What Is COBRA Continuation Coverage?

COBRA – the Consolidated Omnibus Budget Reconciliation Act – requires group health plans to offer continuation coverage to covered employees, former employees, spouses, former spouses, and dependent children when group health coverage would otherwise be lost due to certain events. Those events include:

• A covered employee’s death,
• A covered employee’s job loss or reduction in hours for reasons other than gross misconduct,
• A covered employee’s becoming entitled to Medicare,
• A covered employee’s divorce or legal separation, and
• A child’s loss of dependent status (and therefore coverage) under the plan.

COBRA sets rules for how and when plan sponsors must offer and provide continuation coverage, how employees and their families may elect continuation coverage, and what circumstances justify terminating continuation coverage.

Employers may require individuals to pay for COBRA continuation coverage. Premiums cannot exceed the full cost of the coverage, plus a 2 percent administration charge.

Group Health Plans Subject to COBRA

COBRA generally applies to all private sector group health plans maintained by employers that had 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 worked divided by the hours an employee must work to be considered full time. For example, if full-time employees at Company A work 40 hours per week, a part-time employee who works 20 hours per week counts as half of a full-time employee, and a part-time worker who works 16 hours per week counts as four-tenths of a full-time employee.

COBRA also applies to plans sponsored by state and local governments.⁽¹⁾ The law does not apply, however, to plans sponsored by the federal government or by churches and certain church-related organizations.

What is a group health plan? It 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, or through any other means. “Medical care” includes for this purpose:

• Inpatient and outpatient hospital care,
• Physician care,
• Surgery and other major medical benefits,
• Prescription drugs, and
• Dental and vision care.

Life insurance and disability benefits are not considered “medical care.” COBRA does not cover plans that provide only life insurance or disability benefits.

COBRA-covered group health plans that are sponsored by private-sector employers are generally considered welfare plans under ERISA and therefore subject to ERISA’s other requirements. Under ERISA, group health plans must be administered by a plan administrator, who is usually named in the plan documents. Many group health plans are administered by the employer that sponsors the plan, but group health plans are also frequently administered, in whole or in part, by a separate individual or organization, such as a professional benefits administration firm. Carrying out the requirements of COBRA is the direct responsibility of the plan administrator.

Source –
An Employer’s Guide to Group Health Continuation Coverage Under COBRA