Cobra. No, not that Cobra. Not that one either. The employment law one that sounds like it has absolutely nothing to do with employment law. The Consolidated Omnibus Budget Reconciliation Act of 1985. You know COBRA. The law that, among other things, requires companies that lay off or terminate employees to provide employees the option to continue their health insurance coverage for a period of time.
What Triggers COBRA Notice
Employers with 20 or more employees are subject to COBRA. First, group health insurance plan administrators that are covered by COBRA must give a general COBRA notice to employees within the first 90 days after their group health insurance coverage begins (when they first join the employer health insurance plan). A model notice is available on the DOL website.
COBRA also requires any employer that uses a group health plan to offer employees the choice to continue coverage for themselves, their spouses, and any dependent children when certain events occur. As stated by the Department of Labor (DOL), the following are the qualifying events that trigger COBRA coverage:
Termination of the employee’s employment for any reason other than gross misconduct;
Reduction in the number of hours of employment [(if it causes employees to lose coverage)]
Covered employee becomes entitled to Medicare;
Divorce or legal separation of the spouse from the covered employee; or
Death of the covered employee.
Loss of dependent child status under the plan rules. Under the Affordable Care Act, plans that offer coverage to children on their parents’ plan must make the coverage available until the adult child reaches the age of 26.
FMLA leave (for example for maternity leave) is not a qualifying event under COBRA.
Employers must provide notice to the plan administrator within 30 days of a qualifying event. After it receives notification, the plan administrator will provide an election notice to employees within 14 days. Many employers are also the plan administrators of their health insurance plans and are thus responsible for providing notice to their employees. A model COBRA election notice is available on the DOL website. Using the DOL’s election notice may be preferable to avoid lawsuits for an insufficient election notice. Employees then have 60 days to elect to coverage under COBRA. In the coronavirus pandemic, it is especially important that employers give this notice as soon as possible to initiate the process and allow the employee to obtain the coverage that they need.
Employees and their dependents must have been previously enrolled in the employee’s health plan coverage to continue coverage after the qualifying event. Employees and other qualified beneficiaries can remain on the health insurance for 18 months “when the qualifying event is the covered employee’s termination of employment or reduction in hours of employment….”Guidance from the DOL also states that “[w]hen the qualifying event is the end of employment or reduction of the employee’s hours, and the employee became entitled to Medicare less than 18 months before the qualifying event, COBRA coverage for the employee’s spouse and dependents can last until 36 months after the date the employee becomes entitled to Medicare.”
Knowing when to provide notice is often the most important step to avoiding liability. Many employers fail to provide timely notice and/or fail to include all the necessary items in the notice.
Penalties for Failure to Comply with COBRA
There are severe penalties for employers that fail to follow the requirements of COBRA. My Cobra Plan has a good outline of the penalties for violations. They state:
Plans that violate COBRA’s provisions may be subject to a non-deductible excise tax penalty equal to $100 per day, per affected individual, per violation. In addition, ERISA provides notice penalties of up to $110 per day from the date of the compliance failure. A violation is anything that can cause a company to fall out of compliance with COBRA regulations. The minimum tax levied by the IRS for non-compliance discovered after a notice of examination is generally $2,500. The maximum tax for “unintentional failures” is the lesser of 10% of the amount paid during the preceding tax year by the employer for group health plans, or $500,000. In addition, employee/COBRA administrators can be held personally liable for COBRA non-compliance.
In short, failing to comply with COBRA is expensive.
Texas’s COBRA Law
Texas has its own mini-COBRA law. The Small Employer Health Insurance Availability Act grants employees insurance continuation rights if the company has 2 to 50 employees. The law grants employees up to nine months of coverage if the employee did not qualify for COBRA and up to six months of additional coverage once the continuation under the federal COBRA law expires (if they qualified for COBRA). As noted by the Texas Department of Insurance, the Texas state law does not apply to self-funded plans and employees must have had coverage for 3 months before the job ended to be eligible for the additional coverage under the law.
COBRA used to be more frequently used before the Affordable Care Act/Obamacare became law. Many employees now choose to go on the Healthcare Exchange/Obamacare rather than continue COBRA coverage as the exchange is much cheaper. However, some employees will choose to remain on COBRA to retain the same doctor that they have been using, to keep certain medications covered, if they have already hit their deductible and if other factors are present. Regardless, it is a law that employers need to be careful to follow to avoid potential penalties.
The information provided in this blog is for educational purposes only and is not legal advice. If you need legal advice, then you should speak with a lawyer about your specific issues. Every legal issue is unique. A lawyer can help you with your situation. Reading the blog, contacting me through the site, emailing me or commenting on a post does not create an attorney-client relationship between any reader and me.
The information provided is my own and does not reflect the opinion of my firm or anyone else.
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