GUIDE TO COBRA by terrypete

VIEWS: 63 PAGES: 5

									             (FOR EMPLOYER USE ONLY. DO NOT DISTRIBUTE TO EMPLOYEES.)

                               GUIDE TO COBRA
Introduction:
COBRA amends the Employee Retirement Income Security Act of 1974 (ERISA), the Internal Revenue Code
and the Public Health Services Act, to require that an employee health plan, whether insured or self-funded,
must provide continuation coverage to certain persons called qualified beneficiaries. The provisions of the
Federal law apply to taxable and tax-exempt employers with 20 or more employees. The law does not apply
to churches, the federal government, or any group health plan for any calendar year if all employers
maintaining such plan normally employed fewer than 20 employees on a typical business day during the
preceding calendar year.

Effective Date:
The COBRA law is effective as of the first day of the first plan year beginning on and after July 1, 1986.

In the case of a group health plan maintained pursuant to a collective bargaining agreement ratified before
April 7, 1986, the law is effective for plan years beginning after the later of the date on which the last
applicable collective bargaining agreement ends or January 1, 1987.

Compliance Sanctions:
Effective January 1, 1989, a tax may be imposed upon an employer for failure of a group health plan to
provide COBRA continuation coverage. The amount of the tax imposed with respect to a qualified beneficiary
will be $100 for each day (family maximum of $200 per day) in the noncompliance period with respect to such
failure. Special note is made that no tax will be imposed if the employer's failure to provide COBRA
continuation coverage and to comply with the COBRA law and regulation was due to reasonable cause and
not to willful neglect, and the employer's failure is corrected within 30 days of the fist date that the employer
knew or should have known that such failure existed. The Internal Revenue Code describes this entire tax
penalty issue, including how the amount of the tax is computed, definitions, limitations and liabilities. The
penalties for a violation of ERISA duties are a part of the COBRA compliance sanctions.

Required Continuation Coverage:
COBRA continuation coverage offered to qualified beneficiaries must be identical, as of the time coverage is
being provided, to the coverage provided under the plan to similarly situated beneficiaries under the plan with
respect to whom a qualifying event has not occurred. Restated, qualified beneficiaries are to be treated in the
same manner as active employees (and their covered dependents) for whom a qualifying event has not taken
place. If an employee or employee's beneficiary has no coverage prior to a qualifying event, no COBRA
coverage will be offered. For example, if an employee chose not to have dependent coverage and the
employee subsequently dies, the employee's widow and children will not be entitled to elect COBRA
continuation coverage.

Identical coverage includes dental care, vision care, prescription drugs and any other health related benefits
offered by the plan. Identical coverage does not include non-health related benefits such as group term life
insurance, AD&D, and weekly and long term disability benefits. If there is a choice of coverage under the
plan, each qualified beneficiary is entitled to make a separate selection among such types of coverage.
Definitions:
Covered employee means an individual who is (or was) provided coverage under the employer's group health
plan. A covered employee includes an independent contractor or a self-employed person provided the
independent contractor or self-employed person was covered under the group health plan.

Qualified beneficiary means, with respect to a covered employee under a group health plan, any other
individual who, on the day before the qualifying event for that employee, is a beneficiary under the plan as the
spouse or the dependent child of the covered employee. In the case of a qualifying event of the termination or
reduction of hours of the covered employee's employment, qualified beneficiary includes the covered
employee. Plan administrator means plan administrator as defined in ERISA.

Qualifying Event:
COBRA continuation coverage must be offered if the qualified beneficiary (covered employee and covered
dependents) would otherwise lose coverage due to a qualifying event. The following are qualifying events:

1)      The termination (other than by reason of the employee's gross misconduct), or reduction of hours, of
        the covered employee's employment;
2)      The death of the covered employee;
3)      The divorce or legal separation of the covered employee;
4)      A dependent child is no longer eligible under the employer's plan;

        There is also a qualifying event if the employer's plan provides loss of coverage due to the covered
        employee's entitlement to Medicare benefits. Note: An employer subject to COBRA continuation is
        also subject to the Age Discrimination in Employment Act of 1967 (ADEA). ADEA requires that an
        active employee age 65 and over must be given group health coverage under the same conditions as
        an employee under age 65. No employer subject to ADEA should provide under the employer's plan
        a loss of coverage due to employee entitlement to Medicare benefits. Such a provision would be a
        violation of ADEA.

        There is also a qualifying event when covered retirees and their covered dependents lose coverage
        because the employer files a Title 11 bankruptcy. Special rules apply to this qualifying event.

Period of Continuation Coverage:
COBRA continuation coverage must extend for at least the period beginning on the day of the qualifying event
and ending not earlier than the earliest of the following:

1)      Maximum Period -
        (A)   18 months for a covered employee and covered dependents for the qualifying event of
              termination of the covered employee's employment or reduction of hours.

                 The 1989 amendments provide that the 18 months of COBRA continuation coverage will be
                 extended to 29 months if the qualified beneficiary is disabled for Social Security purposes
                 (Title II or Title XVI) at the time of termination (or reduction of hours) of employment. The
                 qualified beneficiary must provide the group health plan with notice of the Social Security
                 disability determination within 60 days of the disability determination and within 18 months of
                 the qualifying event. A health plan can increase the qualified beneficiary's payment after 18
                 months from 102% to 150% of the applicable premium. The qualified beneficiary must
                 provide to the group health plan notice within 30 days of the date of a final determination that
                 the qualified beneficiary is no longer disabled. The extended COBRA continuation coverage
                 can be terminated in the month that begins more than 30 days after the date the qualified
                 beneficiary is no longer disabled for Social Security purposes. This provision is effective for
                 plan years beginning on and after December 19, 1989, regardless of whether the qualifying
                 event occurred before, on or after December 19, 1989.




                                                                                        BenefitSpecialists, Inc.
                                                                                       820 Gessner, Suite 1275
                                                                                        Houston, Texas 77024
                                                                                      713.BENEFIT or 236.3348
        (B)      36 months for covered dependents for all other qualifying events

                 Note: A qualified beneficiary may have more than one qualifying event, but the total
                 coverage period may not exceed 36 months measured from the date of the first qualifying
                 event. (The 1989 amendments provide for what is believed to be an unintended extension of
                 the 36 month maximum rule. The 1989 amendments provide that if a covered employee
                 becomes entitled to Medicare, a qualified beneficiary, other than the measured from the date
                 the covered employee becomes entitled to Medicare. It is, therefore, possible that if a
                 qualifying event occurs before the employee's entitlement to Medicare, the maximum
                 COBRA continuation coverage for a covered dependent may be greater than 36 months.)

2)      End of plan - The date on which the employer ceases to provide any group health plan to any
        employee.

3)      Failure to make timely payments - The date on which coverage ceases under the plan by reason of
        the qualified beneficiary's failure to make timely payments required under the plan.

4)      Group health plan coverage - The date on which the qualified beneficiary is, after the date of the
        election, covered under any other group health plan (as an employee or otherwise) which does not
        contain any exclusion or limitation with respect to any preexisting condition of such beneficiary.

5)      Medicare entitlement - The date on which the qualified beneficiary is entitled to benefits under
        Medicare. Medicare entitlement means that the person eligible for Medicare benefits (Part A or Part
        B) has taken some action to enroll in the Medicare program, either by enrolling for Medicare benefits
        or enrolling for a Social Security retirement benefit. Note: The 1989 amendments did not affect or
        change the COBRA law provision that if a qualified beneficiary becomes entitled to Medicare during
        any period of COBRA continuation coverage, COBRA coverage for that qualified beneficiary ends.

Notice Requirements:
The employer must provide, at the time of commencement of coverage under the plan, written notice to each
covered employee and covered spouse (if any) of the rights provided under the Federal law. Notification must
be in writing and must be given or mailed to each covered employee and covered spouse.

The employer must notify the plan administrator (if other than the employer) of the qualifying event of death of
the covered employee, or of termination or reduction of hours of a covered employee, within 30 days of the
date of the qualifying event. Each covered employee or other qualified beneficiary is responsible for notifying
either the employer or plan administrator within 60 days of the qualifying event of divorce or legal separation or
the qualifying event date the dependent child is no longer eligible under the employer's plan. The plan
administrator must, in turn, notify any qualified beneficiary of the right to COBRA continuation coverage. The
plan administrator must make this notification within 14 days of the date on which the plan administrator is
notified. Any plan administrator notification to an individual who is a qualified beneficiary as the spouse of the
covered employee will be treated as notification to all other qualified beneficiaries residing with such spouse at
the time the notification is made. It is important that if the covered employee has dependent coverage that the
covered spouse (if any) is also notified.

No Requirement of Insurability:
COBRA continuation coverage is made without evidence of insurability.

Election and Election Period:
COBRA continuation coverage is not automatic. Continuation coverage must be elected by the qualified
beneficiary.

The election period begins no later than the date on which coverage terminates under the plan by reason of a
qualifying event. The election period is 60 days in duration. The election period ends 60 days after the later of
the date the qualified beneficiary is sent notice of the rights to elect COBRA continuation coverage.




                                                                                         BenefitSpecialists, Inc.
                                                                                        820 Gessner, Suite 1275
                                                                                         Houston, Texas 77024
                                                                                       713.BENEFIT or 236.3348
Except as otherwise specified in an election, any election to provide any other qualified beneficiary with
COBRA continuation coverage by a qualified beneficiary is deemed to include an election of continuation on
behalf of any other qualified beneficiary who would lose coverage under the plan by reason of the qualifying
event. For example, an employee's election of employee and dependent continuation coverage is deemed to
include an election on behalf of the spouse and dependent children who would lose plan coverage because of
the same qualifying event (e.g., employment termination), and a spouse's election is deemed to include an
election on behalf of dependent children who would lose plan coverage because of the same qualifying event
(e.g., death of the employee).

If a qualified beneficiary makes a negative COBRA election and thereby declines or waives COBRA
continuation coverage during the 60 day election period, the qualified beneficiary is allowed to revoke the
negative election during the 60 day election period and to make a positive COBRA election. However, if a
qualified beneficiary "changes his or her mind" and elects COBRA continuation coverage, COBRA coverage
begins on the date of the positive COBRA election and COBRA continuation coverage is not provided
retroactively from the date of the loss of coverage until the waiver is revoked, but the maximum COBRA
continuation period is measured beginning from the qualifying event date.

Payment Requirements:
The group health plan can require monthly payment for any period of COBRA continuation coverage, but the
payment can not be more than 102% of the applicable premium for the continuation period. An exception is
permitted where the qualified beneficiary is extending COBRA continuation coverage beyond the 18 month
period because of disability for Social Security purposes. In such event, a health plan can increase the
qualified beneficiary's payment after 18 months from 102% to 150% of the applicable premium. The qualified
beneficiary can be required to pay the full cost of the applicable premium, even if the employer had previously
paid all or a portion of the cost. The plan must allow the qualified beneficiary the option to make the payment
in monthly installments.

The 1989 amendments provide that the plan may ask for but may not require any payment before the day that
is 45 days after the day of the original election. Please note that this change represents a delayed due date
for only the initial payment. Once the 45 day period expires, COBRA law provides that the plan may set a
monthly payment due date and a grace period is permitted for the qualified beneficiary to pay the monthly
payment. The grace period for the monthly payment is the later of 30 days or the grace period provided by the
terms of the plan, which is usually 31 days.

Applicable Premium:
For insured plans, the applicable premium is the cost to the plan for any period of COBRA continuation
coverage for active covered employees and their covered dependents under the plan.

For self-insured plans, the applicable premium for any period of COBRA continuation coverage must be equal
to a reasonable estimate of the cost of providing identical coverage to active covered employees and their
covered dependents under the self-insured plan. The reasonable estimate of the cost is determined on an
actuarial basis and in accordance with Treasury Department regulations (if any). Alternatively, the self-insured
plan may use past cost adjusted by the percentage increase or decrease in the implicit price deflator of the
gross national product, except where the self-insured plan has changed significantly in coverages under the
plan for employees covered by the plan.

Conversion Option:
If a health conversion privilege is a part of the employer's plan and if a qualified beneficiary's COBRA
continuation coverage ends because of the completion of the respective 18 or 36 month maximum COBRA
continuation period, the plan must, within 180 days prior to the expiration of the qualified beneficiary maximum
COBRA continuation period, provide the qualified beneficiary notice of the right to convert from the group
health plan to an individual policy.




                                                                                        BenefitSpecialists, Inc.
                                                                                       820 Gessner, Suite 1275
                                                                                        Houston, Texas 77024
                                                                                      713.BENEFIT or 236.3348
If no conversion privilege is provided under the employer's plan, no conversion privilege is required to be
offered.

This information is for the general information of clients. It is not intended to provide legal advice. COBRA
compliance is an employer responsibility under ERISA and the Internal Revenue Code. Definitive answers to
particular questions should be directed to your tax or legal counsel.

                                                                                 t:\bsi\forms\cobr-cnt\cobguide.doc




                                                                                      BenefitSpecialists, Inc.
                                                                                     820 Gessner, Suite 1275
                                                                                      Houston, Texas 77024
                                                                                    713.BENEFIT or 236.3348

								
To top