An Employee's Guide to Health Benefits Under COBRA
Employee Guide to COBRA
The Consolidated Omnibus Budget Reconciliation Act of 1986 An Employee's Guide to Health Benefits Under COBRA
Health insurance programs help workers and their families take care of their essential medical needs. These programs can be one of the most important benefits provided by an employer. There was a time when employer-provided group health coverage was at risk if an employee was fired, changed jobs, or got divorced. That substantially changed in 1986 with the passage of the health benefit provisions in the Consolidated Omnibus Budget Reconciliation Act (COBRA). Now, many employees and their families who would lose group health coverage because of serious life events are able to continue their coverage under the employer’s group health plan, at least for limited periods of time. This booklet explains your rights under COBRA to a temporary extension of employer-provided group health coverage, called COBRA continuation coverage. This booklet is designed to: l Provide a general explanation of your COBRA rights and responsibilities; l Outline the COBRA rules that group health plans must follow; l Highlight your rights to benefits while you are receiving COBRA continuation coverage.
INTRODUCTION 2 Congress passed the landmark Consolidated Omnibus Budget Reconciliation Act (COBRA)1 health benefit provisions in 1986. The law amends the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code, and the Public Health Service Act to require most group health plans to provide a temporary continuation of group health coverage that otherwise might be terminated. COBRA requires continuation coverage to be offered to covered employees, their spouses, their former spouses, and their dependent children when group health coverage would otherwise be lost due to certain specific events. Those events include the death of a covered employee, termination, or reduction in the hours of a covered employee’s employment for reasons other than gross misconduct, divorce or legal separation from a covered employee, a covered employee’s becoming entitled to Medicare, and a child’s loss of dependent status (and therefore coverage) under the plan. Employers may require individuals who elect continuation coverage to pay the full cost of the coverage, plus a 2 percent administrative charge. The required payment for continuation coverage is often more expensive than the amount that active employees are required to pay for group health coverage, since the employer usually pays part of the cost of employees’ coverage and all of that cost can be charged to the individuals receiving continuation coverage. The COBRA payment is ordinarily less expensive, though, than individual health coverage. While COBRA continuation coverage must be offered, it lasts only for a limited period of time. This booklet will discuss all of these provisions in more detail. COBRA generally applies to all group health plans maintained by private-sector employers (with at least 20 employees) or by state and local governments.
2 The law does not apply, however, to plans WHAT IS COBRA CONTINUATION COVERAGE? 1 The original health continuation provisions were contained in Title X of COBRA, which was signed into law (Pub. L. No. 99-272) on April 7, 1986. 2The COBRA provisions of the Public Health Service Act covering state and local government plans are administered by the Department of Health and Human Services.
3 sponsored by the federal government or by churches and certain church-related organizations. Under COBRA, a group health plan is any arrangement that an employer establishes or maintains to provide employees or their families with medical care, whether it is provided through insurance, by a health maintenance organization, out of the employer’s assets on a pay-as-you-go basis, or otherwise. “Medical care” for this purpose includes: l Inpatient and outpatient hospital care; l Physician care; l Surgery and other major medical benefits; l Prescription drugs; l Dental and vision care. Life insurance is not considered “medical care,” nor are disability benefits; and COBRA does not cover plans that provide only life insurance or disability benefits. Group health plans covered by COBRA that are sponsored by private sector employers generally are governed by ERISA. ERISA does not require employers to establish plans or to provide any particular type or level of benefits, but it does require plans to comply with ERISA’s rules, and ERISA gives participants and beneficiaries rights that are enforceable in court. Alternatives to COBRA Continuation Coverage If you become entitled to elect COBRA continuation coverage when you otherwise would lose group health coverage under a group health plan, you should consider all options you may have to get other health coverage before you make your decision. One option may be “special enrollment” into other group health coverage. Under the Health Insurance Portability and Accountability Act (HIPAA), if you or your dependents are losing eligibility for group
4 health coverage, including eligibility for continuation coverage, you may have a right to special enroll (enroll without waiting until the next open season for enrollment) in other group health coverage. For example, an employee losing eligibility for group health coverage may be able to special enroll in a spouse’s plan. A dependent losing eligibility for group health coverage may be able to enroll in a different parent’s group health plan. To have a special enrollment opportunity, you or your dependent must have had other health coverage when you previously declined coverage in the plan in which you now want to enroll. To special enroll, you or your dependent must request special enrollment within 30 days of the loss of other coverage. If you or your dependent chooses to elect COBRA continuation coverage instead of special enrollment, you will have another opportunity to request special enrollment once you have exhausted your continuation coverage. In order to exhaust COBRA continuation coverage, you or your dependent must receive the maximum period of continuation coverage available without early termination. You must request special enrollment within 30 days of the loss of continuation coverage. Another option may be to buy an individual health insurance policy. HIPAA gives individuals who are losing group health coverage and who have at least 18 months of creditable coverage without a break in coverage of 63 days or more the right to buy individual health insurance coverage that does not impose a preexisting condition exclusion period. For this purpose, most health coverage, including COBRA continuation coverage, is creditable coverage. These special rights may not be available to you if you do not elect and receive COBRA continuation coverage. For more information on your right to buy individual health insurance coverage, contact your state department of insurance. In addition to these options, individuals in a family may be eligible for health insurance coverage through various state programs. For more information, contact your state department of insurance.
5 There are three basic requirements that must be met in order for you to be entitled to elect COBRA continuation coverage: l Your group health plan must be covered by COBRA; l A qualifying event must occur; and l You must be a qualified beneficiary for that event. Plan Coverage COBRA covers group health plans sponsored by an employer (privatesector or state/local government) that employed at least 20 employees on more than 50 percent of its typical business days in the previous calendar year. 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 a full-time 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. Qualifying Events “Qualifying events” are events that cause an individual to lose his or her group health coverage. The type of qualifying event determines who the qualified beneficiaries are for that event and the period of time that a plan must offer continuation coverage. COBRA establishes only the minimum requirements for continuation coverage. A plan may always choose to provide longer periods of continuation coverage. The following are qualifying events for a covered employee if they cause the covered employee to lose coverage: l Termination of the employee’s employment for any reason other than “gross misconduct”; or l Reduction in the employee’s hours of employment. WHO IS ENTITLED TO CONTINUATION COVERAGE?
6 The following are qualifying events for the spouse and dependent child of a covered employee if they cause the spouse or dependent child to lose coverage: l Termination of the covered employee’s employment for any reason other than “gross misconduct”; l Reduction in the hours worked by the covered employee; l Covered employee becomes entitled to Medicare; l Divorce or legal separation of the spouse from the covered employee; or l Death of the covered employee. In addition to the above, the following is a qualifying event for a dependent child of a covered employee if it causes the child to lose coverage: l Loss of “dependent child” status under the plan rules. Qualified Beneficiaries A qualified beneficiary is an individual who was covered by a group health plan on the day before a qualifying event occurred that caused him or her to lose coverage. Only certain individuals can become qualified beneficiaries due to a qualifying event, and the type of qualifying event determines who can become a qualified beneficiary when it happens. (See Qualifying Events earlier in this booklet.) A qualified beneficiary must be a covered employee, the employee’s spouse or former spouse, or the employee’s dependent child. In certain cases involving the bankruptcy of the employer sponsoring the plan, a retired employee, the retired employee’s spouse (or former 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 a period of continuation coverage is automatically considered a qualified beneficiary. Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.
7 Under COBRA, group health plans must provide covered employees and their families with certain notices explaining their COBRA rights. They must also have rules for how COBRA continuation coverage is offered, how qualified beneficiaries may elect continuation coverage, and when it can be terminated. Notice Procedures Summary Plan Description The COBRA rights provided under the plan must be described in the plan’s summary plan description (SPD). The SPD is a written document that gives important information about the plan, including what benefits are available under the plan, the rights of participants and beneficiaries under the plan, and how the plan works. ERISA requires group health plans to give you an SPD within 90 days after you first become a participant in a plan (or within 120 days after the plan is first subject to the reporting and disclosure provisions of ERISA). In addition, if there are material changes to the plan, the plan must give you a summary of material modifications (SMM) not later than 210 days after the end of the plan year in which the changes become effective; if the change is a material reduction in covered services or benefits, the SMM must be furnished not later than 60 days after the reduction is adopted. A participant or beneficiary covered under the plan may request a copy of the SPD and any SMMs (as well as any other plan documents), which must be provided within 30 days of a written request. COBRA General Notice Group health plans must give each employee and each spouse who becomes covered under the plan a general notice describing COBRA rights. The general notice must be provided within the first 90 days of coverage. Group health plans can satisfy this requirement by giving you the plan’s SPD within this time period, as long as it contains the general notice information. The general notice should contain the information that you need to know in order to protect your COBRA rights when you first become covered under the plan, including the name of the plan and someone you can contact for more information, YOUR COBRA RIGHTS AND RESPONSIBILITIES: NOTICE AND ELECTION PROCEDURES
8 a general description of the continuation coverage provided under the plan, and an explanation of any notices you must give the plan to protect your COBRA rights. COBRA Qualifying Event Notices Before a group health plan must offer continuation coverage, a qualifying event must occur, and the group health plan must be notified of the qualifying event. Who must give notice of the qualifying event depends on the type of qualifying event. The employer must notify the plan if the qualifying event is: l Termination or reduction in hours of employment of the covered employee; l Death of the covered employee; l Covered employee’s becoming entitled to Medicare; or l Bankruptcy of the employer. The employer has 30 days after the event occurs to provide notice to the plan. You (the covered employee or one of the qualified beneficiaries) must notify the plan if the qualifying event is: l Divorce; l Legal separation; or l A child’s loss of dependent status under the plan. You should understand your plan’s rules for how to provide notice if one of these qualifying events occurs. The plan must have procedures for how to give notice of the qualifying event, and the procedures should be described in both the general notice and the plan’s SPD. The plan must allow at least 60 days after the date on which the qualifying event occurs for the qualified beneficiary or employee to give this notice. If your plan does not have reasonable procedures for how to give
9 notice of a qualifying event, you can give notice by contacting the person or unit that handles your employer’s employee benefits matters. If your plan is a multiemployer plan, notice can also be given to the joint board of trustees, and, if the plan is administered by an insurance company (or the benefits are provided through insurance), notice can be given to the insurance company. COBRA Election Notice When the plan receives a notice of a qualifying event, the plan must give the qualified beneficiaries an election notice, which describes their rights to continuation coverage and how to make an election. The notice must be provided to the qualified beneficiaries within 14 days after the plan administrator receives the notice of a qualifying event. The election notice should contain all of the information you will need to understand continuation coverage and make an informed decision whether or not to elect continuation coverage. It should also give you the name of the plan’s COBRA administrator and tell you how to get more information. COBRA Notice of Unavailability of Continuation Coverage Group health plans may sometimes deny a request for continuation coverage or for an extension of continuation coverage. If you or any member of your family requests continuation coverage and the plan determines that you or your family member is not entitled to the requested continuation coverage for any reason, the plan must give the person who requested it a notice of unavailability of continuation coverage. The notice must be provided within 14 days after the request is received, and the notice must explain the reason for denying the request. COBRA Notice of Early Termination of Continuation Coverage Continuation coverage must generally be made available for a maximum period (18, 29, or 36 months). The group health plan may terminate continuation coverage earlier, however, for any of a number of specific reasons. (See Duration of Continuation Coverage later in this booklet.) When a group health plan decides to terminate continuation coverage early for any of these reasons, the plan must
10 give the qualified beneficiary a notice of early termination. The notice must be given as soon as practicable after the decision is made, and it must describe the date coverage will terminate, the reason for termination, and any rights the qualified beneficiary may have under the plan or applicable law to elect alternative group or individual coverage, such as a right to convert to an individual policy. Special Rules for Multiemployer Plans Multiemployer plans are allowed to adopt some special rules for COBRA notices. First, a multiemployer plan may adopt its own uniform time limits for the qualifying event notice or the election notice. A multiemployer plan also may choose not to require employers to provide qualifying event notices, and instead to have the plan administrator determine when a qualifying event has occurred. Any special multiemployer plan rules must be set out in the plan’s documents (and SPD). Election Procedures If you become entitled to elect COBRA continuation coverage, you must be given an election period of at least 60 days (starting on the later of the date you are furnished the election notice or the date you would lose coverage) to choose whether or not to elect continuation coverage. Each of the qualified beneficiaries for a qualifying event may independently elect continuation coverage. This means that if both you and your spouse are entitled to elect continuation coverage, you each may decide separately whether to do so. The covered employee or the spouse must be allowed, however, to elect on behalf of any dependent children or on behalf of all of the qualified beneficiaries. A parent or legal guardian may elect on behalf of a minor child. If you waive continuation coverage during the election period, you must be permitted later to revoke your waiver of coverage and to elect continuation coverage as long as you do so during the election period. Under those circumstances, the plan need only provide continuation coverage beginning on the date you revoke the waiver.