I. INTRODUCTION
On April 7, 1986, the President signed the Consolidated Omnibus Budget Reconciliation Act (COBRA) into law which, among other things, requires employers to allow certain employees, spouses and dependents to choose continued health care coverage, at the beneficiaries’ expense, in cases where their coverage would have ordinarily ceased. The continued health coverage provisions of COBRA apply to all employers offering group health plan benefits, including self-funded plans. Exempt from the new requirements are group health plans of employers with fewer than 20 employees, the federal government, and churches. These provisions became effective for plan years beginning on or after July 1, 1986; the effective date for collectively-bargained plans is the later of the contract’s expiration or January 1, 1987.
II. CONTINUED HEALTH COVERAGE REQUIREMENTS
COBRA provides that employers must allow the following categories of individuals (beneficiaries) to remain in the group health plan if coverage is elected by such individuals:
A. A 36 month continuation option must be offered to:
B. An 18 month continuation option* must be offered to:
Coverage offered must be identical to that offered to similarly-situated beneficiaries covered under the plan’s regular provisions. Premium payments or its equivalency may be charged to the beneficiary in a monthly amount so long as such payments do not exceed 102% of the cost of coverage for similarly-situated beneficiaries. When continued coverage is elected, the beneficiary must be offered, at the end of the 18 or 36 month period, the further opportunity to enroll in a conversion plan.
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* See, “OBRA Amendments” below for Disabled Qualified Beneficiaries.
A beneficiary’s coverage may end prior to the 18 or 36 month period under the following conditions:
III. COVERAGE FOR OLDER EMPLOYEES
All employees and spouses, age 65 or older, now have the option to elect either the employer’s health plan or Medicare as the primary carrier. Prior to the provision’s May 1, 1986 effective date under COBRA, the option was limited to employers and spouses age 65 through 69. Employees and spouses over age 70 may now continue on regular group coverage effective May 1, 1986.
IV. OBRA AMENDMENTS
The Omnibus Budget Reconciliation Act of 1989 included certain amendments to COBRA, effective on July 1, 1990.
A. Disabled Qualified Beneficiaries
The COBRA continuation period is extended from 18 to 29 months for those qualified beneficiaries who are disabled, for Social Security purposes, on the date of the qualifying event (termination of employment or reduction in hours of employment).
The qualified beneficiary is required to provide notice of such determination of disability to the plan administrator within 60 days and it must be provided before the end of the 18 month continuation period.
Extended coverage for disability will terminate prior to the 29th month if it is determined that the qualified beneficiary is no longer disabled (the month that begins more than 30 days after the date of the final determination that the qualified beneficiary is no longer disabled). The qualified beneficiary is required to notify the plan administrator within 30 days from the date of final determination that he/she is no longer disabled.
For the additional 11 month extension coverage, disabled qualified beneficiaries may be charged 150% of the applicable premium instead of 102%.
B. Duplicate Coverage – Pre-existing Conditions
COBRA coverage may be continued when coverage under another group health plan is obtained if the other group health plan contains any exclusion or limitation with respect to any pre-existing condition. Qualified beneficiaries must be advised of this right to continue.
C. Payment of COBRA Premiums
Amendments clarify that in no event may a plan require the payment of any COBRA premiums before 45 days after the date of initial election.
D. Medicare Entitlement While on COBRA Continuation
Amendments provide that a covered employee’s entitlement to Medicare while on COBRA continuation is a double qualifying event, allowing for 36 months of continuation coverage from the date of the initial qualifying event. The Conference Report explains “if a covered employee has a qualifying event that results in 18 months of continuation coverage and the covered employee becomes entitled to Medicare coverage before the expiration of the 18 months, a qualified beneficiary (other than the covered employee) who is at that time covered under the group health plan is entitled to continuation coverage for a total of 36 months from the date of the original qualifying event.”
V. CONCLUSION
Compliance with the continuation of coverage provisions under COBRA is important in that unless the requirements of the act are met, highly-paid employees will have to count as income employer contributions to the plan and the employer will be denied a tax deduction for contributions to the plan. The continuation option must be described in the plan’s summary description and further notification of the option is required in cases involving the employee’s death, termination or Medicare eligibility. Should you have further concerns regarding compliance with COBRA, perhaps the best counsel would be to take the matter up with your insurance plan’s administrator.