Federal Cobra Law

Individual or Family Health
Group Health Coverage

COBRA, Health Care Continuation Coverage Requirements (amended by the Health Insurance Portability and Accountability Act of 1996 (HIPAA))

Summary of Federal Law

The Law: This law requires covered employers (20 or more employees) offering group health plans to provide employees and certain family members the opportunity to continue health coverage under the group health plan in a number of instances when coverage would otherwise have lapsed. The employee or qualified beneficiary may be charged 102% of the applicable premium for this benefit.

Notices Required: There are several different notice obligations under the law. First, a health plan administrator has an obligation under the law to provide a general notice of COBRA rights to an employee and his/her spouse when health coverage begins. Second, the employer of a covered employee must notify the plan administrator within 30 days when a qualifying event occurs. A qualifying event includes:

Third, the qualified beneficiary (employee or his/her spouse or dependent) must provide notice (within 60 days) to the plan administrator of a divorce, legal separation, child losing dependent status, second qualifying event, or Social Security disability determination. Fourth, the plan administrator in turn must notify (within 14 days) the qualified beneficiary (notice to spouse covers dependents residing with that spouse) of his/her COBRA rights. See "29 CFR § 1166" for further permutations of the rules, for example, how determination of disability affects the timing under the third notice requirement.

Qualified beneficiaries have 60 days to elect continuation coverage. The maximum period that this continued coverage must be provided is generally 18 months, but in some cases it is 36 months. Under a new law (The Trade Act of 2002) there will be a second 60 day election period for individuals who become eligible for trade adjustment assistance.See the proposed regulations linked below.

The employer must keep detailed records of COBRA notifications, including the dates sent, and detailed records of COBRA rejections or acceptance. Failure to comply with the law subjects the employer to excise taxes, in addition to damages under ERISA, as well as possible attorney's fees and the liability for any of the beneficiary’s medical expenses that were due to the gap in coverage.

Final Rules on COBRA Notice Procedures

"69 Fed. Reg. 30083 (May 26, 2004)" amended at " 69 Fed. Reg. 34920 (June 23, 2004)"

These final regulations on Health Care Continuation Coverage Notice requirements apply to notices that must be send out on or after the first day of the first plan year on or after Nov. 26, 2004, so for calendar year health plans, this means January 1, 2005. There are a number of changes between the proposed and final rules.

The new rules require Plan Administrators to take the following steps:

Generally, the initial notice must be furnished to each covered employee and to the employee's spouse (if covered under the plan) not later than the earlier of: (1) either 90 days from the date on which the covered employee or spouse first becomes covered under the plan or, if later, the date on which the plan first becomes subject to the continuation coverage requirements; or (2) the date on which the administrator is required to furnish an election notice to the employee or to his or her spouse or dependent. The new regulations clarify that where an individual is required to be furnished an election notice within the 90-day period for furnishing general notices, the plan administrator may satisfy its general notice obligation by furnishing an election notice in accordance with the final regulation. The notice must include the name of the plan and a contact (name, address and phone number) for further information.

The DOL has modified the proposed regs to eliminate the requirement that the notice describe how qualified beneficiaries who are receiving continuation coverage must provide notice of a second qualifying event. If the summary plan description is furnished at a time that would satisfy the notice requirements for the general notice, and contains the required information, the notice requirements will be deemed to have been met.

On the issue of employee notice to the employer of a qualifying event, the final regs provide that, for any plan under which continuation coverage begins with the date of loss of coverage, the 30-day period for providing the notice of qualifying event must also begin with the date of loss of coverage, rather than the date of the qualifying event. A plan's procedures for qualified beneficiary notices that must be given to the employer generally will be considered reasonable if they are described in the plan's SPD, specify who is designated to receive notices, and specify the means qualified beneficiaries must use for giving notice and the required content of the notice.

The employer must give the beneficiary at least 60 days to provide notice of a qualifying event that is divorce, legal separation, a child's ceasing to be a dependent under the plan, or a second qualifying event. the 60-day period begins to run from the latest of: (1) The date of the qualifying event; (2) the date on which there is a loss of coverage; or (3) the date on which the qualified beneficiary is informed, through the plan's SPD or the general COBRA notice, of his or her obligation to provide notice and the procedures for providing such notice.

Section 606(a)(2) of ERISA requires an employer to provide notice to the plan administrator of a qualifying event that is either the employee's termination of employment or reduction in hours of employment, the employee's death, the employee's becoming entitled to Medicare, or the commencement of a proceeding in bankruptcy with respect to the employer. This section of the final regulation was not changed from the proposed regulation.

Upon receipt of a notice of qualifying event furnished the administrator shall furnish to each qualified beneficiary, not later than 14 days after receipt of the notice of qualifying event notice that meets a list of 14 requirements spelled out in the final regulations. (see page 30104 of the regs at (b)(4)). The preamble to the regulations states that a required notice generally should be considered 'furnished' by a plan administrator as of the date of mailing, if mailed by first class mail, certified mail, or Express Mail; or as of the date of electronic transmission, if transmitted electronically.

Note that the final model election notice published in May provided that COBRA coverage would be terminated before the end of the maximum coverage period if, among other things, "a covered employee becomes entitled to Medicare benefits (under part A, Part B, or both)" after electing COBRA. The term "covered employee" is incorrect, and the June 23, 2004 correction replaces it with the term "qualified beneficiary."

Proposed Regulations Give Guidance on Notices:

"68 Fed. Reg. 31831 (May 28, 2003)" is the long awaited Department of Labor guidance on how the notice requirements of COBRA should be implemented. The regulations set minimum standards for the timing and content of the notices. The regulations affect administrators of group health plans, participants and beneficiaries of group health plans, and the sponsors and fiduciaries of the plans.

Published along with the proposed regulations are a Model General Notice of COBRA Continuation Coverage Rights and a Model COBRA Continuation Coverage Election Notice which should be substituted for any outdated notices currently in use. While the proposed regulations are not to be effective until the first day of the first plan year that occurs on or after Jan. 1, 2004, the preamble to the regulations notes that the Department of Labor will no longer consider use of the model general notice in ERISA Technical Release 86-2 (June 26, 1986) as good faith compliance. Using the new notices is not mandatory, but the employer or plan administrator will want to review currently used notices to ensure they comply with changes in the law. Under a new law (The Trade Act of 2002) there will be a second 60 day election period for individuals who become eligible for trade adjustment assistance. Information on this second day election period must be included in the Summary Plan Description and should be captured in the updated notices.

Other changes include the requirement for the plan administrator to give a reason for non-entitlement to those individuals who are not eligible for continuation coverage at the time of a qualifying event (e.g an employee who is fired for gross misconduct) and the requirement for the plan administrator to let the affected individual know why coverage under COBRA is terminating if is it terminated early. This would most often occur when someone fails to pay the required premium.

Although the proposed regulations allow the initial notice to be included in the Summary Plan Description, this won't be practical as most plan administrators do not mail Summary Plan Descriptions to spouses, and they are required to be noticed under COBRA.

HIPAA Amendments to COBRA:

For an overview of HIPAA and COBRA, see IRS Notice 98-12, available on the IRS home page at http://www.irs.gov.

Source: http://counsel.cua.edu/FEDLAW/Cobra.cfm

Note: This is only a summary for Federal COBRA Laws. Please contact your State Department of Insurance for the laws that govern your state.