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Home / Washington Business - March/April 2005 / Don't Get Bitten by COBRA |
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Don't Get Bitten by COBRA |
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Written On: March/April 2005 |
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Written By: by Kris Tefft, AWB General Counsel |
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This year marks the 20th anniversary of “COBRA,” the Consolidated Omnibus Budget Reconciliation Act of 1985. COBRA provides every employee, or employee’s dependents under certain circumstances, the right to continue health care coverage under an employer’s insurance plan after becoming otherwise ineligible to participate.
Complying with COBRA has become second nature for most businesses and health insurance plan administrators. But because penalties for non-compliance can be steep, and because COBRA rights are implicated constantly, business owners and managers should refresh their memories on the law from time to time.
COBRA affects the group health plan an employer’s provides to employees. It requires continued health coverage for covered employees and/or their dependents who would otherwise lose coverage because of a qualifying event, but elect to pay for continued coverage. Qualifying events for COBRA kicking in include termination of employment, divorce or death of the employee.
Employers who maintain a group health plan and who employ 20 or more employees during 50 percent or more of the working days of the previous calendar year are subject to COBRA’s requirements. Covered employees include full- and part-time workers, partners and sole proprietors, and even independent contractors if they are allowed to participate in the group health plan. The law refers to covered employees as beneficiaries.
COBRA beneficiaries are entitled to continue health coverage for 36 months from the qualifying event if it was the death of the covered employee, divorce or separation of the covered employee and spouse, covered employee’s eligibility for Medicare, or a dependent child ceasing to be a dependent. Otherwise, the maximum continuation period is 18 months when the qualifying event is termination or reduction in hours. An extension of the 18-month period is possible under certain circumstances if the beneficiary is or becomes disabled.
Benefits continued under COBRA terminate if the beneficiary becomes covered by another plan, so long as the new plan does not exclude a preexisting condition. Continuing coverage also terminates if the beneficiary fails to pay premiums, enrolls in Medicare, or the employer ceases to maintain any group health plan. When the coverage terminates, COBRA requires that the beneficiary be offered an option to enroll under an individual health plan if that kind of plan is available under the group plan.
The covered beneficiary must continue to pay premiums into the plan at a rate not exceeding 102 percent of the premium that would have been paid by the employer and/or employee under the plan. The continuation coverage offered must be identical to the benefits offered under the group plan.
Group plan administrators must provide notice of COBRA rights to each covered employee and spouse upon their first coverage by the health plan. When a qualifying event occurs, the employer must notify the plan administrator within 30 days, who in turn must notify beneficiaries within 14 days. Beneficiaries must notify the administrator of their intent to continue coverage within 60 days.
Penalties for failing to comply with COBRA eligibility and notification requirements are stiff. An employer who fails to comply with COBRA continuation provisions is subject to an excise tax of $100 per day for each qualified beneficiary for whom there has been a failure to satisfy the rules (a maximum of $200 per day per family). Court cases have also found employers liable for employee’s actual medical costs, in addition to premium costs, for violating COBRA.
Penalties of $110 per day apply for failure to provide initial COBRA notices and for failure to provide election notices. Participants in the group plan as well as COBRA beneficiaries can sue to recover these penalties.
As long as a process is in place to supply notices when they are due and manage decisions to continue coverage when beneficiaries make them, COBRA is easy to handle. When problems arise, or if circumstances present themselves that are outside the general summary provided here, business owners, managers and plan administrators should contact AWB or consult with appropriate legal counsel to ensure no unnecessary legal liability arises.
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