COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985)

Posted on November 9, 2007. Filed under: COBRA & Health Insurance |

Why am I writing a post about this law? 

COBRApoint (our suite of enterprise SaaS portal applications) empowers employers and third-party administrators (including insurance carriers, administrative service organizations, human resources outsourcers, professional employer organizations, etc.) to administer COBRA compliance and other forms of health insurance continuation such as for retirees.  Combined, COBRA continuants and retirees in the US pay over $50 billion annually in health insurance premiums to their former employers to remain on the employer’s health insurance plans.  Because our customers know that we built and ran one of the nation’s largest third-party administrators of COBRA compliance for over 2500 employers before building COBRApoint, it is not unusual for customers to contact us to get our opinion on how they might handle interesting situations which arise.  I plan on starting an ongoing series of posts about some of these compliance administration questions, though please remember that I am not an attorney and I am not offering legal advice.  So that I don’t have to explain COBRA each time, I’m creating this post as a reference point for any readers who aren’t familiar with the law.

I will attempt to provide a brief summary of COBRA below, but for more official information, you may want to check out the US Department of Labor COBRA Fact Sheet, COBRA FAQ, or download their PDF entitled, “An Employee’s Guide to Health Benefits Under COBRA.”  Employers and administrators may want to purchase a copy of the EBIA’s COBRA: The Developing Law manual which may be the best and most complete source of information available.

COBRA Overview

The Consolidated Omnibus Budget Reconciliation Act of 1985 was passed on April 7, 1986.  Responsibility for enforcing the law is shared between the Department of Labor and the Internal Revenue Service.  The regulations are periodically updated by the IRS and DOL, and much of the minutia for how to legally administer compliance is contained in continually evolving case law.

The essence of COBRA is that it requires employers with 20 or more employees who provide a group health plan to enable certain former employees and their dependents to remain on the employer’s group health plan for a limited period of time when they would have otherwise had their coverage terminated.  To be eligible for COBRA, an employee or dependent must have experienced a “qualifying event” (i.e. termination, reduction in hours, death of the employee, divorce from the employee, etc.) AND experienced a “loss of coverage” as a direct result of the qualifying event.  A person who experiences a qualifying event is known as a “qualified beneficiary.”

The length of COBRA continuation varies based on the type of qualifying event.  “Employee events” like termination and reduction in hours make a qualified beneficiary and his/her dependents eligible for an 18-month continuation period.  “Dependent events” like death or divorce make a qualified beneficiary and his/her dependents eligible for a 36-month continuation period.  As with almost any law, there are of course exceptions, and in this case things like a “qualified disability,” a “second qualifying event,” or a leave to perform military service under USERRA may extend the length of continuation.

In most cases, qualified beneficiaries are required to reimburse the employer for the entire cost of their monthly health insurance premiums at group rates plus a two-percent administration fee.  Premiums are usually due monthly, and a qualified beneficiary must make timely premium payments to continue receiving coverage.  Recent statistics indicate that about 11 million Americans experience “qualifying events” each year, and almost 5 million Americans pay for and receive COBRA continuation benefits each year.

Administering COBRA compliance can be frustrating for many employers.  Some sources claim that the IRS and/or DOL have estimated that as high as 90% of employers are out of compliance.  Note that even if an employer outsources their compliance administration to a third-party, the employer (or “plan administrator”) is still where the buck stops for compliance responsibility.  Administering COBRA compliance is not only challenging given the many complexities and gray areas in the regs and case law, but it is also burdensome on the employer requiring timely communication with the qualified beneficiary (lots of mail), tracking dates closely, processing individual premium payments, communicating with insurance carriers, generation and reconciliation of reports and carrier bills, etc.  While the regs state that a COBRA qualified beneficiary must be treated equally to active employees, the work required to accommodate the COBRA participants is much greater.

Finally, since I haven’t even really scratched the surface of COBRA in this post, I’ll pile on and also add that 43 states so far have enacted laws which either extend the scope or duration of COBRA in certain circumstances or which place a COBRA-like obligation on employers with 2-19 employees.  These state laws which extend COBRA are often referred to as “state continuation” laws, and the state laws which apply to employers with 2-19 employees are often referred to as “mini-COBRA” laws.


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2 Responses to “COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985)”

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[…] In each post I’ll share the question we received and our answer.  I hope to create something of a “knowledge base” over time with these posts and may create a dedicated page to index them.  Please always keep in mind when reading these that I am not an attorney, and I am not providing legal advice.  If you have a legal question concerning COBRA, HIPAA, USERRA, FMLA, or any other ERISA matter, you should consult an attorney who specializes in these areas of law.  Finally, if you’d like a basic overview of COBRA with some links on where to find more official information, please see my earlier post here. […]

[…] of COBRA with some links on where to find more official information, please see my earlier post here, and if you’d like to see other posts in this series visit the COBRA Q&A Series index page […]

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    Mark Waterstraat

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