COBRA Health Insurance Plan Update

COBRA Qualification and Duration Revisited

You have to provide employees and other qualified beneficiaries with between 18 and 36 months of health care continuation coverage under COBRA. Find out the proper duration of each qualifying event and how to handle multiple qualifying events.

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If your organization provides health insurance coverage, then you are most likely dealing with COBRA issues on a regular basis. COBRA obligations can be triggered every time an employee is terminated or quits, reduces work hours, or divorces.

And, the spin-off cost of COBRA can be expensive. Even though employers are not required to pay for the monthly health insurance premium, you must absorb the extra expenses (adverse underwriting experience) related to use of the insurance by the COBRA beneficiaries. And, thanks to the COBRA premium subsidy that is finally winding down, you likely have had more beneficiaries than ever take COBRA coverage.

(Download a free Termination of Employment model policy including HR best practices and legal background.)

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A 2009 survey by Spencer’s Benefits Reports found that claims from COBRA recipients were about 53% more expensive than claims by regular current employees. As a result, you need to be particularly concerned about how long COBRA beneficiaries remain on your health insurance rolls. However, many employers find the coverage calculations confusing, particularly when a beneficiary experiences more than one qualifying event. Below is an explanation of COBRA’s obligations to help you sort through the requirements.

COBRA Rights Explained

Under COBRA, employers that provide group health plans and have 20 or more employees must offer continuation coverage to qualified beneficiaries who have lost health care coverage as a result of certain qualifying events. Covered employers are not required to pay for the cost of the coverage, but you are required to make it available to the beneficiaries. (Under the COBRA premium subsidy first passed in February 2009, employees terminated involuntarily (except for gross misconduct) and their beneficiaries were allowed to pay only 35% of the cost of the COBRA coverage for a total of 15 months. The remaining 65% was paid by the federal government as a tax credit to the employer. The subsidy applied to employees involuntarily terminated and their beneficiaries from September 1, 2008 through May 31, 2010.)

Qualified beneficiaries are individuals who, on the day before a qualifying event occurs, are covered under a group health plan as a covered employee, spouse of a covered employee, or a dependent child of a covered employee. Qualifying events that trigger a covered employer’s obligation include: (1) the termination of employment (for reasons other than gross misconduct); (2) a reduction in hours so that the employee no longer qualifies for regular insurance coverage; (3) the covered employee’s death; (4) the divorce or legal separation of the covered employee; (5) the covered employee’s enrollment in Medicare; (6) the ending of dependent coverage for a child; or (7) the bankruptcy of the employer (only applies to retirees).

Qualified beneficiaries generally are entitled to 18, 29, or 36 months of COBRA continuation coverage, depending on the nature of the qualifying event. The coverage period is measured from the date of the qualifying event, even if the qualifying event does not result in a loss of coverage under the plan until a later date. So, for example, say an employer’s policy provides for the payment of health benefits for a month after termination. The employer may count the qualified beneficiary’s COBRA continuation coverage period from the date of the termination, even though coverage under the group health plan actually would not be lost until a month after the termination. To prevent confusion, your COBRA written plan document should reflect the fact that even though the coverage is not initially lost, the time counts toward the total entitlement period of COBRA continuation coverage.

Coverage Period Varies By Qualifying Event

The length or duration of COBRA coverage a qualified beneficiary is entitled to depends on the nature of the qualifying event. Below is a summary of the coverage periods.

1. Termination of employment or reduction in hours. If a qualified beneficiary loses coverage because of the covered employee’s termination of employment or reduction in hours, that qualified beneficiary is entitled to up to 18 months of continuation coverage. (An example of a reduction in hours is when an employee goes from a full-time position eligible for health insurance to a part-time position with no benefits.)

That 18-month period can be extended to a total of 29 months if a qualified beneficiary is determined to be disabled within the meaning of the Social Security Act on the date the qualifying event occurred or within the first 60 days of COBRA continuation coverage. Further, if the individual who is entitled to the disability extension has nondisabled family members entitled to COBRA continuation coverage, the nondisabled family members also are entitled to the 29-month extension.

Note, though, that the beneficiary will qualify for the extension only if he meets two additional requirements. First, the Social Security Administration (SSA) must issue its disability determination before the end of the original 18-month period. Second, the beneficiary must provide the plan administrator with notice of the determination on a date that is both within 60 days of the SSA issuance and before the end of the 18-month period.

2. Death, divorce, Medicare entitlement, or cessation of dependent child status. A qualified beneficiary is entitled to up to 36 months of COBRA continuation if he loses coverage because of the death of the covered employee, divorce or legal separation from the covered employee, the covered employee’s entitlement to Medicare benefits, or the cessation of dependent child status.

3. Bankruptcy of the employer. If a retiree who is a covered employee loses coverage as a result of the employer’s bankruptcy proceedings, COBRA coverage continues for that retiree until his death. If the qualified beneficiary who loses coverage is the surviving spouse or dependent child of the covered retiree, coverage continues until 36 months after the death of the covered retiree.

4. Multiple qualifying events. If a second qualifying event occurs during the initial 18- or 29-month period of COBRA coverage, the period of coverage will be extended to up to 36 months from the date of the original qualifying event, if the second qualifying event itself gives rise to a 36-month maximum coverage period. So, for example, a termination event, following a reduction in hours event, cannot be a second qualifying event since this second event only calls for 18 months of coverage, not 36. Further, if the qualified beneficiary is entitled to 36 months of coverage as a result of the first qualifying event, the occurrence of a second qualifying event will not further extend the maximum period of coverage beyond the initial 36 months.

An example of where an extension does occur is when a covered employee dies (a 36-month qualifying event) 12 months after termination (an 18 month qualifying event). His wife and dependent child (determined to be qualified beneficiaries after the termination) would then be entitled to extend their coverage an additional 18 months beyond the original 18-month entitlement for termination, for a total of 36 months.

5. Employer extensions. An employer may choose to extend COBRA continuation coverage beyond the mandated maximum coverage period. To avoid charges of favoritism or discrimination, though, you should specify in your COBRA policy not only that you will extend the coverage, but also under what circumstances and for how long.

(Download a free Termination of Employment model policy including HR best practices and legal background.)

COBRA Requires Careful Implementation

The preliminary reports from the still-unpublished 2010 Spencer’s Benefits Reports survey of COBRA costs reported that a third of eligible beneficiaries (33%) elect COBRA coverage, well above the average of about 20% a year reported in previous Spencer’s surveys. The increase is directly related to the COBRA premium subsidy which allowed beneficiaries to pay only 35% of their premiums. Now that the subsidy has expired, it is likely that the number of beneficiaries electing COBRA coverage will drop.

However, even if fewer beneficiaries pick up COBRA coverage, these individuals tend to be more expensive for your health plan. The reported 2009 Spencer’s survey showed that the average annual COBRA costs for these beneficiaries was 53% more expensive than the health care costs for active employees ($10,988 for COBRA beneficiaries versus $7,190 for active employees). Clearly, COBRA can have an adverse impact on your health care utilization, so you need to manage it carefully. A good place to start is to make sure you understand and control the duration of each qualifying event.


Robin Thomas, J.D.
Personnel Policy Service, Inc.

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