above the premium cost is intended to help employers recover part of the cost of administering COBRA. We recommend that you negotiate with the plan administrator or insuror to collect premiums. Some are willing to do so to earn an additional 2 percent of premium income -- others do not want to be a collection agency. Ask your tax advisor how the premium should be entered on your books -- co-mingling this money with other company funds or failing to place it in a special account could carry tax liabilities. Disabled qualified beneficiaries who are granted the special extended period of continuation coverage may be charged up to 150 percent of the applicable plan premium during the 11-month period of extended coverage. This 48-percent differential is permitted since disabled persons are more likely to incur substantial medical expenses. Determining Premium Costs COBRA premiums are based on a percentage (102 percent or 150 percent) of the applicable premium costs for similarly situated employees. In the case of insured plans, the applicable premium cost would be the group premium imposed by the insurance company for covering a similarly situated employee. Special rules are necessary to determine the applicable premium for self-financed arrangements. To ensure some consistency in how self-insured plans determine their premiums, COBRA rules provide some premium-costing methods that self-insured plans may use: * General Method -- Under this method, self-funded arrangements are allowed to use actuarial techniques to make a reasonable estimate of the cost of providing coverage to similarly situated employees during the same coverage period. * Alternate Method -- The alternate method allows the applicable continuation coverage premium to be determined on the basis of the cost to the plan for covering similarly situated beneficiaries during the preceding year. The cost is then adjusted for cost-of-living increases or decreases as measured by the gross national product (GNP) implicit price deflator, as calculated by the U.S. Commerce Department. This method may not be used where either the coverage available under the plan or the employees covered by the plan differ significantly between the preceding year and the current year. "Similarly Situated" Employees COBRA premiums are based on the premium cost under the plan for "similarly situated" employees. To determine what groups of people make up "similarly situated" employees, administrators may take into account the level of coverage elected by employees; employees who elect employee-only versus those that elect family coverage and any varying levels of family coverage; and employees' geographical locations where there are regional differences in plan costs. For instance, a plan may charge a qualified beneficiary who elects high-option family coverage a COBRA premium of 102 percent of what the plan charges to cover an active employee who also elects high-option family coverage. Plans are restricted from assessing COBRA premiums on the basis of premium costs to employees grouped by sex or specific medical conditions. Employers may not group active employees separately from retirees in determining applicable plan costs. Government Payment of COBRA Premiums Under certain circumstances state governments are required to pay COBRA premiums on behalf of Medicaid-eligible persons and have the option of paying COBRA premiums for certain lower-income persons not eligible for Medicaid. Medicaid is a public health program for low-income persons that is administered by individual states and funded jointly by federal and state governments. The provisions relating to the state payment of COBRA premiums became effective in 1990. They allow states to pay the group premiums for the following types of persons who are eligible for COBRA coverage: * Medicare-eligible persons -- State Medicaid programs are required to pay the group premiums as well as any deductibles and co-insurance for persons eligible for group health coverage (including COBRA coverage) if it would be cost effective for the state to do so. * Other lower-income persons -- States have the option of paying COBRA premiums for lower-income persons who are not Medicaid eligible, but are eligible for COBRA coverage under a plan maintained by an employer with 75 or more employees. PENALTIES Employers that violate COBRA are subject to civil sanctions and tax penalties. Under COBRA's civil sanction procedures, either the Department of Labor or plan beneficiary can sue a plan that fails to provide required COBRA notices to employees. Where a court decides beneficiaries were wrongfully denied continuation coverage, they are entitled to equitable relief. Plan administrators may be personally liable for a special civil penalty of up to $100 a day for failure to provide the required COBRA notice. COBRA's tax sanctions include a non-deductible excise tax of $100 a day for each beneficiary affected during the noncompliance period. The tax penalty is capped at $200 per day for each affected family. In applying the $100 a day penalty, the period of noncompliance is measured from the date of the failure to the date when the failure is corrected or the date six months after the last day of the otherwise applicable COBRA coverage period, whichever is earlier. An employer's maximum liability under the tax penalty is limited to the lesser of $500,000 or 10 percent of the preceding year's total costs of providing group health coverage. Joint Liability For COBRA violations can extend to third parties, such as plan administrators or benefits providers, where their actions or omissions cause a compliance failure. (NOTE: Any penalty assessed against a third party is in addition to penalties assessed against an employer. The employer is subject to the COBRA tax penalty in all cases of COBRA violations, whether the employer causes the violation or whether a third party is at fault.) For third parties that are jointly liable for violations, the maximum liability for the excise tax penalty is $2 million per non-compliance period. Third parties become subject to COBRA penalties under: * Responsibilities assumed in writing -- A third party may be subject to the COBRA excise tax penalty if a written agreement is signed with the employer to assume either plan administration or plan benefit payment responsibilities. Penalties may be assessed against an administrator or benefit provider only for violations relating to the specific responsibilities assumed under the written agreement. The third party's actions (or lack thereof) must contribute to the violation in question. Even in cases where a written agreement exists between the employer and the third-party administrator or provider, the administrator/provider may be spared liability for COBRA violations where the employer's actions -- or lack of action -- render the administrator/provider unable to carry out its responsibilities under the agreement. * Written request for COBRA coverage -- A third party administrator or provider also may be subject to the COBRA excise tax penalty if the failure occurs despite the fact that the administrator/provider received a written request to provide COBRA coverage. This liability might be triggered by an employer's request to the plan administrator or benefit provider or the plan administrator's request to a benefit provider or another administrator. A written request submitted by a qualified beneficiary also can trigger an administrator or provider's liability where the request relates to coverage lost due to divorce, legal separation, or loss of dependent child status under the plan. "Prompt Correction" Exception The $100 a day tax penalty does not apply in cases where a violation was for "reasonable cause" and was corrected quickly. In general, employers will be spared the $100-a-day excise tax in cases where failures are for "reasonable cause" (rather than "willful neglect") and are corrected within 30 days of the date that they first occur. This exception does not apply in cases where the failure is discovered in the course of an IRS audit. "Reasonable Cause" Exception COBRA rules also grant relief in cases where the violations are purely inadvertent. Under this rule, the $100-a-day excise tax does not apply to periods of non-compliance during which the parties responsible for administering the plan did not know and could not have known of the failure to meet the COBRA requirements. This exception does not apply in cases where the failure is discovered in the course of an IRS audit. COBRA's Relationship to Other Continuation Rules Many state and local governments have enacted so-called "mini-COBRA" laws that require that a continuation coverage option be included in group health insurance policies covering public employees. Guam and the CNMI have not done so. Like COBRA, these laws generally require that employer-sponsored group health insurance plans offer employees, their spouses, and dependents a period of continued health coverage upon termination of the employee, a change in marital status, or other event causing a loss of eligibility under the plan. The continuation coverage periods required under state, county or city laws are typically less extensive than those required under federal rules. The period of continuation coverage provided by an employer pursuant to a state continuation coverage requirement generally may be credited toward satisfaction of 18-, 29-, or 36-month coverage periods required under COBRA, providing the coverage is identical to that required by COBRA. Some states specifically require that state-required continuation coverage be offered only after the expiration of any continuation coverage available to an employee under COBRA.
Questions and Answers about the Employers have raised a number of questions about requirements under the Family and Medical Leave Act of 1993 as they affect health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA). The questions primarily deal with continuation coverage requirements that may arise once FMLA leave has ended. The full set of questions and answer is contained in IRS Notice 91-103. Under what circumstances does a COBRA qualifying event occur if an employee does not return from FMLA leave? The taking of leave under FMLA is not a qualifying event for health benefits continuation. A qualifying even under COBRA occurs if: 1. An employee, or the spouse or a dependent child of the employee, is covered under a group health plan of the employee's employer on the day before the first day of FMLA leave (or becomes covered during the FMLA leave) and; 2. The employee does not return to employment with the employer at the end of the leave and; 3. The employee, or the spouse or dependent child, would, in the absence of COBRA continuation coverage, lose coverage under the group health plan (cease to be covered under the same terms, and conditions as in effect for similarly situated active employees and their spouses and dependent children) before the end of what would be the maximum coverage period. When would satisfying the conditions above not constitute a qualifying event? Satisfying the three conditions in the answer above would not constitute a qualifying event if the employer eliminated, on or before the last day of the employee's FMLA leave, coverage under the group health plan for the class of employees (while continuing to employ that class of employees) to which the employee would have belonged if the employee had not taken FMLA leave. When does the COBRA qualifying event occur, and how is the maximum coverage period measured?
A qualifying event for continuation of group health plan
benefits occurs on the last day of FMLA leave. The maximum coverage period is
measured from the date of the qualifying event (the last day of FMLA leave). If
coverage under the group health plan is lost at a later date and the plan
provides for the extension of the required periods (permitted under certain
circumstances) then the maximum coverage period is measured from the date that
coverage is lost. How does a qualified beneficiary become entitled to a disability extension under COBRA?A-5: (a) A qualified beneficiary becomes entitled to a disability extension if the requirements of paragraphs (b), (c), and (d) are satisfied with respect to the qualified beneficiary. If the disability extension applies with respect to a qualifying event, it applies with respect to each qualified beneficiary entitled to COBRA continuation coverage because of that qualifying event. Thus, for example, the 29-month maximum coverage period applies to each qualified beneficiary who is not disabled as well as to the qualified beneficiary who is disabled, and it applies independently with respect to each of the qualified beneficiaries. See Q&A-1 in § 54.4980B-8, which permits a plan to require payment of an increased amount during the disability extension. (b) The requirement of this paragraph (b) is satisfied if a qualifying event occurs that is a termination, or reduction of hours, of a covered employee's employment. (c) The requirement of this paragraph (c) is satisfied if an individual (whether or not the covered employee) who is a qualified beneficiary in connection with the qualifying event described in paragraph (b) is determined under Title II or XVI of the Social Security Act to have been disabled at any time during the first 60 days of COBRA continuation coverage. (d) The requirement of this paragraph (d) is satisfied if any of the qualified beneficiaries affected by the qualifying event described in paragraph (b) provides notice to the plan administrator of the disability determination on a date that is both within 60 days after the date the determination is issued and before the end of the original 18-month maximum coverage period that applies to the qualifying event. This section is a summary of new rules governing the "notice requirements" of the health care continuation coverage under COBRA. The continuation coverage provisions generally require group health plans to provide participants and beneficiaries who under certain circumstances would lose coverage (qualified beneficiaries) the opportunity to elect to continue coverage under the plan at group rates for a limited period of time. The new rules set minimum standards for the timing and content of the notices required under the continuation coverage provisions and establish standards for administering the notice process. The rules affect administrators of group health plans, participants and beneficiaries (including qualified beneficiaries) of group health plans, and the sponsors and fiduciaries of these plans. This file also includes a model notice for use by administrators of single-employer group health plans to satisfy their obligation to provide general notices and election notices. These regulations became effective July 26, 2004. They apply to notice obligations arising under the COBRA provisions of part 6 of title I of ERISA on or after the first day of the first plan year beginning on or after the date that is six months after May 26, 2004 (or November 26, 2004). The continuation coverage provisions, sections 601 through 608 of title I of ERISA, were enacted as part of COBRA, which also promulgated parallel provisions that became part of the Internal Revenue Code (Code) and the Public Health Service Act (PHSA). These provisions are commonly referred to as the COBRA provisions, and the continuation coverage that they require is commonly referred to as COBRA coverage. The COBRA provisions of title I of ERISA generally require that "any group health plan" offer "qualified beneficiaries" the opportunity to elect "continuation coverage"' following certain events that would otherwise result in the loss of coverage (qualifying events). Continuation coverage is a temporary extension of the qualified beneficiary's previous group health coverage. The right to elect continuation coverage allows peoples to maintain group health coverage under adverse circumstances and to bridge gaps in health coverage that otherwise could limit their access to health care. The tax code, the COBRA provisions in the PHSA -- while very similar in other ways -- are not identical to the COBRA provisions in title I of ERISA. The PHSA provisions apply only to State and local governmental plans, and the Code provisions grant COBRA rights to individuals who would not be considered participants or beneficiaries under ERISA. A group health plan is not subject to the COBRA provisions for any calendar year if all employers maintaining such plan normally employed fewer than 20 employees on a typical business day during the preceding calendar year. Each of the quoted terms is specifically defined in the COBRA provisions. In particular, the term "group health plan" is defined in section 607(1) of the Act to mean an employee welfare benefit plan as defined in section 3(1) of the Act that provides medical care (as defined in section 213(d) of the Code) to participants or beneficiaries directly or through insurance, reimbursement, or otherwise. The Department notes that employee welfare benefit plans under ERISA include, among other things, plans sponsored by unions for their members as well as plans sponsored by employers for their employees. Those union-sponsored plans would not involve employers in any sponsorship capacity, nor would they necessarily cover individuals all of whom are employees. Although the proposed regulations use the terms "employer" and "employee", as do the COBRA provisions, in assigning duties, they are intended to apply to all group health plans, as defined in section 607(1) of the Act, subject to COBRA. COBRA provides that the Secretary of Labor (the Secretary) has the authority under section 608 of ERISA to carry out the provisions of part 6 of title I of ERISA. The Conference Report that accompanied COBRA divided interpretive authority over the COBRA provisions between the Secretary and the Secretary of the Treasury by providing that the Secretary of Labor has the authority to issue regulations implementing the notice and disclosure requirements of COBRA, and Treasury is authorized to issue regulations defining the required continuation coverage. Under its authority to interpret the COBRA provisions, the Treasury has issued final regulations that provide rules for determining which plans are subject to the COBRA provisions, who is or can become a qualified beneficiary, which events constitute qualifying events, what COBRA obligations exist in the case of mergers and acquisitions, and the nature of the continuation coverage that must be offered. The Conference Report further indicated that the Secretary of Health and Human Services, who is to issue regulations implementing the continuation coverage requirements for State and local governments, must conform the actual requirements of those regulations to the regulations issued by the Secretary and the Treasury. On May 28, 2003, the Department of Labor published proposed regulations governing the timing, content, and administration of the notice obligations arising under sections 601 through 608 of ERISA. In response to the proposed COBRA notice regulations, the Department received 26 public comments from an array of interested parties, including organizations representing employers, group health plans, plan administrators, persons specializing in COBRA administration, and participants and beneficiaries. RULES AND REGULATIONS FOR GROUP HEALTH PLANS Sec. 2590.606-1. General notice of continuation coverage. (a) General. Pursuant to section 606(a)(1) of the Employee Retirement Income Security Act of 1974, as amended (the Act), the administrator of a group health plan subject to the continuation coverage requirements of part 6 of title I of the Act shall provide, in accordance with this section, written notice to each covered employee and spouse of the covered employee (if any) of the right to continuation coverage provided under the plan. (b) Timing of notice. (1) The notice required by paragraph (a) of this section shall be furnished to each employee and each employee's spouse, not later than the earlier of: (i) The date that is 90 days after the date on which such individual's coverage under the plan commences, or, if later, the date that is 90 days after the date on which the plan first becomes subject to the continuation coverage requirements; or (ii) The first date on which the administrator is required, pursuant to Sec. 2590.606-4(b), to furnish the covered employee, spouse, or dependent child of such employee notice of a qualified beneficiary's right to elect continuation coverage. (2) A notice that is furnished in accordance with paragraph (b)(1) of this section shall, for purposes of section 606(a)(1) of the Act, be deemed to be provided at the time of commencement of coverage under the plan. (3) In any case in which an administrator is required to furnish a notice to a covered employee or spouse pursuant to paragraph (b)(1)(ii) of this section, the furnishing of a notice to such individual in accordance with Sec. 2590.606-4(b) shall be deemed to satisfy the requirements of this section. (c) Content of notice. The notice required by paragraph (a) of this section shall be written in a manner calculated to be understood by the average plan participant and shall contain the following information: (1) The name of the plan under which continuation coverage is available, and the name, address and telephone number of a party or parties from whom additional information about the plan and continuation coverage can be obtained; (2) A general description of the continuation coverage under the plan, including identification of the classes of individuals who may become qualified beneficiaries, the types of qualifying events that may give rise to the right to continuation coverage, the obligation of the employer to notify the plan administrator of the occurrence of certain qualifying events, the maximum period for which continuation coverage may be available, when and under what circumstances continuation coverage may be extended beyond the applicable maximum period, and the plan's requirements applicable to the payment of premiums for continuation coverage; (3) An explanation of the plan's requirements regarding the responsibility of a qualified beneficiary to notify the administrator of a qualifying event that is a divorce, legal separation, or a child's ceasing to be a dependent under the terms of the plan, and a description of the plan's procedures for providing such notice; (4) An explanation of the plan's requirements regarding the responsibility of qualified beneficiaries who are receiving continuation coverage to provide notice to the administrator of a determination by the Social Security Administration, under title II or XVI of the Social Security Act (42 U.S.C. 401 et seq. or 1381 et seq.), that a qualified beneficiary is disabled, and a description of the plan's procedures for providing such notice; (5) An explanation of the importance of keeping the administrator informed of the current addresses of all participants or beneficiaries under the plan who are or may become qualified beneficiaries; and (6) A statement that the notice does not fully describe continuation coverage or other rights under the plan and that more complete information regarding such rights is available from the plan administrator and in the plan's SPD. (d) Single notice rule. A plan administrator may satisfy the requirement to provide notice in accordance with this section to a covered employee and the covered employee's spouse by furnishing a single notice addressed to both the covered employee and the covered employee's spouse, if, on the basis of the most recent information available to the plan, the covered employee's spouse resides at the same location as the covered employee, and the spouse's coverage under the plan commences on or after the date on which the covered employee's coverage commences, but not later than the date on which the notice required by this section is required to be provided to the covered employee. Nothing in this section shall be construed to create a requirement to provide a separate notice to dependent children who share a residence with a covered employer or a covered employee's spouse to whom notice is provided in accordance with this section. (e) Notice in summary plan description. A plan administrator may satisfy the requirement to provide notice in accordance with this section by including the information described in paragraphs (c)(1), (2), (3), (4), and (5) of this section in a summary plan description meeting the requirements of Sec. 2520.102-3 of this chapter furnished in accordance with paragraph (b) of this section. (f) Delivery of notice. The notice required by this section shall be furnished in a manner consistent with the requirements of Sec. 2520.104b-1 of this chapter, including paragraph (c) of that section relating to the use of electronic media. (g) Model notice. This file contains a model notice that is intended to assist administrators in discharging the notice obligations of this section. Use of the model notice is not mandatory. The model notice reflects the requirements of this section as they would apply to single-employer group health plans and must be modified if used to provide notice with respect to other types of group health plans, such as multiemployer plans or plans established and maintained by employee organizations for their members. In order to use the model notice, administrators must appropriately add relevant information where indicated in the model notice, select among alternative language, and supplement the model notice to reflect applicable plan provisions. Items of information that are not applicable to a particular plan may be deleted. Use of the model notice, appropriately modified and supplemented, will be deemed to satisfy the notice content requirements of paragraph (c) of this section. (h) Applicability. This section shall apply to any notice obligation described in this section that arises on or after the first day of the first plan year beginning on or after November 26, 2004. Sec. 2590.606-2. Notice requirement for employers. (a) General. Pursuant to section 606(a)(2) of the Employee Retirement Income Security Act of 1974, as amended (the Act), except as otherwise provided herein, the employer of a covered employee under a group health plan subject to the continuation coverage requirements of part 6 of title I of the Act shall provide, in accordance with this section, notice to the administrator of the plan of the occurrence of a qualifying event that is the covered employee's death, termination of employment (other than by reason of gross misconduct), reduction in hours of employment, Medicare entitlement, or a proceeding in a case under title 11, United States Code, with respect to the employer from whose employment the covered employee retired at any time. (b) Timing of notice. The notice required by this section shall be furnished to the administrator of the plan. (1) In the case of a plan that provides, with respect to a qualifying event, pursuant to section 607(5) of the Act, that continuation coverage and the applicable period for providing notice under section 606(a)(2) of the Act shall commence on the date of loss of coverage, not later than 30 days after the date on which a qualified beneficiary loses coverage under the plan due to the qualifying event; (2) In the case of a multiemployer plan that provides, pursuant to section 606(a)(2) of the Act, for a longer period of time within which employers may provide notice of a qualifying event, not later than the end of the period provided pursuant to the plan's terms for such notice; and (3) In all other cases, not later than 30 days after the date on which the qualifying event occurred. (c) Content of notice. The notice required by this section shall include sufficient information to enable the administrator to determine the plan, the covered employee, the qualifying event, and the date of the qualifying event. (d) Multiemployer plan special rules. This section shall not apply to any employer that maintains a multiemployer plan, with respect to qualifying events affecting coverage under such plan, if the plan provides, pursuant to section 606(b) of the Act, that the administrator shall determine whether such a qualifying event has occurred. (e) Applicability. This section shall apply to any notice obligation described in this section that arises on or after the first day of the first plan year beginning on or after November 26, 2004. Sec. 2590.606-3. Notice requirements for covered employees and qualified beneficiaries. (a) General. In accordance with the authority of sections 505 and 606(a)(3) of the Employee Retirement Income Security Act of 1974, as amended (the Act), this section sets forth requirements for group health plans subject to the continuation coverage requirements of part 6 of title I of the Act with respect to the responsibility of covered employees and qualified beneficiaries to provide the following notices to administrators: (1) Notice of the occurrence of a qualifying event that is a divorce or legal separation of a covered employee from their spouse; (2) Notice of the occurrence of a qualifying event that is a beneficiary's ceasing to be covered under a plan as a dependent child of a participant; (3) Notice of the occurrence of a second qualifying event after a qualified beneficiary has become entitled to continuation coverage with a maximum duration of 18 (or 29) months; (4) Notice that a qualified beneficiary entitled to receive continuation coverage with a maximum duration of 18 months has been determined by the Social Security Administration, under title II or XVI of the Social Security Act (42 U.S.C. 401 et seq. or 1381 et seq.) (SSA), to be disabled at any time during the first 60 days of continuation coverage; and (5) Notice that a qualified beneficiary, to whom a notice described in paragraph (a)(4) of this section has been provided, has subsequently been determined by the Social Security Administration, under title II or XVI of the SSA to no longer be disabled. (b) Reasonable procedures. (1) A plan subject to the continuation coverage requirements shall establish reasonable procedures for the furnishing of the notices described in paragraph (a) of this section. (2) For purposes of this section, a plan's notice procedures shall be deemed reasonable only if such procedures: (i) Are described in the plan's summary plan description required by Sec. 2520.102-3 of this chapter; (ii) Specify the person or entity designated to receive such notices; (iii) Specify the means by which notice may be given; (iv) Describe the information concerning the qualifying event or determination of disability that the plan deems necessary in order to provide continuation coverage rights consistent with the requirements of the Act; and (v) Comply with the requirements of paragraphs (c), (d), and (e) of this section. (3) A plan's procedures will not fail to be reasonable, pursuant to this section, solely because the procedures require a covered employee or qualified beneficiary to utilize a specific form to provide notice to the administrator, provided that any such form is easily available, without cost, to covered employees and qualified beneficiaries. (4) If a plan has not established reasonable procedures for providing a notice required by this section, such notice shall be deemed to have been provided when a written or oral communication identifying a specific event is made in a manner reasonably calculated to bring the information to the attention of any of the following: (i) In the case of a single-employer plan, the person or organizational unit that customarily handles employee benefits matters of the employer; (ii) In the case of a plan to which more than one unaffiliated employer contributes, or which is established or maintained by an employee organization, either the joint board, association, committee, or other similar group (or any member of any such group) administering the plan, or the person or organizational unit to which claims for benefits under the plan customarily are referred; or (iii) In the case of a plan the benefits of which are provided or administered by an insurance company, insurance service, or other similar organization subject to regulation under the insurance laws of one or more States, the person or organizational unit that customarily handles claims for benefits under the plan or any officer of the insurance company, insurance service, or other similar organization. (c) Periods of time for providing notice. A plan may establish a reasonable period of time for furnishing any of the notices described in paragraph (a) of this section, provided that any time limit imposed by the plan with respect to a particular notice may not be shorter than the time limit described in this paragraph (c) with respect to that notice. (1) Time limits for notices of qualifying events. The period of time for furnishing a notice described in paragraph (a)(1), (2), or (3) of this section may not end before the date that is 60 days after the latest of: (i) The date on which the relevant qualifying event occurs; (ii) The date on which the qualified beneficiary loses (or would lose) coverage under the plan as a result of the qualifying event; or (iii) The date on which the qualified beneficiary is informed, through the furnishing of the plan's summary plan description or the notice described in Sec. 2590.606-1, of both the responsibility to provide the notice and the plan's procedures for providing such notice to the administrator. (2) Time limits for notice of disability determination. (i) Subject to paragraph (c)(2)(ii) of this section, the period of time for furnishing the notice described in paragraph (a)(4) of this section may not end before the date that is 60 days after the latest of: (A) The date of the disability determination by the Social Security Administration; (B) The date on which a qualifying event occurs; (C) The date on which the qualified beneficiary loses (or would lose) coverage under the plan as a result of the qualifying event; or (D) The date on which the qualified beneficiary is informed, through the furnishing of the summary plan description or the notice described in Sec. 2590.606-1, of both the responsibility to provide the notice and the plan's procedures for providing such notice to the administrator. (ii) Notwithstanding paragraph (c)(2)(i) of this section, a plan may require the notice described in paragraph (a)(4) of this section to be furnished before the end of the first 18 months of continuation coverage. (3) Time limits for notice of change in disability status. The period of time for furnishing the notice described in paragraph (a)(5) of this section may not end before the date that is 30 days after the later of: (i) The date of the final determination by the Social Security Administration, under title II or XVI of the SSA, that the qualified beneficiary is no longer disabled; or (ii) The date on which the qualified beneficiary is informed, through the furnishing of the plan's summary plan description or the notice described in Sec. 2590.606-1, of both the responsibility to provide the notice and the plan's procedures for providing such notice to the administrator. (d) Required contents of notice. (1) A plan may establish reasonable requirements for the content of any notice described in this section, provided that a plan may not deem a notice to have been provided untimely if such notice, although not containing all of the information required by the plan, is provided within the time limit established under the plan in conformity with paragraph (c) of this section, and the administrator is able to determine from such notice the plan, the covered employee and qualified beneficiary(ies), the qualifying event or disability, and the date on which the qualifying event (if any) occurred. (2) An administrator may require a notice that does not contain all of the information required by the plan to be supplemented with the additional information necessary to meet the plan's reasonable content requirements for such notice in order for the notice to be deemed to have been provided in accordance with this section. (e) Who may provide notice. As for the notice requirements of this section, any person who is either the covered employee, a qualified beneficiary with respect to the qualifying event, or any representative acting on behalf of the covered employee or qualified beneficiary may provide the notice, and the provision of notice by one individual shall satisfy any responsibility to provide notice on behalf of all related qualified beneficiaries with respect to the qualifying event. (f) Plan provisions. To the extent that a plan provides a covered employee or qualified beneficiary a period of time longer than that specified in this section to provide notice to the administrator, the terms of the plan shall govern the time frame for such notice. (g) Additional rights to continuation coverage. Nothing in this section shall be construed to preclude a plan from providing, in accordance with its terms, continuation coverage to a qualified beneficiary although a notice requirement of this section was not satisfied. (h) Applicability. This section shall apply to any notice obligation described in this section that arises on or after the first day of the first plan year beginning on or after November 26, 2004. Sec. 2590.606-4. Notice requirements for plan administrators. (a) General. Pursuant to section 606(a)(4) of the Employee Retirement Income Security Act of 1974, as amended (the Act), the administrator of a group health plan subject to the continuation coverage requirements of Part 6 of title I of the Act shall provide, in accordance with this section, notice to each qualified beneficiary of the qualified beneficiary's rights to continuation coverage under the plan. (b) Notice of right to elect continuation coverage. (1) Except as provided in paragraph (b) (2) or (3) of this section, upon receipt of a notice of qualifying event furnished in accordance with Sec. 2590.606- 2 or Sec. 2590.606-3, the administrator shall furnish to each qualified beneficiary, not later than 14 days after receipt of the notice of qualifying event, a notice meeting the requirements of paragraph (b)(4) of this section. (2) In the case of a plan with respect to which an employer of a covered employee is also the administrator of the plan, except as provided in paragraph (b)(3) of this section, if the employer is otherwise required to furnish a notice of a qualifying event to an administrator pursuant to Sec. 2590.606-2, the administrator shall furnish to each qualified beneficiary a notice meeting the requirements of paragraph (b)(4) of this section not later than 44 days after: (i) In the case of a plan that provides, concerning the qualifying event, that continuation coverage and the applicable period for providing notice under section 606(a)(2) of the Act shall commence with the date of loss of coverage, the date on which a qualified beneficiary loses coverage under the plan due to the qualifying event; or (ii) In all other cases, the date on which the qualifying event occurred. (3) In the case of a plan that is a multiemployer plan, a notice meeting the requirements of paragraph (b)(4) of this section shall be furnished not later than the later of: (i) The end of the time period provided in paragraph (b)(1) of this section; or (ii) The end of the time period provided in the terms of the plan for such purpose. (4) The notice required by this paragraph (b) shall be written in a manner calculated to be understood by the average plan participant and shall contain the following information: (i) The name of the plan under which continuation coverage is available; and the name, address and telephone number of the party responsible under the plan for the administration of continuation coverage benefits; (ii) Identification of the qualifying event; (iii) Identification, by status or name, of the qualified beneficiaries who are recognized by the plan as being entitled to elect continuation coverage with respect to the qualifying event, and the date on which coverage under the plan will terminate (or has terminated) unless continuation coverage is elected; (iv) A statement that each person who is a qualified beneficiary with respect to the qualifying event has an independent right to elect continuation coverage, that a covered employee or a qualified beneficiary who is the spouse of the covered employee (or was the spouse of the covered employee on the day before the qualifying event occurred) may elect continuation coverage on behalf of all other qualified beneficiaries with respect to the qualifying event, and that a parent or legal guardian may elect continuation coverage on behalf of a minor child; (v) An explanation of the plan's procedures for electing continuation coverage, including an explanation of the time period during which the election must be made, and the date by which the election must be made; (vi) An explanation of the consequences of failing to elect or waiving continuation coverage, including an explanation that a qualified beneficiary's decision whether to elect continuation coverage will affect the future rights of qualified beneficiaries to portability of group health coverage, guaranteed access to individual health coverage, and special enrollment under part 7 of title I of the Act, with a reference to where a qualified beneficiary may obtain additional information about such rights; and a description of the plan's procedures for revoking a waiver of the right to continuation coverage before the date by which the election must be made; (vii) A description of the continuation coverage that will be made available under the plan, if elected, including the date on which such coverage will commence, either by providing a description of the coverage or by reference to the plan's summary plan description; (viii) An explanation of the maximum period for which continuation coverage will be available under the plan, if elected; an explanation of the continuation coverage termination date; and an explanation of any events that might cause continuation coverage to be terminated earlier than the end of the maximum period; (ix) A description of the circumstances (if any) under which the maximum period of continuation coverage may be extended due either to the occurrence of a second qualifying event or a determination by the Social Security Administration, under title II or XVI of the Social Security Act (SSA), that the qualified beneficiary is disabled, and the length of any such extension; (x) In the case of a notice that offers continuation coverage with a maximum duration of less than 36 months, a description of the plan's requirements regarding the responsibility of qualified beneficiaries to provide notice of a second qualifying event and notice of a disability determination under the SSA, along with a description of the plan's procedures for providing such notices, including the times within which such notices must be provided and the consequences of failing to provide such notices. The notice shall also explain the responsibility of qualified beneficiaries to provide notice that a disabled qualified beneficiary has subsequently been determined to no longer be disabled; (xi) A description of the amount, if any, that each qualified beneficiary will be required to pay for continuation coverage; (xii) A description of the due dates for payments, the qualified beneficiaries' right to pay on a monthly basis, the grace periods for payment, the address to which payments should be sent, and the consequences of delayed payment and non-payment; (xiii) An explanation of the importance of keeping the administrator informed of the current addresses of all participants or beneficiaries under the plan who are or may become qualified beneficiaries; and (xiv) A statement that the notice does not fully describe continuation coverage or other rights under the plan, and that more complete information regarding such rights is available in the plan's summary plan description or from the plan administrator. (c) Notice of unavailability of continuation coverage. (1) In the event that an administrator receives a notice furnished in accordance with Sec. 2590.606-3 relating to a qualifying event, second qualifying event, or determination of disability by the Social Security Administration regarding a covered employee, qualified beneficiary, or other individual and determines that the individual is not entitled to continuation coverage under part 6 of title I of the Act, the administrator shall provide to such individual an explanation as to why the individual is not entitled to continuation coverage. (2) The notice required by this paragraph (c) shall be written in a manner calculated to be understood by the average plan participant and shall be furnished by the administrator in accordance with the time frame set out in paragraph (b) of this section that would apply if the administrator received a notice of qualifying event and determined that the individual was entitled to continuation coverage. (d) Notice of termination of continuation coverage. (1) The administrator of a plan that is providing continuation coverage to one or more qualified beneficiaries with respect to a qualifying event shall provide, in accordance with this paragraph (d), notice to each such qualified beneficiary of any termination of continuation coverage that takes effect earlier than the end of the maximum period of continuation coverage applicable to such qualifying event. (2) The notice required by this paragraph (d) shall be written in a manner calculated to be understood by the average plan participant and shall contain the following information: (i) The reason that continuation coverage has terminated earlier than the end of the maximum period of continuation coverage applicable to such qualifying event; (ii) The date of termination of continuation coverage; and (iii) Any rights the qualified beneficiary may have under the plan or under applicable law to elect an alternative group or individual coverage, such as a conversion right. (3) The notice required by this paragraph (d) shall be furnished by the administrator as soon as practicable following the administrator's determination that continuation coverage shall terminate. (e) Special notice rules. The notices required by paragraphs (b), (c), and (d) of this section shall be furnished to each qualified beneficiary or person, except that: (1) An administrator may provide notice to a covered employee and the covered employee's spouse by furnishing a single notice addressed to both the covered employee and the covered employee's spouse, if, on the basis of the most recent information available to the plan, the covered employee's spouse resides at the same location as the covered employee; and (2) An administrator may provide notice to each qualified beneficiary who is the dependent child of a covered employee by furnishing a single notice to the covered employee or the covered employee's spouse, if, on the basis of the most recent information available to the plan, the dependent child resides at the same location as the individual to whom such notice is provided. (f) Delivery of notice. The notices required by this section shall be furnished in any manner consistent with the requirements of Sec. 2520.104b-1 of this chapter, including paragraph (c) of that section relating to the use of electronic media. (g) Model notice. The appendix to this section contains a model notice that is intended to assist administrators in discharging the notice obligations of paragraph (b) of this section. Use of the model notice is not mandatory. The model notice reflects the requirements of this section as they would apply to single-employer group health plans and must be modified if used to provide notice with respect to other types of group health plans, such as multiemployer plans or plans established and maintained by employee organizations for their members. To use the model notice, administrators must appropriately add relevant information where indicated, select among alternative language and supplement the model notice to reflect applicable plan provisions. Items of information that are not applicable to a particular plan may be deleted. Use of the model notice, appropriately modified and supplemented, will be deemed to satisfy the notice content requirements of paragraph (b)(4) of this section. (h) Applicability. This section shall apply to any notice obligation described in this section that arises on or after the first day of the first plan year beginning on or after November 26, 2004. MODEL GENERAL NOTICE OF COBRA CONTINUATION COVERAGE
RIGHTS CONTINUATION COVERAGE RIGHTS UNDER COBRA Introduction You have received this notice because you have recently become covered under a group health plan (the Plan). This notice contains important information about your right to COBRA continuation coverage, which is a temporary extension of coverage under the Plan. This notice generally explains COBRA continuation coverage, when it may become available to you and your family, and what you need to do to protect the right to receive it. The right to COBRA continuation coverage was created by a federal law, the Consolidated Omnibus Budget Reconciliation Act (COBRA) in 1985. COBRA continuation coverage can become available to you when you would otherwise lose your group health coverage. It can also become available to other members of your family who are covered under the Plan when they would otherwise lose their group health coverage. For additional information about your rights and obligations under the Plan and under federal law, you should review the Plan's Summary Plan Description or contact the Plan Administrator. What is COBRA Continuation Coverage? COBRA continuation coverage is a continuation of Plan coverage when coverage would otherwise end because of a life event known as a "qualifying event." Specific qualifying events are listed later in this notice. After a qualifying event, COBRA continuation coverage must be offered to each person who is a "qualified beneficiary." You, your spouse, and your dependent children could become qualified beneficiaries if coverage under the Plan is lost because of the qualifying event. Under the Plan, qualified beneficiaries who elect COBRA continuation coverage [choose and enter appropriate information: must pay or are not required to pay] for COBRA continuation coverage. If you are an employee, you will become a qualified beneficiary if you lose your coverage under the Plan because either one of the following qualifying events happens: --ˇYour hours of employment are reduced, or -- Your employment ends for any reason other than your gross misconduct. If you are the spouse of an employee, you will become a qualified beneficiary if you lose your coverage under the Plan because any of the following qualifying events happens: -- Your spouse dies; -- Your spouse's hours of employment are reduced; -- Your spouse's employment ends for any reason other than his or her gross misconduct; -- Your spouse becomes entitled to Medicare benefits (under Part A, Part B, or both); or -- You become divorced or legally separated from your spouse. Your dependent children will become qualified beneficiaries if they lose coverage under the Plan because any of the following qualifying events happens: -- The parent-employee dies; -- The parent-employee's hours of employment are reduced; -- The parent-employee's employment ends for any reason other than his or her gross misconduct; -- The parent-employee becomes entitled to Medicare benefits (Part A, Part B, or both); -- The parents become divorced or legally separated; or -- The child stops being eligible for coverage under the plan as a "dependent child." When is COBRA Coverage Available? The Plan will offer COBRA continuation coverage to qualified beneficiaries only after the Plan Administrator has been notified that a qualifying event has occurred. When the qualifying event is the end of employment or reduction of hours of employment, death of the employee, [add these words if the plan provides retiree health coverage: commencement of a proceeding in bankruptcy of the employer,] or the employee's becoming entitled to Medicare benefits (under Part A, Part B, or both), the employer must notify the Plan Administrator of the qualifying event. You Must Give Notice of Some Qualifying Events For the other qualifying events (divorce or legal separation of the employee and spouse or a dependent child's losing eligibility for coverage as a dependent child), you must notify the Plan Administrator within 60 days [or enter longer period permitted under the terms of the Plan] after the qualifying event occurs. You must provide this notice to: [Enter name of appropriate party]. [Add description of any additional Plan procedures for this notice, including a description of any required information or documentation.] How is COBRA Coverage Provided? Once the Plan Administrator receives notice that a qualifying event has occurred, COBRA continuation coverage will be offered to each of the qualified beneficiaries. Each qualified beneficiary will have an independent right to elect COBRA continuation coverage. Covered employees may elect COBRA continuation coverage on behalf of their spouses, and parents may elect COBRA continuation coverage on behalf of their children. COBRA continuation coverage is a temporary continuation of coverage. When the qualifying event is the death of the employee, the employee's becoming entitled to Medicare benefits (under Part A, Part B, or both), your divorce or legal separation, or a dependent child's losing eligibility as a dependent child, COBRA continuation coverage lasts for up to a total of 36 months. When the qualifying event is the end of employment or reduction of the employee's hours of employment, and the employee became entitled to Medicare benefits less than 18 months before the qualifying event, COBRA continuation coverage for qualified beneficiaries other than the employee lasts until 36 months after the date of Medicare entitlement. For example, if a covered employee becomes entitled to Medicare 8 months before the date on which his employment terminates, COBRA continuation coverage for his spouse and children can last up to 36 months after the date of Medicare entitlement, which is equal to 28 months after the date of the qualifying event (36 months minus 8 months). Otherwise, when the qualifying event is the end of employment or reduction of the employee's hours of employment, COBRA continuation coverage generally lasts for only up to a total of 18 months. There are two ways in which this 18-month period of COBRA continuation coverage can be extended. Disability extension of 18-month period of continuation coverage If you or anyone in your family covered under the Plan is determined by the Social Security Administration to be disabled and you notify the Plan Administrator in a timely fashion, you and your entire family may be entitled to receive up to an additional 11 months of COBRA continuation coverage, for a total maximum of 29 months. The disability would have to have started at some time before the 60th day of COBRA continuation coverage and must last at least until the end of the 18-month period of continuation coverage. [Add description of any additional Plan procedures for this notice, including a description of any required information or documentation, the name of the appropriate party to whom notice must be sent, and the time period for giving notice.] Second qualifying event extension of 18-month period of continuation coverage If your family experiences another qualifying event while receiving 18 months of COBRA continuation coverage, the spouse and dependent children in your family can get up to 18 additional months of COBRA continuation coverage, for a maximum of 36 months, if notice of the second qualifying event is properly given to the Plan. This extension may be available to the spouse and any dependent children receiving continuation coverage if the employee or former employee dies, becomes entitled to Medicare benefits (under Part A, Part B, or both), or gets divorced or legally separated, or if the dependent child stops being eligible under the Plan as a dependent child, but only if the event would have caused the spouse or dependent child to lose coverage under the Plan had the first qualifying event not occurred. If You Have Questions Questions concerning your Plan or your COBRA continuation coverage rights should be asked of the people mentioned below. For more information about your rights under ERISA, including COBRA, the Health Insurance Portability and Accountability Act (HIPAA), and other laws affecting group health plans, contact the nearest Regional or District Office of the U.S. Department of Labor's Employee Benefits Security Administration (EBSA) in your area or visit the EBSA website at www.dol.gov/ebsa. (Addresses and phone numbers of Regional and District EBSA Offices are available through EBSA's website.) Keep Your Plan Informed of Address Changes In order to protect your family's rights, you should keep the Plan Administrator informed of any changes in the addresses of family members. You should also keep a copy, for your records, of any notices you send to the Plan Administrator. Plan Contact Information [Enter na |
me of group health plan and name (or
position), mailing address, e-mail address and phone number of the
company officials and/or plan administrators from whom information about
the plan and COBRA continuation coverage can be obtained.]