CONTINUATION OF HEALTH COVERAGE (COBRA)

CONTINUATION OF HEALTH COVERAGE (COBRA)

INTRODUCTION TO THE COBRA COURSE

Welcome to the COBRA course. The purpose of this course is to arm you, the insurance adjuster and insurance agent, with relevant and adequate knowledge on matters pertaining to COBRA. At the end of this COBRA course, you should be capable of understanding the basics of COBRA.

Please be guided that the contents of this course should only serve as guidance and an overview of the course. All the materials covering COBRA cannot be exhaustively covered under the course due to its dynamic nature. You are therefore encouraged to use supplementary materials on the topic to equip yourself further.

The content of the course shall be as hereunder:

1. Introduction
2.  
3. The Qualifying Event
4. The Qualified Beneficiaries
5. Coverage under COBRA
6. Coverage Duration
7. Coverage payment
8. Notification under COBRA
9. COBRA Coverage and Medicare
10. COBRA Violations
11. The American Rescue Plan Act of 2021 COBRA Subsidy

Introduction

After certain qualifying events occur that would normally result in their eligibility for group health coverage being terminated, employees and their beneficiaries are given the option to continue group health coverage at group rates for a period of time under the Consolidated Omnibus Budget Reconciliation Act (COBRA).  This may be at the consumer’s own cost and some of these events, include voluntary or involuntary job losses, reduced hours worked, transition between occupations, death and divorce and other life events.

An arrangement that an employer establishes or maintains to provide medical care to employees or their families is defined as a group health plan under COBRA, regardless of whether the care is provided through insurance, by a health maintenance organization, out of the employer’s assets on a pay-as-you-go basis, or in any other way. The types of medical care are commonly covered under a group health plan for this purpose are: inpatient and outpatient hospital care, physician care, surgery and other major medical benefits, prescription drugs, and dental and vision care.  Disability benefits and life insurance are not regarded to constitute “medical care,” nor are death benefits.

COBRA does not cover plans that only provide life insurance or disability benefits.

Certain group health plans are required to provide interim continuation of group health coverage that would otherwise be cancelled. Continuous coverage is only possible when coverage would otherwise be terminated as a result of occurrence of particular events. Employers can choose whether or not to contribute to their employees’ premiums under COBRA. In some cases, consumers may be required to pay the entire monthly premium on their own. Generally speaking, the amount that COBRA members contribute to group health coverage is greater than the amount that active employees contribute to group health coverage. The cost of COBRA participants’ complete premium cannot be more than 102 percent of the cost of the plan for equally situated individuals who have not had a qualifying event.

Certain former employees, retirees, spouses, former spouses, and dependent children are eligible for a temporary continuation of group coverage at group rates under the COBRA. The consumer is qualified for COBRA coverage after just one day of coverage as an active employee or as a dependent of an active employee under the group health plan if the consumer’s employer is obligated to comply with COBRA.

While looking for a new job or during a waiting time for health benefits imposed by a new employer, COBRA coverage may allow one to obtain temporary extended health care benefits supplied by their former employer. COBRA coverage gives coverage continuity because one normally stays in the same plan as when they were working, with the same network of doctors and hospitals and the same deductible.

Employers with 20 or more employees are usually mandated to offer COBRA coverage and to inform their employees of the obtainability of such coverage. As a general rule, COBRA mandates that group health plans sponsored by employers who have 20 or more employees in the prior year provide employees and their families with the option of a temporary extension of health coverage, which is referred to as continuation coverage in situations where coverage under the plan would typically have ended. COBRA describes the options available to employees and their families who wish to extend their health coverage. There is a notice requirement that applies to both employers and plans. Plans maintained by private-sector employers and plans sponsored by most state and local governments apply to COBRA.

To be eligible for COBRA continuation coverage, three essential requirements must be met:

• The group health plan must be covered by COBRA;
• A qualifying event must happen; and
• One has to be a qualified beneficiary for that event.

Group health plans are required to issue specific notices to covered employees and their families outlining their COBRA rights. Plans must also include regulations governing how COBRA continuation coverage is given, how qualifying beneficiaries may elect continuation coverage, and when it can be canceled.

A description of the COBRA rights given by the plan must be included in the plan’s Summary Plan Description (SPD). The SPD is a written document that contains critical information about the plan, including what benefits are available under the plan, what rights participants and beneficiaries have under the plan, and how the plan is designed to operate and function. Group health plans are required to issue an SPD within 90 days of the date on which one first become a participant in the plan (or within 120 days of the date on which the plan becomes first subject to the reporting and disclosure rules of ERISA). A summary of material modifications (SMM) must be provided no later than 210 days after the end of the plan year in which the changes took effect; in the case of a material reduction in covered services or benefits, the SMM must be provided no later than 60 days after the reduction is implemented.

General notices of COBRA rights must be provided to each employee and any spouse who becomes covered under the plan by the group health plans. It is necessary to provide a general notice within the first 90 days of receiving coverage. Group health plans can meet this requirement by providing the consumer with the plan’s summary plan description (SPD) within this time frame, as long as the SPD includes the general notice information. The general notice should inform the consumer on what they need to know to protect their COBRA rights when they first get covered under the plan. This information should include the name of the plan and someone the consumer can contact for more information, a general description of the continuation coverage that the plan provides, and an explanation of the notices needed for the consumer to protect their COBRA rights.

COBRA coordinates with other federal laws viz:

Some additional protections that may apply to an employer’s plan include coverage for:

The History of COBRA

Individuals and families can benefit from health insurance since it helps to safeguard them from financial ruin. Having health insurance also makes it easier to get regular medical care. The majority of people in the United States who have private health insurance are insured through their employer or the employer of a family member. A terminated employee’s employer-sponsored health insurance typically expires within 30 to 60 days of the employee’s termination. If the health insurance is considered to be family coverage, then the worker’s family members would be denied access to this insurance as well. In addition, when a working family member gets laid off, dies, or divorces his or her spouse, the family may be confronted with the same dilemma as in the previous situation. This legislation was passed by the United States Congress in 1985 to allow some persons who lose their access to employer-sponsored health insurance coverage to retain temporary access to such coverage.

Private-sector employers with 20 or more employees who offer health insurance benefits may be required to provide qualified employees and their families with the option of continuing their coverage under the group health insurance plan in the event of certain events under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA; P.L. 99-272). State and local governments are subject to identical continued coverage requirements, the Department of Health and Human Services is in responsible for administering these standards, which are outlined in the Public Health Service Act. Employers who fail to provide their employees the choice to continue their health insurance coverage may face fines. Employers in the state and local governments were subject to comparable restrictions under COBRA.

The law has an impact on private-sector employer group health plans through modifications to the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (IRC); as a result, the Department of Labor (DOL) and the Internal Revenue Service (IRS) write COBRA regulations (IRS). The Department of Labor has the power to interpret COBRA reporting and disclosure rules, while the Treasury Department has the ability to interpret coverage and tax sanction clauses. Employees who undergo qualifying circumstances, for example, termination of work, that result in a loss of employer-sponsored coverage are referred to as having COBRA coverage, which is the ordinary phrase used for all coverage made accessible to them. The term COBRA, on the other hand, refers to the Consolidated Omnibus Budget Reconciliation Act of 1985, which is the law that established the continuation coverage requirements in the Employee Retirement Income Security Act (ERISA), the Public Health Service Act (PHSA), and the Internal Revenue Code (IRC). In the private sector, the ERISA and IRC standards apply, whereas the PHSA regulations apply to state and local governments.

Further laws have been passed that impose additional standards for continued coverage. The Federal Employee Health Benefit Program (FEHB), which offers health insurance to federal employees, retirees, and their dependents, has continuous coverage standards through P.L. 100-654 that are similar to COBRA. According to these regulations, the federal government is required to make coverage available to federal employees who are participating in the FEHB and who experience certain qualifying events (e.g., separation from service). Despite the fact that these requirements pertain to continuing coverage in the context of federal employees, they were not included in the Consolidated Omnibus Budget Reconciliation Act of 1985 and, therefore, are not properly termed COBRA continuation insurance. To put it another way, not all continuation coverage requirements are COBRA requirements.

Prior to COBRA, if an employee’s job was involuntarily or voluntarily terminated, the employer’s insurance coverage ended as well, usually within 30 to 60 days. Retirement, resignation, and failure to return to work after taking a leave of absence are all examples of voluntary terminations.

Layoffs and firings are examples of involuntary terminations. Even though some employers gave the option of buying into the group plan after termination, there was no guarantee that this option would be available. Few states had regulations in place in 1985 requiring insurance policies offered in their jurisdiction to include a continuation of coverage option for terminated employees. These state-mandated benefit rules did not apply to self-insured employers (employers who take the risk of their employees’ health care costs instead of utilizing private insurers); instead, self-insured plans were controlled at the federal level under ERISA. As a result, health insurance coverage for these workers and their families was not always consistent. These unemployed persons would have been able to receive health insurance coverage solely through: a spouse’s employer, the individual market (which at the time allowed for coverage denials and medical underwriting), or Medicaid if they were eligible. The individual would have been uninsured if he or she did not (or was unable to) enroll in any of these coverages. COBRA was enacted by Congress to provide coverage to people who lose their insurance due to changes in their, or a family member’s work or family status.

COBRA continuation coverage is still an option for qualified individuals who are terminated or experience another qualifying event today, however more recent policy changes to the individual market (i.e., guaranteed issue) no longer make COBRA continuation coverage the sole health insurance option obtainable to certain individuals (for example, COBRA-eligible individuals who would not have been qualified for Medicaid or a spouse’s employer-sponsored coverage and would have been rejected coverage in the individual market). COBRA continuation coverage may still be less expensive than similar coverage available in the individual insurance market when individuals are not eligible for subsidies through the health insurance exchanges, despite the fact that employers are permitted to charge 102 percent of the group plan premium for COBRA coverage.( Individuals who enroll in individual market coverage through a health insurance exchange and who meet certain income and other eligibility requirements may be eligible for financial help in the form of a federal tax credit and cost-sharing subsidies.)

The Qualifying Event

The occurrence of a COBRA “qualifying event” is what causes a consumer to be able to be using their COBRA rights. “Qualifying events” are occurrences that cause an individual’s group health coverage to terminate.  The type of qualifying event influences who qualifies as qualified beneficiaries and how long a plan must provide continuing coverage.  COBRA merely defines the bare minimums for continuing coverage. Longer periods of continuous coverage are always an option for a plan. In the case of a loss of coverage, one will no longer be covered under the terms and conditions that were in place prior to the event. Notably, although the loss of coverage does not have to occur immediately following the event, it must occur prior to the expiration of the maximum period during which COBRA continuation coverage must be made available.

Examples of qualifying events for employees and/or their qualified dependents are:

• In the event that a current employee dies;
• Disqualification from participation in a group health plan because of voluntary or involuntary termination or a reduction in hours caused by resignation, discharge (save for “gross misconduct”), layoff, strike or lockout; medical leave, a slowdown in business activities;
• Dissolution of marriage or legal separation that results in the ineligibility of the former spouse’s for benefits;
• Entitled to Medicare of the covered employee;
• An employee’s dependent child who has reached the age at which they are no longer eligible for coverage under the group plan as a dependent of an active employee which is generally at age 26.

Covered employers are required to offer retiring employees either COBRA continuation coverage or a retiree plan that meets the standards of COBRA for benefits, duration, and premium, in the situations below:

• Employees who are retiring and do not have access to a retiree health plan by a covered employer must be provided with COBRA coverage.
• If the employer provides a retiree health plan that differs from the coverage the employee had immediately prior to retirement, the employer is required to provide the choice of COBRA coverage in addition to the option of the alternative retiree health plan. If the retiring employee chooses the alternative coverage and declines COBRA coverage, she or he will no longer be eligible for COBRA coverage.
• Employers are not required to offer a COBRA option when an employee retires if the retiree health plan meets COBRA’s requirements for benefits, premium, and duration. Additionally, coverage provided by the retiree health plan can be counted against the maximum COBRA coverage period that relates to the retiree, spouse, and dependent children. As long as the maximum coverage period hasn’t expired when a retiree’s plan is terminated by the employer, COBRA coverage must be made available for the remainder of the period.
• COBRA coverage must be offered to retirees whose health insurance was terminated as a result of the bankruptcy filing where the employer files for Chapter 11 bankruptcy. In this instance, the coverage can be continued until the retiree’s death. For 36 months following the retiree’s death, the retiree’s spouse and dependent children may acquire COBRA coverage from the previous employer.

In the case of consumers who have a qualifying event, COBRA coverage may be terminated sooner if:

• An individual fails to pay premiums on time. A timely payment is defined as one that is made within 30 days of the payment due date, and a payment cannot be demanded earlier than 45 days following the date of the election.
• The employer no longer offers any type of group health plan.
• Upon making the COBRA election, an individual is able to enroll in another employer’s group health plan. This is unless coverage for a preexisting condition is excluded by the plan.
• After making the COBRA election, a beneficiary is enrolled for Medicare benefits. Individuals who are eligible for Medicare Part A or Part B on or before the date of their COBRA election, however, will not have their coverage terminated as a result of their enrollment in Medicare. This is true even if the individual enrolls in the other part of Medicare after the date of their COBRA coverage election.
• In regard to a qualified beneficiary during a disability extension, the first day of the month that is more than 30 days after the date on which a qualifying beneficiary obtains a final determination from the Social Security Administration (SSA) declaring that the beneficiary is no longer disabled.
• Furthermore, if a qualified beneficiary engages in activity that would result in the termination of coverage for similarly situated non-COBRA employees, the beneficiary’s COBRA continuation coverage may be terminated early under such circumstances (e.g., fraud).

In Morehouse v. Steak N Shake, Inc, A former employee sued her former employer after suffering a workplace injury that ultimately resulted in her losing her employer’s group health plan coverage. Prior to her injuries, the plaintiff made biweekly payroll deductions to cover the cost of her insurance coverage. When the plaintiff was wounded, he took advantage of the Family and Medical Leave Act (FMLA) and began receiving workers’ compensation benefits. When she began her leave, she was not given a COBRA notice. Her coverage under the plan, however, was not terminated and the premiums were deducted from her workers’ compensation benefits. When her workers’ compensation claims expired, she was unable to pay her premiums, and her plan health insurance coverage was terminated. Following the expiration of the FMLA leave period, she was fired from her position at the company. Despite the fact that she obtained health insurance after her plan coverage terminated to assist pay for surgery to address her injury, she still incurred more than $30,000 in out-of-pocket expenses.

A complete loss of health insurance coverage is not necessary under Treasury regulations and other precedents, according to the court in this judgment; rather, any modification to the terms and circumstances of coverage as they were in force before the COBRA qualifying event can be considered a “loss” of coverage. As a result of applying this criterion, it was decided that the shift in the method of premium payment—from deductions from payroll to deductions from workers’ compensation benefits—was a large enough change in the terms and circumstances of coverage to qualify as a “loss.” When combined with the plaintiff’s reduction in work hours (a COBRA qualifying event) as a result of her injury, the employer was obligated to give the COBRA election notification.

The Qualified Beneficiaries

When a qualifying event occurs that causes loss of coverage, the individual who was covered by a group health plan on the day before that event occurs is referred to as the qualified beneficiary. Only specific individuals can become qualified beneficiaries as a result of a qualifying event, and the type of qualifying event defines which individuals can become qualified beneficiaries as a result of the qualifying event.

A qualifies beneficiary is:

• An employee covered under the group health plan who loses coverage as a result of a voluntary or involuntary termination of employment (except as a result of gross misconduct) or a reduction in working hours;
• A retiree who loses his or her retiree health insurance benefits as a result of the previous employer’s bankruptcy (Chapter 11);
• A spouse, ex-spouse, or dependent child of the covered employee (or retiree) who was covered under the employer’s group health plan on the day before the “qualifying event”;
• Any child born to or placed for adoption with a covered employee during a term of continuous coverage is automatically considered a qualifying beneficiary automatically;
• Agents, independent contractors, and directors of an employer who participate in the group health plan may also be eligible as qualified beneficiaries;

In the context of COBRA coverage, and including the definition of who is a qualified beneficiary, a qualified beneficiary would not be:

• An individual who refused employer-sponsored benefits;
• A worker who was not qualified for employer-sponsored benefits. This also includes an independent contractor;
• Employees without access to group health insurance, regardless of their employer’s size;
• The family members of an employee whose employer that does not provide a family option;
• Employees who work for employees with fewer than 20 people since these employees are COBRA-exempt;
• Employee of an employee that files for bankruptcy per Chapter 7 or goes out of business;

Coverage under COBRA

Due to the COBRA law, most businesses who provide health insurance benefits are required to offer qualified employees and their families the option of continuing health insurance coverage at group rates if they are confronted with the loss of coverage as a result of specified occurrences. The only thing that an eligible beneficiary requires is the chance to maintain the coverage that the qualified beneficiary was receiving immediately prior to the occurrence of the qualifying event. Fully insured and self-insured businesses are both subject to COBRA regulations. Regardless of whether an employer does not contribute to the health plan, it must comply with COBRA; it simply needs to maintain such a plan in order to fall under the statute’s continuous coverage requirements.

Employees who are eligible for COBRA coverage should receive benefits that are equivalent to those available to similarly situated enrollees who are not getting COBRA coverage under the plan. This is usually the same coverage that the beneficiary had immediately before qualifying for continuation coverage. Qualified beneficiaries will also be affected by a change in the benefits provided under the plan, which will apply to active employees. Qualified beneficiaries must be able to make the same choices as non-COBRA beneficiaries under the plan, for example, when the plan offers open enrollment periods, this is meant to ensure that they have the same options available to those who have not experienced a qualifying occurrence.

There are a few exceptions to this rule. If a COBRA-covered beneficiary who is getting coverage over a region-specific plan, for instance a managed care organization, moves out of that region, the employer is obliged to give the employee coverage in the new area if this can be accomplished under one of the employer’s existing plans. The beneficiary must be provided with alternative coverage if the employee’s current coverage would not be available in the new area, but the employer maintains another plan for employees who are not similarly situated to the beneficiary (for example, a plan offered to another employment group within the firm), and that other plan would be available in the new area. Where the only coverage provided by the employer is unavailable in the new location, the employer is under no obligation to provide any other coverage to the relocating beneficiary.

The costs a customer will incur under COBRA will usually not be the same as they were when they were employed or worked enough hours to be qualified for group health coverage. Employers determine whether or not they will contribute to the cost of the consumer’s COBRA premiums. Consumers may be responsible for the entire monthly premium as well as an administrative fee of up to two percent, i.e., those who elect to continue receiving COBRA benefits may be charged up to 100 percent of the premium, plus an additional 2 percent to cover administrative costs. This will probably be more expensive than it was while they were working.

COBRA applies to all employers, with the exception of the ones listed below.

• Smaller employers (those with fewer than 20 employees) are not covered by COBRA.  The majority of states have sought to address this issue by enacting “mini-COBRA” legislation, which requires that continuation coverage be made available to employees who work for smaller businesses. However, in other jurisdictions, continuation coverage may be available for a shorter amount of time or may be subject to different conditions than those imposed by the federal COBRA program. During a calendar year, an employer is judged to have met the small employer exemption if, on at least 50% of its regular business days during the preceding calendar year, it had less than 20 employees.

During a calendar year, an employer is judged to have met the small employer exemption if, on at least 50% of its regular business days during the preceding calendar year, it had less than 20 employees. Employers take into account both full-time and part-time employees when reaching this determination. Part-time employees are counted as fractions of full-time employees. Persons who are self-employed or who are independent contractors or directors (in the case of a business) are not taken into consideration in this calculation, although employers may be required to provide such individuals with COBRA continuing coverage, if subject to COBRA requirements.

• Churches and various church-related groups. It is not a requirement for church plans to comply with COBRA standards which are defined as plans that are “established and maintained… by a church or by a convention or association of churches.” (29 U.S.C. §1002(33).

• Federal Government. Since 1990, federal employees have been eligible for temporary continuation of coverage (TCC) under the Federal Employees Health Benefits Program (FEHB), despite the fact that they are not covered by the COBRA. There are some differences between COBRA and the FEHB TCC. For instance, different qualifying rules apply under the FEHB, and there is no extended coverage for disabled individuals or bankruptcy provisions. The length of coverage and qualifying events under both plans, on the other hand, are the similar.

The Court held in Geissal v. Moore Medical Corp., 1998 U.S. LEXIS 3732, that a former employee may not be refused COBRA continuation coverage only because the former employee is also covered by another group health plan at the time of his or her COBRA election. The Court ruled unanimously that COBRA coverage cannot be discontinued until a qualified beneficiary first becomes covered under another group health plan after the COBRA election date. Moreover, the “significant gap” theory, which had previously been adopted by various circuit courts, was rejected by the Court. According to that theory, simultaneous coverage under a spouse’s medical plan disqualified a person from being eligible for COBRA unless there was a “substantial gap” between the coverage available through COBRA and the coverage available through the other coverage.

The theory was rejected by the Court for a variety of reasons, including the fact that it required inappropriate judicial participation in deciding whether a gap was considerable and that there was insufficient statutorily basis to sustain the theory.

Coverage Duration

Provided the election is made during the allowable election period for COBRA coverage, COBRA coverage will generally commence retroactively on the date customers’ active-employment-based group health coverage ceased.  Coverage is typically for 18 months, although it may be extended for a longer amount of time depending on the conditions. Retirees who lose their retiree health insurance benefits as a result of their former employer’s bankruptcy (a reorganization under Chapter 11) may elect COBRA coverage, which will allow them to continue to receive benefits until they die. After the death of the retiree, the spouse and dependent children of the retiree are eligible to continue the coverage for an additional 36 months. In the case of all the other qualifying events aforementioned; death, divorce, or legal separation from employee, employee entitlement to Medicare, or the termination of a child’s dependent status under their parents’ health insurance policy, the coverage for qualified beneficiaries may be extended for a period of 36 months.

If either of the two scenarios occurs, qualified beneficiaries who are entitled to 18 months of COBRA continuation coverage (i.e., as a result of a termination or reduction in hours) may be eligible to get an extension of such coverage.

• If a qualified beneficiary experiences a second qualifying event (such as the death of a covered employee, divorce, or legal separation from employee) during an 18-month COBRA coverage period, the qualified beneficiary may continue COBRA coverage for a total of 36 months if the second qualifying event would have resulted in the qualified beneficiary losing coverage (absent the first event). This means that the qualified beneficiary would be eligible for an additional 18-month period of time.
• Qualified beneficiaries who become disabled at any point during the start of the COBRA continuing Employees, their spouses and dependents are eligible for an additional 11 months of continuation coverage under COBRA if the Social Security Administration (SSA) determines that the date of a qualified beneficiary’s onset of disability happened during the first 60 days of COBRA coverage or earlier. coverage may be eligible to have their coverage extended for an additional 18 months being a total of 29 months from the date of the qualifying event. The qualifying event must have been a termination or reduction in hours of employment. In order to provide a source of coverage while individuals wait for Medicare coverage to begin, this provision was made.

Within the election period, a qualifying individual must select whether or not to elect COBRA coverage. Generally, consumers have 60 days from the date on which they lose eligibility for their employer’s group health coverage or 60 days from the date on which they receive their COBRA election notification to elect COBRA coverage. After making their selection, consumers have 45 days to pay their first month’s premium. These dates have been temporarily extended due to the COVID-19 National Emergency; instead of having employees choose COBRA coverage within 60 days of losing group health care, plans must now “disregard” the duration between March 1, 2020, and  60 days after the conclusion of the National Emergency. Employees who have had a COBRA continuation coverage qualifying event have until the earliest of one year from the day they first became eligible for relief or 60 days after the COVID-19 National Emergency is declared to be over.

If a beneficiary elects COBRA coverage, he or she must notify the employer or plan administrator formally of their decision. Additionally, the employee or other impacted party may elect to forego COBRA coverage. If an individual waives COBRA coverage, the individual may later revoke the waiver and re-enroll in COBRA coverage, provided that the action occurs during the election period. The provision of COBRA coverage must be available in this situation; however, coverage may begin on the date of the revocation rather than the date on which the qualifying event occurred.

P.L. 107-210) established a second election period for some Trade Adjustment Assistance (TAA) Program participants under the Trade Act of 2002. A qualified individual who did not elect COBRA coverage during the usual election period may elect continuing coverage within the first 60 days of the month in which they were held to have become TAA-eligible. Applicants must make this COBRA election no later than six months after the date on which their TAA-related coverage was terminated. Participants in the Trade Adjustment Assistance (TAA) Program may be eligible for the Health Coverage Tax Credit, and they may be able to use the credit to assist cover the expenses of COBRA continuation coverage.

Individuals who became eligible for COBRA continuation coverage due to a reduction in hours or involuntary termination prior to April 1, 2021, but who did not initially elect COBRA coverage (or who initially elected coverage but later discontinued coverage before April 1) were given a second opportunity to enroll in COBRA coverage as a result of the American Rescue Plan Act of 2021 (ARPA) (if eligible). This secondary election period may overlap with the first election period, but it does not stop an individual from electing COBRA coverage in the first election period.

A person’s ability to get premium assistance and, in some cases, the start date of their coverage is dependent on the election period during which they choose to continue their COBRA coverage. Individuals who were given a second election period should have gotten a notice notifying them of this chance prior to May 31, 2021.  These consumers then had the option to enroll in COBRA continuing coverage during the 60-day period after the date on which they received the notice. Having made this second option, COBRA continuation coverage would have begun on or after April 1, with the first coverage period and would be limited to the COBRA continuation period coverage for which the individual is eligible. The mentioned timeframe exemption offered during the COVID-19 national emergency does not apply to the 60-day notice or election periods herein.

Coverage payment

Certain persons are not required to pay any premium amounts in order to enroll in COBRA coverage made available from April 1, 2021, through September 30, 2021 as provided in the American Rescue Plan Act of 2021 (ARPA), which provided a 100 percent premium subsidy for COBRA continuation coverage in certain circumstances, this help was made available to eligible individuals. However, the COBRA Subsidy Extension for Workers and Families Act was introduced to alter the American Rescue Plan Act of 2021 in order to provide premium assistance for COBRA Continuation Coverage for individuals and their families. Under this law, COBRA premiums are completely subsidized up to September 30, 2021, and this bill extends the subsidy up to September 30, 2022. As a result, qualified individuals are not required to pay any COBRA premiums or administrative fees during this time period.

Employers are not obligated to cover the cost of COBRA coverage absent the ARPA premium assistance. They are allowed to charge a covered beneficiary 100 percent of the premium, this includes both any payments made by employees and any payments made by employers, if any, as well as an additional 2 percent administration fee. In the case of disabled persons who are eligible for an additional 11 months of COBRA coverage, the employer may charge them up to 150 percent of the premium for these additional months.

The Agency for Healthcare Research and Quality Medical Expenditure Panel Survey, which offers estimates of the average health insurance premiums among private-sector employers, can be used to put this into context. In 2019, the average annual premium for employer-sponsored health insurance for single coverage was $6,972 and the average annual premium for family coverage was $20,486. Covered current employees contributed an average of 17 percent of the premium for single coverage and 27 percent of the premium for family coverage.  As a result, paying up to 102 percent of the premium may be a financial strain for those who have recently lost their jobs. Furthermore, these people may opt for another type of insurance (such as a spouse’s employer-sponsored coverage, the individual market coverage or Medicaid) or they may choose to remain uninsured.

As mentioned, once an individual elects COBRA coverage, the plan may not require the individual to pay any premiums during the first 45 days following the individual’s option to enroll in the plan. The plan must allow a qualifying beneficiary to pay for the coverage in monthly installments, although other payment schedules may also be available to the beneficiary. As previously stated, employers have the right to cancel COBRA coverage on the first day on which the premium is not paid on time (payment is timely if it is made within 30 days of the payment due date). Moreover, following the COVID-19 outbreak, the premium payment deadlines of 45 and 30 days were extended. After March 1, 2020, no days will be counted toward these timelines until the earliest of: one year from the day the individual first became eligible for timeline relief, or 60 days after the COVID-19 national emergency has been declared to have ended (or another date specified by the IRS and Employee Benefits Security Administration).

Notification under COBRA 

Employers, employees, and the employer’s health plan administrators are all required to comply with COBRA notification requirements when it comes to certain components of the health insurance program. In Vangas v. Montefiore Med. Ctr., 823 F.3d 174, 183–84 (2d Cir. 2016), when the notice was sent by a method reasonably calculated to reach the recipient and the employer made a sufficient good-faith effort to comply with the statute, the plan administrator was not liable under COBRA, as determined by the Second Circuit in a case involving an incorrect abbreviation for an employee’s address.

When an employee initially becomes covered under a health plan, the plan administrator is required to notify the employee and his or her spouse in writing of their rights in the event that a qualifying event occurs. In the event that a qualifying event happens, additional notices are required. The plan must include processes for notification of the qualifying event, and these procedures should be specified in both the general notice and the plan’s Supplemental Disclosure Document (SPD). It is possible for the plan to set a time limit for providing this notice.

Within 30 days following the employee’s death, termination, or reduction in hours; the employee becoming entitled to Medicare; or the start of the employer’s bankruptcy proceedings, the employer must notify the plan administrator of the incident. Within 60 days of a covered employee’s divorce or legal separation, a dependent child ceasing to be a dependent of the covered employee under the policy, or the occurrence of a second qualifying event after a beneficiary has become entitled to a maximum of 18 (or 29) months of COBRA, the employee or former employee (or qualified spouse/dependent) must notify the plan administrator.

COBRA beneficiaries who are determined to be disabled by the Social Security Administration (SSA) within the first 60 days of COBRA coverage must notify the plan administrator of this determination in order to be eligible for an additional 11 months of coverage. They have 60 days to give this notice after receiving the SSA’s determination. These recipients must also send notice if the Social Security Administration determines that they are no longer disabled. Within 30 days of receiving such a determination, they must inform the plan administrator. In response to the COVID-19 pandemic, the timelines for the notices aforenamed were temporarily extended. Since March 1, 2020, no days will be counted against the timelines until the earlier of: one year from the day the beneficiary or entity first became eligible for the timeline relief, or 60 days after the COVID-19 national emergency has been declared over (or another date specified by the IRS and Employee Benefits Security Administration).

It is the “Proclamation on Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak,” which was released on March 13, 2020, that is referred to as the COVID-19 national emergency. The plan must provide qualified beneficiaries with an election notice when it receives a notice of a qualifying event. The election notice must explain the beneficiaries’ rights to continuing coverage as well as the process for making an election. After receiving notification of a qualifying event, the notice must be disseminated to the qualified beneficiaries within 14 days of the plan administrator receiving the notice. In order for the beneficiary to comprehend continuation coverage and make an informed decision about whether or not to elect continuation coverage, the election notification should include all of the information they will need. It should also provide the consumer with the name of the plan’s COBRA administrator as well as instructions on how to obtain additional information.

A request for continuation coverage or an extension of continuation coverage may be denied by a group health plan. The plan must send a notice to the person who requested it informing them of the plan’s inability to provide continuation coverage. The notice must be sent within 14 days of the request being received, and the notice must include an explanation of why the request was denied in the first place. A notice of early termination should be sent the qualified beneficiary, given as soon as practicable after the decision has been made, and it must describe the date on which coverage will terminate, the reason for the termination, and any rights the qualified beneficiary may have under the plan or applicable law to elect alternative group or individual coverage where coverage is terminated early.

Multiemployer plans are permitted to implement some specific COBRA notice rules that differ from the general regulations. A multiemployer plan may establish its own consistent time limits for providing notice of a qualifying event or making an election. It is also possible for a multiemployer plan to opt out of requiring employers to give qualifying event notices, and instead rely on the plan administrator to determine when a qualifying event has occurred. If there are any special multiemployer plan rules, they must be specified in the plan’s papers (and SPD).

COBRA Coverage and Medicare

Medicare is the Federal health insurance program applicable for those who are 65 or older and some younger people with disabilities or End-Stage Renal Disease.It makes a difference whether or not a Medicare beneficiary is covered under the COBRA program if they become eligible for it before or after they become eligible for Medicare. According to Medicare law, some employers (those with 20 or more employees) are required to give their Medicare beneficiaries the same coverage as they provide to their other employees. This includes family coverage, where available.

Upon experiencing a qualifying event (for example, retirement or job termination), a working Medicare beneficiary becomes eligible for 18 months of COBRA coverage, beginning on the date of the qualifying event. Family members to the beneficiary who lose coverage as a result of the qualifying event would be eligible for COBRA coverage for up to 36 months from the day the employee became eligible for Medicare. COBRA coverage for qualified family members cannot be reduced to less than 18 months, regardless of when the qualifying event or Medicare entitlement happens. COBRA coverage, on the other hand, can be terminated early if an individual is receiving COBRA benefits at the time of becoming entitled to Medicare during the 18-month period. This means that the individual’s covered family members can keep their COBRA coverage for up to 36 months after the occurrence of the original qualifying event.

COBRA Violations

For each COBRA beneficiary related violation, employers are subject to an IRS excise tax of up to $100 per day per beneficiary for each day of noncompliance throughout the time of noncompliance, according to IRS regulations, and $200 if more than one member of the family is affected. Beneficiaries may also file a civil lawsuit against plan administrators who fail to provide them with the required COBRA notices, judge may hold plan administrators accountable for each violation up to $110 per day per beneficiary. ERISA can also make any fiduciary personally responsible for failure to comply with the law. After receiving written request, an ERISA plan administrator must supply participants and their beneficiaries with copies of any documents they request, such as a summary plan document, a summary of material modification, an annual report, or other documents. This punishment is triggered if one does not comply.

Lawsuits under the ADA and PHSA for breach of ERISA fiduciary responsibility, as well as allegations for failure to provide COBRA coverage under the ERISA, could occur. Courts have the authority to award damages, as well as interest and attorney costs, in these types of actions. Moreover, an injured qualified beneficiary can initiate a lawsuit for a negligence claim against the employer.

After finding that an administrator had failed to ensure that an employee obtained COBRA continuation coverage, the Eighth Circuit determined that reimbursement for premium payments was an appropriate equitable remedy under ERISA Section 502(a)(3) in this case. The dismissed employee had chosen coverage and paid premium payments on time, but the plan administrator had failed to take the bare minimum steps to ensure that the employee’s coverage was maintained. (Smith v. Health Res. of Ark., Inc., 656 F. App’x 790, 793–94 (8th Cir. 2016).)

The IRS normally levies a minimum of $2,500 in tax for noncompliance revealed after a notice of examination is issued.The maximum tax for “unintentional failures” is the lesser of 10 percent of the amount paid by the employer for group health plans during the preceding tax year or $500,000. The Internal Revenue Service (IRS) presently conducts more than a dozen audit procedures for COBRA compliance, and the company bears the responsibility of demonstrating compliance. The expense of unneeded COBRA claims is high, and they are frequently the responsibility of the employer rather than the insurance carrier. Legal fees, fines, and staff time spent on an audit can all add up to a large amount of money.

According to Cobraguard, below are the most often made COBRA administration mistakes:  

• “Failing to give a general notice to new employees
• Failing to give the election notice to qualifying beneficiaries
• Failing to offer open enrollment
• Failing to recognize a qualifying event
• Providing coverage when it isn’t required
• Providing more coverage than what is required
• Providing coverage for longer than required
• Failing to terminate coverage when allowable
• Misunderstanding Medicare requirements
• Extending COBRA timeframes incorrectly
• Wording COBRA notices poorly so they are not under Department of Labor regulations
• Failing to document when notices were sent
• Forgetting to collect the COBRA premium
• Overpaying insurance invoices”

The American Rescue Plan Act of 2021 COBRA Subsidy

As states by the White House “The COVID-19 pandemic and the corresponding economic crisis have undermined the health and economic wellbeing of American workers. Millions of Americans, many of whom are people of color, immigrants, and low-wage workers, continue to put their lives on the line every day to keep the country functioning through the pandemic. And more than 9.5 million workers have lost their jobs in the wake of COVID-19, with 4 million out of work for half a year or longer. Without additional government assistance, the economic and public health crises could drag on and our national vaccination program will be hobbled at a critical moment.”

The American Rescue Plan Act of 2021 is a federal law that was signed into law by President Joe Biden (D) on March 11, 2021, after being passed by the 117th Congress. It was intended to give economic relief in reaction to the COVID-19 pandemic that had been declared. The bill was passed through the budget reconciliation process, that circumvents the Senate’s supermajority requirement.

It was established by the Congressional Budget Act of 1974 to expedite the consideration and passage of specific laws concerning spending, revenues, and debt.

This process only requires a simple majority vote.

The below government efforts and investments, the law’s primary elements, according to the White House. These include:

• Use about $160 billion on national vaccination program and response;
• Use about $130 billion to reopen schools safely;
• Allocate $1,400 to each person in relief payments;
• Have unemployment benefits extended to September 6, 2021;
• Have an increase, by 15 percent through September 2021, in Supplemental Nutrition Assistance Program (SNAP) benefits;
• Increase the Child Tax Credit per child over age 6 from $2,000 to $3,000, and $3,600 per child under age 6;
• Have an increase in the Earned Income Tax Credit;
• Have childcare assistance expanded and provide an additional tax credit for childcare costs;
• Give $1 billion to states for Temporary Assistance for Needy Families (TANF) recipients; and
• Decrease health insurance premiums.

According to the American Rescue Plan Act of 2021 (ARPA), Assistance Eligible Individuals (AEIs), as defined by the guidelines, are eligible for a 100 percent COBRA premium subsidy. It is applicable to group health coverage that is subject to COBRA under the ERISA, the Internal Revenue Code, and the Patient Protection and Affordable Care Act (PHSA), as well as to State programs that provide comparable continuation coverage (“mini-COBRA” programs). The COBRA subsidy does not apply to exchange coverage or coverage that is not subject to COBRA such as church plans.

The COBRA subsidy is accessible for any COBRA coverage available under a group health plan, with the exception of health FSA.  COBRA subsidies apply to retiree health insurance when it is provided under the same plan that was made available to employees. Where the coverage is provided through a stand-alone retiree health plan, the coverage is not eligible for the subsidy.

The COBRA subsidy applies to COBRA coverage provided under an HRA. Additionally, getting eligible for HRA coverage will terminate the COBRA subsidy period, just like becoming eligible for any other group health plan. COBRA subsidy does not apply to a coverage option if the individual did not enroll in the chosen coverage option at the time of the qualifying event where the different option has a higher premium. Exceptions include: if the original option is no longer available; and if a change is made during open enrollment under the plan.

In order to be considered an Assistance Eligible Individual, an individual must:

• Be a COBRA qualified beneficiary due to a reduction in hours or an involuntary termination of employment.
• Be eligible for COBRA coverage throughout or for some of the required period, or would have been eligible during that period if they had decided to remain on the COBRA plan or continued COBRA coverage during the subsidy period.
• Over the term of subsidized coverage, be ineligible for any other disqualifying coverage (for example, another group health plan) or Medicare. Exchange coverage is not disqualifying coverage.
• Either in the normal course or in a special election window permissible under ARPA for the subsidized coverage, elect the COBRA coverage.

A termination for “cause” does not render a former employee ineligible. Employers may, however, treat former employees as ineligible for COBRA benefits under existing COBRA standards if they were terminated for “gross misconduct” as aforementioned. An employer may depend on an individual’s certification of eligibility for the subsidy to determine whether or not they are eligible. The certification should be kept by the employer in order to verify the employer’s eligibility for the tax credit.

A spouse or dependent child of the employee covered at the time of the employee’s reduction in hours or involuntary termination resulting in the loss of coverage are also Assistance Eligible Individuals. Others who are eligible for the subsidy are children born to or adopted by the employee during the subsidy period. The COBRA subsidy pertains to qualified beneficiaries who previously lost coverage owing to a reduction in hours or involuntary termination of work and are still within their COBRA coverage period which is 18 months in most circumstances. Health plans must provide a “second chance” election to qualified persons who had an eligible COBRA qualifying event but declined COBRA, or who previously elected COBRA but allowed the coverage to lapse before April 1, 2021. The extended election window applies solely to federal COBRA, not state-mandated continuation coverage.

Any reduction in hours that leads to a loss in coverage qualifies viz: whether voluntarily or involuntarily, temporary loss of employment with ultimate expectation of return (furlough), or cessation of work as a result of a strike. Involuntary termination may be defined as a severance from employment caused by the independent exercise of the unilateral authority of the employer, rather than due to the employee’s implicit or explicit request, in circumstances where the employee is willing and able to continue performing services. Depending on the facts and circumstances, it consists of:

• Resignation for a legitimate reason (substantial negative change in the employment relationships equivalent to constructive discharge).
• A termination request was made by an employee in reaction to an involuntary reduction in working hours even if reduction in hours would not result in loss of coverage.
• The choice of an employer not to renew an employment arrangement unless facts show that the parties understood that the agreement was not going to be extended.
• Termination in a period of illness or disability where there is a reasonable hope that the employee will eventually return.

It does not include: death, retirement (unless the facts and circumstances demonstrate that the employee would have terminated the employee but for the retirement and the employee was aware of this), and voluntary resignation.

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hen reading on the American Rescue Plan Act of 2021, one must have in mind the COBRA Subsidy Extension for Workers and Families Act that has been mentioned above.