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COBRA Insurance: Understanding Eligibility, Timelines and Scope

| Updated November 28, 2017

COBRA insurance eligibility, timelines and state law

You've probably heard of the Consolidated Omnibus Budget Reconciliation Act (COBRA), but do you know if it applies to your small nonprofit? The answer depends on how many employees you have and the type of benefits you offer them.

What is COBRA?

COBRA is a U.S. federal law that serves as a safeguard for employees who have lost eligibility for employer-sponsored health insurance benefits. Under COBRA, these employees can stay on their health plan when their eligibility ends but must take over the portion of the plan premiums that the employer formerly covered. For many employees, the increased cost is prohibitive. But for some, COBRA might be the only option for continued health coverage.

Who's eligible for COBRA benefits?

COBRA must be offered by any private sector employer, including most tax-exempt organizations, with 20 or more full-time employees who are covered by a health insurance plan. If you have fewer than 20 full-time employees, keep in mind that each part-time employee's full-time equivalent status is added to reach the total number of full-time staff. For example, if you have 18 full-time employees and 5 half-time employees, you have 20.5 full-time employees for the purposes of COBRA.

Employees and qualified beneficiaries (spouses and dependents) become eligible for COBRA benefits when there's a so-called qualifying event, including:

  • Voluntary or involuntary termination of employment (as long as the employee wasn't terminated for gross misconduct)
  • Reduction of hours worked, resulting in loss of full-time benefits
  • Not returning to work after medical or family leave
  • Legal separation or divorce between employee and covered spouse
  • Change in dependent status (such as reaching an age at which coverage is no longer provided)
  • Employee becoming eligible for Medicare
  • Bankruptcy of a private-sector employer
  • Employee death

What are the timelines?

Most communication about COBRA is between the employee and the insurance plan administrator, but there are some key timelines to keep in mind.

Within the first 90 days of coverage, group health plans must give each employee and/or qualified beneficiaries a general notice describing COBRA rights — including adequate information to protect their COBRA rights.

The employer must notify the plan administrator within 30 days of the qualifying event if the event is:

  • Voluntary or involuntary termination of employment
  • Reduction in work hours
  • Eligibility for Medicare
  • Bankruptcy of a private-sector employer

The employee must notify the plan administrator within 30 to 60 days of the qualifying event if the event is:

  • Divorce
  • Legal separation
  • Change in dependent status

Then, the plan administrator has 14 days to notify the employee and/or qualified beneficiaries about coverage options. In turn, the eligibility period for the employee and/or qualified beneficiaries to enroll in COBRA is 60 days.

Employees may continue COBRA coverage for 18 months if coverage was triggered by termination or reduction of hours. For any other reason, the timeline is usually up to 36 months.

What is the scope of COBRA coverage?

COBRA participants are entitled to the same benefits, choices and services that similarly situated employees, plan participants and/or beneficiaries are currently receiving under the plan — such as the right to choose among available coverage options during open enrollment. Be sure to give COBRA participants notice of open enrollment and deadline dates during the same time frame as other plan participants.

Any changes made to the plan's terms that apply to similarly situated active employees and their beneficiaries will also apply to those receiving COBRA continuation coverage.

Who pays?

COBRA coverage is paid by the employee. In fact, employers are allowed to charge 102 percent of the cost of benefits to cover the administrative costs of managing the benefits.

What if state law differs from COBRA?

Some states have broader coverage requirements than COBRA. Most notably, in certain states you may need to provide COBRA-like coverage if you have fewer than 20 full-time employees. For details on state-specific coverage requirements, check this interactive map from the Kaiser Family Foundation.

This article draws on the expertise of Grace Davies, a Minneapolis-based attorney with special interest in product liability, medical malpractice and employment discrimination.

MissionBox editorial content is offered as guidance only, and is not meant, nor should it be construed as, a replacement for certified, professional expertise.

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