Questions Concerning COBRA-insurance continuation
Contents
Introduction
Health insurance programs
allow workers and their families to take
care of essential medical needs. These programs
can be one of the most important benefits
provided by your employer. There was a time
when group health coverage was available
only to full-time workers and their families.
That changed in 1985 with the passage of
health benefit provisions in the Consolidated
Omnibus Budget Reconciliation Act (COBRA).
Now, terminated employees or those who lose
coverage because of reduced work hours may
be able to buy group coverage for themselves
and their families for limited periods of
time. If you are entitled to COBRA benefits,
your health plan must give you a notice
stating your right to choose to continue
benefits provided by the plan. You have
60 days to accept coverage or lose all rights
to benefits. Once COBRA coverage is chosen,
you are required to pay for the coverage.
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What
is the Continuation Health law?
Congress passed the landmark
Consolidated Omnibus Budget Reconciliation
Act (COBRA) health benefit provisions
in 1985. The law amends the Employee Retirement
Income Security Act (ERISA), the
Internal Revenue Code and the Public Health
Service Act to provide continuation of group
health coverage that otherwise would be
terminated. COBRA contains provisions giving
certain former employees, retirees, spouses
and dependent children the right to temporary
continuation of health coverage at group
rates. This coverage, however, is only available
in specific instances. Group health coverage
for COBRA participants is usually more expensive
than health coverage for active employees,
since usually the employer formerly paid
a part of the premium. It is ordinarily
less expensive, though, than individual
health coverage. The law generally covers
group health plans maintained by employers
with 20 or more employees in the prior year.
It applies to plans in the private sector
and those sponsored by state and local governments.
The law does not, however, apply to plans
sponsored by the Federal government and
certain church-related organizations.
Group health plans sponsored
by private sector employers generally are
welfare benefit plans governed by ERISA
and subject to its requirements for reporting
and disclosure, fiduciary standards and
enforcement. ERISA neither establishes minimum
standards or benefit eligibility for welfare
plans nor mandates the type or level of
benefits offered to plan participants. It
does, though, require that these plans have
rules outlining how workers become entitled
to benefits.
For COBRA purposes, a
group health plan ordinarily is defined
as a plan that provides medical benefits
for the employer's own employees and their
dependents through insurance or otherwise
(such as a trust, health maintenance
organization, self-funded pay-as-you-go
basis, reimbursement or combination of these).
Medical benefits provided under the terms
of the plan and available to COBRA beneficiaries
may include:
- Inpatient and outpatient
hospital care
- Physician care
- Surgery and other
major medical benefits
- Prescription drugs
or any other medical benefits, such as
dental and vision care
Life insurance, however,
is not a benefit that must be offered to
individuals for purposes of health continuation
coverage.
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Who
is entitled to benefits?
There are three elements
to qualifying for COBRA benefits. COBRA
establishes specific criteria for plans,
beneficiaries and events, which initiate
the coverage.
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Plan
coverage
Group health plans for
employers with 20 or more employees on at
least 50 percent of the working days in
the previous calendar year are subject to
COBRA. "Employees"; include full-time
and part-time workers, agents, independent
contractors and directors, and certain self-employed
individuals eligible to participate in a
group health plan.
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Beneficiary
Coverage
A qualified beneficiary
generally is any individual covered by a
group health plan on the day before a qualifying
event. A qualified beneficiary may be an
employee, the employee's spouse and dependent
children, and in certain cases, a retired
employee, the retired employee's spouse
and dependent children.
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Qualifying
Events
Qualifying events; are
certain types of events that would cause,
except for COBRA continuation coverage,
an individual to lose health coverage. The
type of qualifying event will determine
who the qualified beneficiaries are and
the required amount of time that a plan
must offer the health coverage to them under
COBRA. A plan, at its discretion, may provide
longer periods of continuation coverage.
The types of qualifying events for employees
are:
- Voluntary or involuntary
termination of employment for reasons
other than gross misconduct"
- Reduction in the number
of hours of employment
The types of qualifying
events for spouses are:
- Termination of the
covered employee's employment for any
reason other than "gross misconduct"
- Reduction in the hours
worked by the covered employee
- Covered employee's
becoming entitled to Medicare
- Divorce or legal separation
of the covered employee
- Death of the covered
employee
The types of qualifying
events for dependent children are:
- Termination of covered
employee's employment for any reason other
than gross misconduct
- Reduction in the hours
worked by the covered employee
- Loss of dependent
child status under the plan rules
- Covered employee's
becoming entitled to Medicare
- Divorce or legal separation
of the covered employee
- Death of the covered
employee
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Periods
of Coverage
Qualifying Event Coverage
- Termination or reduced
hours 18 months
- Employee entitled
to Medicare 36 months
- Divorce or legal separation
36 months
- Death of covered Employee
36 months
- Loss of dependent
child status 36 months
In the case of
individuals who qualify for Social Security
disability benefits, special rules apply
to extend coverage an additional 11 months.
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Your
rights: Notice and Election Procedures
COBRA outlines procedures
for employees and family members to elect
continuation coverage and for employers
and plans to notify beneficiaries. The qualifying
events contained in the law create rights
and obligations for employers, plan administrators
and qualified beneficiaries. Qualified beneficiaries
have the right to elect to continue coverage
that is identical to the coverage provided
under the plan. Employers and plan administrators
have an obligation to determine the specific
rights of beneficiaries with respect to
election, notification and type of coverage
options.
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Notice
Procedures
General Notices
An initial general notice must be furnished
to covered employees, their spouses and
newly hired employees informing them of
their rights under COBRA and describing
provisions of the law. COBRA information
also is required to be contained in the
summary plan description (SPD)
which participants receive. ERISA requires
that SPDs containing certain plan information
and summaries of material changes in plan
requirements be furnished to participants
in modified and updated SPDs. Plan administrators
must automatically furnish the SPD booklet
90 days after a person becomes a participant
or beneficiary, or within 120 days after
the plan is subject to the reporting and
disclosure provisions of the law.
Specific Notices
Specific notice requirements are triggered
for employers, qualified beneficiaries and
plan administrators when a qualifying event
occurs. Employers must notify plan administrators
within 30 days of an employee's death, termination,
reduced hours of employment, entitlement
to Medicare or a bankruptcy.
Multi-employer plans
may provide for a longer period of time.
The employee, retiree or family member should
notify the plan administrator within 60
days of events consisting of divorce or
legal separation or a child's ceasing to
be covered as a dependent under plan rules.
Disabled beneficiaries
must notify plan administrators of Social
Security disability determinations. A notice
must be provided within 60 days of a disability
determination and prior to expiration of
the 18-month period of COBRA coverage. These
beneficiaries also must notify the plan
administrator within 30 days of a final
determination that they are no longer disabled.
Plan administrators,
upon notification of a qualifying event,
must automatically provide a notice to employees
and family members of their election rights.
The notice must be provided in person or
by first class mail within 14 days of receiving
information that a qualifying event has
occurred.
There are two special
exceptions to the notice requirements for
multi-employer plans. First, the time frame
for providing notices may be extended beyond
the 14- and 30-day requirements if allowed
by plan rules. Second, employers are relieved
of the obligation to notify plan administrators
when employees terminate or reduce their
work hours. Plan administrators are responsible
for determining whether these qualifying
events have occurred.
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Election
Procedures
The election period is
the time frame during which each qualified
beneficiary may choose whether to continue
health care coverage under an employer's
group health plan. Qualified beneficiaries
have a 60-day period to elect whether to
continue coverage. This period is measured
from the later of the coverage loss date
or the date the notice to elect COBRA coverage
is sent. COBRA coverage is retroactive if
elected and paid for by the qualified beneficiary.
A covered employee or the covered employee's
spouse may elect COBRA coverage on behalf
of any other qualified beneficiary. Each
qualified beneficiary, however, may independently
elect COBRA coverage. A parent or legal
guardian may elect on behalf of a minor
child. A waiver of coverage may be revoked
by or on behalf of a qualified beneficiary
prior to the end of the election period.
A beneficiary may then reinstate coverage.
Then, the plan need only provide continuation
coverage beginning on the date the waiver
is revoked.
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Covered
Benefits
Qualified beneficiaries
must be offered benefits identical to those
received immediately before qualifying for
continuation coverage. For example, a beneficiary
may have had medical, hospitalization, dental,
vision and prescription benefits under single
or multiple plans maintained by the employer.
Assuming a qualified beneficiary had been
covered by three separate health plans of
his former employer on the day preceding
the qualifying event, that individual has
the right to elect to continue coverage
in any of the three health plans. If a plan
provides both core and non-core benefits,
individuals may generally elect either the
entire package or just core benefits.
Individuals do not have to be given the
option to elect just the non-core benefits
unless those were the only benefits carried
under that particular plan before a qualifying
event. Non-core benefits are vision and
dental services, except where they are mandated
by law in which case they become core benefits.
Core benefits include all other benefits
received by a beneficiary immediately before
qualifying for COBRA coverage.
Beneficiaries may
change coverage during periods of open enrollment
by the plan.
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Duration
of Coverage
COBRA establishes required
periods of coverage for continuation health
benefits. A plan, however, may provide longer
periods of coverage beyond those required
by COBRA. COBRA beneficiaries generally
are eligible to pay for group coverage during
a maximum of 18 months for qualifying events
due to employment termination or reduction
of hours of work. Certain qualifying events,
or a second qualifying event during the
initial period of coverage, may permit a
beneficiary to receive a maximum of 36 months
of coverage.
Coverage begins on the
date that coverage would otherwise have
been lost by reason of a qualifying event
and can end when:
- The last day of maximum
coverage is reached
- Premiums are not paid
on a timely basis
- The employer ceases
to maintain any group health plan
- Coverage is obtained
with another employer group health plan
that does not contain any exclusion or
limitation with respect to any pre-existing
condition of such beneficiary
- A beneficiary is entitled
to Medicare benefits
Special rules for disabled
individuals may extend the maximum periods
of coverage. If a qualified beneficiary
is determined under Title II or XVI of the
Social Security Act to have been disabled
at the time of a termination of employment
or reduction in hours of employment, and
the qualified beneficiary properly notifies
the plan administrator of the disability
determination, the 18-month period is expanded
to 29 months.
Although COBRA specifies
certain maximum required periods of time
that continued health coverage must be offered
to qualified beneficiaries, COBRA does not
prohibit plans from offering continuation
health coverage that goes beyond the COBRA
periods. Some plans allow beneficiaries
to convert group health coverage to an individual
policy. In this case, you must be given
the option to enroll in a conversion health
plan. You usually must enroll in the plan
within 180 days before your COBRA coverage
ends. The premium is generally not at a
group rate. The conversion option, however,
is not available if you end COBRA coverage
before reaching the maximum period of entitlement
or it is unavailable under the plan.
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Paying
for COBRA Coverage
Beneficiaries may be
required to pay the entire premium for coverage.
It cannot exceed 102 percent of the cost
to the plan for similarly situated individuals
who have not incurred a qualifying event.
Premiums reflect the total cost of group
health coverage, including both the portion
paid by employees and any portion paid by
the employer before the qualifying event,
plus two percent for administrative costs.
For disabled beneficiaries, the premium
may be increased after 18 months to 150
percent of the plan's total cost of coverage
for the last 11 months of continuation coverage.
Premiums due may be increased if the costs
to the plan increase but generally must
be fixed in advance of each 12-month premium
cycle. The plan must allow you to elect
to pay premiums on a monthly basis if requested
by you. The initial premium payment must
be made within 45 days after the date of
the COBRA election by the qualified beneficiary.
Payment must cover the period of coverage
from the date of COBRA election retroactive
to the date of the qualifying event. Premiums
for successive periods of coverage are due
on the date stated in the plan with a minimum
30-day grace period for payments. No payment,
however, need be made earlier than 45 days
after the date of the election. The due
date may not be prior to the first day of
the period of coverage. For example, the
due date for the month of January could
not be prior to January 1 and coverage for
January could not be canceled if payment
is made by January 31. Premiums for the
rest of the COBRA period must be made within
30 days of the due date for each such premium
or such longer period as provided by the
plan. COBRA beneficiaries remain subject
to the rules of the plan and therefore must
satisfy all costs related to deductibles,
catastrophic and other benefit limits.
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Claims
Procedures
Health plan rules must
explain how to obtain benefits and must
include written procedures for processing
claims. Claims procedures are to be included
in the SPD booklet. You should submit a
written claim for benefits to whomever is
designated to operate the health plan (employer,
plan administrator, etc.). If the claim
is denied notice of denial must be in writing
and furnished generally within 90 days after
the claim is filed. The notice should state
the reasons for the denial. Any additional
information needed to support the claim
and procedures for appealing the denial.
You have 60 days to appeal
a denial and must receive a decision on
the appeal within 60 days after that unless
the plan: provides for a special hearing,
or a group which meets must make the decision
only on a periodic basis. Contact the plan
administrator for more information on filing
a claim for benefits. Complete plan rules
are available from employers or benefits
offices. There can be charges up to 25 cents
a page for copies of plan rules.
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