Tips and Tricks for Administrating COBRA

June 4, 2015

It’s time to talk COBRA. Some of the most common questions that we receive at Granite are questions about COBRA administration.  What do I need to do, how, and when?

 

First Off, Let’s Start With the Basics… What Does COBRA Do?
Cal COBRA and Federal COBRA provides certain former employees, active employees with reduced hours, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available when coverage is lost due to certain specific events. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since the employer pays a part or all of the premium for active full time employees while COBRA participants generally pay the entire premium themselves, plus a 2% handling fee.

 

Is My Group Health Plans Subject to Federal COBRA?

The law generally covers health plans maintained by private-sector employers with 20 or more full time and part time employees in the prior year, employee organizations, or state or local governments.

 

For Employers in California with under 20 employees, there is Cal COBRA, which is automatically administered by your insurance company.  They notify your COBRA eligible employees upon being terminated from your plan, they offer continued coverage and they receive the premiums for their COBRA elected medical plan.

 

Who is Entitled to Benefits Under COBRA?

There are three elements to qualifying for COBRA benefits. COBRA establishes specific criteria for plans, qualified beneficiaries, and qualifying events.

 

How Much Does COBRA Cost to Administrate?

Most often, the employer pays the cost to administrate COBRA with a third party administrator (TPA).  Administrators typically notify both the insurance company AND their TPA when there is an employee deleted from coverage, and the TPA administrates the COBRA upon notification. The average cost to administrate COBRA is $800 annually, plus $3-5 every time a notification is processed. At Granite, we pay for all of your COBRA administration costs, and your benefits program is inside of Granite HealthPro, our free benefits administration software, COBRA is automatically integrated within the platform.  EXAMPLE:  A delete is made from your plan, your COBRA administrator is auto-notified through technology, avoiding any “oopsy” or “I forgot to notify our TPA that Sally Sue was terminated.”   And, the cost for forgetting to offer COBRA in a timely manner is high.

 

How Do Employees Find Out About COBRA Coverage and How to Elect It?

Employers or health plan administrators must provide an initial general notice if an individual is entitled to COBRA benefits. It is good practice to provide employees with the initial notice about COBRA coverage at the time of hire.

 

When the individual is no longer eligible for health coverage (due to a qualifying event), the employer has to provide them with a specific notice regarding their rights to COBRA continuation benefits.

 

Employers must notify their plan administrators within 30 days after an employee's termination or after a reduction in hours that causes and employee to lose health benefits.

 

The plan administrator must provide notice to individual employees of their right to elect COBRA coverage within 14 days after the administrator has received notice from the employer.

 

The individual must respond to this notice and elect COBRA coverage by the 60th day after the written notice is sent or the day healthcare coverage ceased, whichever is later. Otherwise, they will lose all rights to COBRA benefits.

 

Spouses and dependent children covered under the health plan have an independent right to elect COBRA coverage upon the individual's termination or reduction in hours. If, for instance, a family member has an illness at the time the individual is laid off, that person alone can elect coverage.

 

Plan Coverage
Group health plans for employers with 20 or more employees on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA. Both full and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee counts as a fraction of an employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.

 

Who’s a Qualified Beneficiary
A qualified beneficiary generally is an individual covered by a group health plan on the day before a qualifying event who is either an employee, the employee's spouse, or an employee's dependent child. In certain cases, a retired employee, the retired employee's spouse, and the retired employee's dependent children may be qualified beneficiaries. In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary. Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.

 

Qualifying Events & COBRA
Qualifying events are certain events that would cause an individual to lose health coverage. The type of qualifying event will determine who the qualified beneficiaries are and the amount of time that a plan must offer the health coverage to them under COBRA. A plan, at its discretion, may provide longer periods of continuation coverage.

 

Qualifying Events for Employees

  • Voluntary or involuntary termination of employment for reasons other than gross misconduct

  • Reduction in the number of hours of full time employment

Qualifying Events for Spouses

  • Voluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct

  • Reduction in the hours worked by the covered employee

  • Covered employee's becoming entitled to Medicare

  • Divorce or legal separation of the covered employee

  • Death of the covered employee

Qualifying Events for Dependent Children

  • Loss of dependent child status under the plan rules

  • Voluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct

  • Reduction in the hours worked by the covered employee

  • Covered employee's becoming entitled to Medicare

  • Divorce or legal separation of the covered employee

  • Death of the covered employee

Under State and Federal COBRA, What Benefits Must be Covered?
Qualified beneficiaries must be offered coverage identical to that available to similarly situated beneficiaries who are not receiving COBRA coverage under the plan (generally, the same coverage that the qualified beneficiary had immediately before qualifying for continuation coverage). A change in the benefits under the plan for the active employees will also apply to qualified beneficiaries. Qualified beneficiaries must be allowed to make the same choices given to non-COBRA beneficiaries under the plan, such as during periods of open enrollment by the plan.

 

Can an Individual Receive COBRA Benefits While on FMLA Leave?

No. The Family and Medical Leave Act, effective August 5, 1993, requires an employer to maintain coverage under any group health plan for an employee on FMLA leave under the same conditions coverage would have been provided if the employee had continued working. Coverage provided under the FMLA is not COBRA coverage, and FMLA leave is not a qualifying event under COBRA. A COBRA qualifying event may occur, however, when an employer's obligation to maintain health benefits under FMLA ceases, such as when an employee notifies an employer of his or her intent not to return to work.

 

Who Pays for COBRA Benefits Coverage?
Beneficiaries may be required to pay for Cal and Federal COBRA coverage. The premium cannot exceed 102% of the cost to the plan for similarly situated individuals who have not incurred a qualifying event, including both the portion paid by employees and any portion paid by the employer before the qualifying event, plus 2% for administrative costs.

 

For qualified beneficiaries receiving the 11 month disability extension of coverage, the premium for those additional months may be increased to 150% of the plan's total cost of coverage.

 

How Long Does COBRA Coverage Last?
State and Federal COBRA establishes required periods of coverage for continuation health benefits. A plan, however, may provide longer periods of coverage beyond those required by COBRA. COBRA beneficiaries generally are eligible for group coverage during a maximum of 18 months for qualifying events due to employment termination or reduction of hours of work. Certain qualifying events, or a second qualifying event during the initial period of coverage, may permit a beneficiary to receive a maximum of 36 months of coverage.

 

Coverage begins on the date that coverage would otherwise have been lost by reason of a qualifying event and will end at the end of the maximum period. It may end earlier if:

  • Premiums are not paid on a timely basis by the beneficiary 

  • The employer ceases to maintain any group health plan

  • After the COBRA election, coverage is obtained with another employer group health plan that does not contain any exclusion or limitation with respect to any pre-existing condition of such beneficiary. However, if other group health coverage is obtained prior to the COBRA election, COBRA coverage may not be discontinued, even if the other coverage continues after the COBRA election.

  • After the COBRA election, a beneficiary becomes entitled to Medicare benefits. However, if Medicare is obtained prior to COBRA election, COBRA coverage may not be discontinued, even if the other coverage continues after the COBRA election.

Although COBRA specifies certain periods of time that continued health coverage must be offered to qualified beneficiaries, COBRA does not prohibit plans from offering continuation health coverage that goes beyond the COBRA periods.

 

Did the Health Care Reform Legislation Eliminate COBRA?
No. The new health care reform legislation, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, did not eliminate COBRA or change the COBRA rules. See An Employee's Guide to Health Benefits Under COBRA-The Consolidated Omnibus Budget Reconciliation Act for more information about COBRA.

 

What Notices Should My Plan Send to Individuals Who Experience COBRA Qualifying Events?
Plan administrators should use the Model General Notice and Model Election Notice for workers who are terminated on or after June 1, 2010. Individuals are encouraged to seek assistance regarding Notice Requirements by calling the Employee Benefits Security Administration toll-free at 1-866-444-3272.

 

Can Employees Receive COBRA Benefits While on FMLA leave?
The Family and Medical Leave Act of 1993 requires an employer to maintain coverage under any group health plan for an employee on FMLA leave under the same conditions coverage would have been provided if the employee had continued working. Coverage provided under the FMLA is not COBRA coverage, and FMLA leave is not a qualifying event under COBRA. A COBRA qualifying event may occur, however, when an employer's obligation to maintain health benefits under FMLA ceases, such as when an employee notifies an employer of his or her intent not to return to work.

 

Download your COBRA Quick Start Guide now.

 

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