If you lose your health insurance as the result of job loss (resignation or termination), divorce, death of a spouse, or other qualifying event, the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) can provide a welcome bridge while you work to secure new health coverage. Yet there are many complexities and pitfalls to COBRA of which you should be aware.
The biggest consideration when deciding whether to elect COBRA is cost. Most employers subsidize their employees’ health insurance by 50 to 90%, meaning that employees only bear 10 to 50% of the actual cost. Under COBRA, the employee bears up to 102% of their health insurance premiums (the additional 2% is for administrative fees). That increased cost often presents a financial hardship at a time when employees and their families are already vulnerable due to job loss, divorce, or the death of a loved one.
With the passage of the Affordable Care Act in 2010, COBRA has arguably become less important than it once was. Now, health insurers can no longer decline to provide coverage based on a pre-existing condition. Moreover, individuals and families can purchase coverage from state-based health exchanges. Yet people continue to elect COBRA for a variety of reasons, including:
- COBRA can be elected retroactively and can therefore protect you in the even to of large and unexpected medical expenses following the lapse of your group coverage;
- COBRA ensures you keep your existing provider network and health benefits, which can be more robust than the benefits available on the exchange.
- Your employer may subsidize COBRA, either pursuant to a company-wide plan or an individual severance agreement that you negotiate.
The following are some important considerations and deadlines to consider when weighing whether to elect COBRA coverage.
Who Must Provide COBRA
Employers (including government employers) with 20 or more employees that offer health insurance are required to offer COBRA to “beneficiaries” who lose that group coverage due to a “qualifying event” (see below). “Beneficiaries” encompasses anyone covered under the plan at the time of the qualifying event, including spouses and children. Employers with less than 20 employees may still be subject to state mini-COBRA laws.
– Job loss (except for gross misconduct);
– Reduction in hours;
– Divorce or legal separation from the covered employee;
– Death of the covered employee;
– Medicare eligibility of the covered employee;
– Loss of dependent status of child at age 26;
– Employer’s bankruptcy (retirees only).
Deadlines to Elect COBRA
If you lose your health insurance coverage due to divorce, separation, or loss of dependent status as the result of turning age 26, you are required to notify the plan administrator (i.e., employer) of the qualifying event within 60 days (or longer, if permitted under the plan). In all other cases, the employer has 30 days to notify a COBRA plan administrator of a qualifying event. The plan administrator, in turn, has a duty to notify the beneficiary of his or her right to elect COBRA within 14 days of the qualifying event (the “election notice”).
The beneficiary has 60 days to elect COBRA coverage from the latest of the following events: 1) date of the qualifying event; 2) date of the loss of coverage; or 3) date of the notification by plan sponsor of COBRA rights.
The COBRA election notice must comply with strict notice requirements and disclose the name, address, and telephone number of the COBRA administrator and a detailed explanation of the rights and procedures regarding election of COBRA coverage. Those rules are in place, at least in part, to prevent employers from issuing vague election notices that confuse beneficiaries as to their COBRA rights, thereby deterring enrollment and reducing costs.
The U.S. Department of Labor has implemented model notices to enable employers to comply with the COBRA law. Failure to comply with COBRA notice requirements can be costly for employers, resulting in statutory penalties to the plan participant of up to $110 per day plus IRS penalties ranging from $2,500 to $500,000.
Payment of Premiums
An employer cannot require that a COBRA beneficiary include the first premium payment with his or her election notice. However, the plan can require that the participant mail his or her first premium payment within 45 days of electing COBRA. Failure to make a timely payment could result in the loss of COBRA coverage. The plan may thereafter set a due-date for COBRA premiums for successive periods of coverage, but must give participants a 30-day “grace period” for late payments before terminating coverage. Because premium payments get lost in the mail, a best practice is to set up direct deposit of COBRA premiums or else mail premium checks via certified mail or another tracking method.
Lapse in Group Coverage Due to Employer Malfeasance
COBRA rights are considered an extension of the underlying policy. If that policy lapses, for example because the employer fails to remit premiums to the health insurer or cancels coverage, the plan participants lose coverage as well, with no entitlement to COBRA. If this happens to you, you should immediately contact the U.S. Department of Labor, as your employer’s actions likely violate the federal ERISA statute.
In addition, you should consider purchasing an individual policy of health insurance as soon as possible, to mitigate your damages and minimize the likelihood of a catastrophic health claim while you are uncovered. The loss of health insurance coverage, regardless of the cause, is a “qualifying life event” within the meaning of the Affordable Care Act such that you can enroll in an individual health insurance plan outside of the regular open enrollment period. Unfortunately, coverage under the Affordable Care Act is not generally retroactive.
On behalf of DeBofsky Sherman Casciari Reynolds P.C.
If an employee is disabled and qualifies to receive Social Security disability benefits while on COBRA, providing notice to the COBRA plan administrator within 30 days of approval of the disability benefit claim can extend COBRA benefits from 18 to 29 months, providing a bridge to Medicare coverage.