COBRA
Find answers to common questions and eligibility requirements below
EMPLOYER
The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 requires employers of 20 or more full-time equivalent employees to offer their employees the opportunity to continue their group healthcare coverage under the employer’s plan, if the coverage would end due to employee termination, layoff, or certain other employment status changes (referred to as “qualifying events”). The continuation of coverage applies to surviving spouses, ex-spouses, and dependents of employees as well.
COBRA applies to employers that employ 20 or more employees on 50% of the business days during the preceding calendar year and that offer their employees health coverage. All full-time and part-time employees are considered as part of the 20 or more employees in a company, with part-time employees counting only as a fraction of a full-time employee. This fraction is equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.
Even though the law impacts healthcare insurance, COBRA is an “employer law”. This means that the employer has certain responsibilities under COBRA and is liable for COBRA failures. Non-compliance can result in financial penalties to the employer.
These penalties include a non-deductible excise tax penalty equal to $100 per day, per affected individual, per violation in addition to ERISA notice penalties of up to $110 per day from the date of compliance failure.
The initial COBRA notice is essential to COBRA compliance and must be provided in writing to covered employees and their spouses when they first become covered by a group health plan. The notice informs them of their rights and responsibilities under COBRA, if a qualifying event occurs.
The Department of Labor requires that the initial notice must be furnished within 90 days of the date individuals are covered under the plan or within 90 days of the date the plan becomes subject to COBRA’s requirements, if this occurs later. Sterling will provide employers with a generic COBRA notification letter that the employer, in turn, provides to COBRA eligible employees.
A “qualified beneficiary” can be:
- An employee or former employee who has experienced a loss of group health plan coverage due to reduction of hours or termination. A spouse or ex-spouse of a covered employee.
- A dependent child of a covered employee, including a child born to or adopted by a covered employee during the period of COBRA coverage.
For a covered employee, a “qualifying event” can be:
- Voluntary or involuntary termination of employment (other than for gross misconduct).
- Reduction in the number of hours of employment.
For a spouse or dependent child, a “qualifying event” can be:
- Voluntary or involuntary termination of the covered employee who had health coverage through an employer (other than for gross misconduct).
- Reduction in the number of hours worked by the covered employee.
- Covered employee’s death.
- Divorce or legal separation from a covered employee.
- Loss of dependent child status under the plan rules.
- Entitlement to Medicare by a covered employee.
In our current business environment, many employers need to make difficult business decisions right now, including the possibility of laying off employees. Others may be placing employees on leaves of absence or furloughs. All these actions trigger COBRA coverage.
Insurance contracts generally require employees to be actively at work to remain enrolled in health plan benefits. The known exception to this requirement is for FMLA-approved leaves. But what happens under a leave of absence that is not covered by FMLA, which could occur if they are laid off or furloughed for a period because there is no work? If an employer requires employees to take a leave of absence from work during the COVID-19 pandemic, the employer must also provide COBRA Election Notices.
If the business ceases to exist entirely, there is no COBRA event generally as there is no underlying
plan to attach COBRA rights. That said, as long as one employee remains on a company’s payroll, then COBRA benefits will remain available to eligible participants.
Employers should remind affected employees that a loss of coverage is a qualifying event, which also allows them to qualify for special enrollment in their state or the federal healthcare marketplace, and they may also be eligible for a subsidy (with no penalty to the employer once the employee is no longer employed).
Any termination of employment, absent carrier exception, requires employers to send COBRA election notices to affected employees (and dependents if they reside at a different address) within 14 days of termination. Contact Sterling for help with your COBRA administration needs.
PARTICIPANT
The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 requires employers of 20 or more full-time equivalent employees to offer their employees the opportunity to continue their group healthcare coverage under the employer’s plan, if the coverage would end due to employee termination, layoff, or certain other employment status changes (referred to as “qualifying events”). The continuation of coverage applies to surviving spouses, ex-spouses, and dependents of employees as well.
COBRA applies to employers that employ 20 or more employees on 50% of the business days during the preceding calendar year and that offer their employees health coverage. All full-time and part-time employees are considered as part of the 20 or more employees in a company, with part-time employees counting only as a fraction of a full-time employee. This fraction is equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.
A “qualified beneficiary” can be:
- An employee or former employee who has experienced a loss of group health plan coverage due to reduction of hours or termination A spouse or ex-spouse of a covered employee
- A dependent child of a covered employee, including a child born to or adopted by a covered employee during the period of COBRA coverage.
For a covered employee, a “qualifying event” can be:
- Voluntary or involuntary termination of employment (other than for gross misconduct).
- Reduction in the number of hours of employment.
For a spouse or dependent child, a “qualifying event” can be:
- Voluntary or involuntary termination of the covered employee who had health coverage through an employer (other than for gross misconduct).
- Reduction in the number of hours worked by the covered employee.
- Covered employee’s death.
- Divorce or legal separation from a covered employee.
- Loss of dependent child status under the plan rules.
- Entitlement to Medicare by a covered employee
COBRA coverage generally lasts up to 18 months, if the covered employee is terminated or if their work hours are reduced. The coverage can be up to 29 months for certain disabled qualified beneficiaries and their nondisabled family members. An extension from 18 months to 36 months may apply for certain “multiple” qualifying events. These coverage periods are defined by law and not by employer or administrator choice.
Once Sterling is notified of a qualifying event, we will mail you a COBRA election notice. You will get a COBRA election form and information regarding your COBRA rights, COBRA coverage start and end dates, deadlines to elect coverage, process for making payments, the health plans available for COBRA coverage continuation, the cost for each eligible plan, etc. To elect COBRA coverage, you must complete the COBRA election form and return it to Sterling within the 60-day enrollment period.
Qualified Beneficiaries have 60 days to elect COBRA. The 60-day window begins on the date postmarked on your COBRA election packet.
Your COBRA premium will equal 100% of the full premium due to your group health continuation plan, plus a 2% administration fee. A rate sheet outlining your specific premiums will be provided to you with your election packet.
COBRA payments are due on the first of every month. Your coverage will be terminated retroactively if your payment is not postmarked within 30 days of the premium due date. Once your COBRA coverage is terminated, it cannot be reinstated.
There are several payment options available to you.
You may have the payment withdrawn from your bank account via our website. An automatic monthly payment withdrawal setup is offered at no charge. A one-time payment feature is also offered for a nominal service charge.
You may also mail your check or money order to us. All checks and money orders should be made payable to Sterling. Payments should be mailed to the following address:
Sterling
COBRA Department
PO Box 71107
Oakland, CA 94612
Please note, cash payments will not be accepted!
No monthly bills or reminders will be sent. Sterling will send you a COBRA premium coupon book. Coupons should be sent with your monthly premium to Sterling so that we have all of the correct information to properly credit your account and track your payments. It is your responsibility to remember your payment and a lapse in full payment will terminate your COBRA coverage. QBs will also have the option to set up a recurring ACH deduction from their bank account instead of sending a monthly check.
You probably will not need a new health insurance card while on COBRA coverage. You should be able to continue using the health insurance card from your carrier that you used while employed by your former employer, unless the carrier sends you a new card. Contact the insurance carrier directly to make sure.
Claims are submitted to your health insurance carrier, not to Sterling. We do not process claims under COBRA coverage.
Yes, you have the option to select a different health plan offered by your employer during open enrollment. You may choose from all of the same health plans available to actively working employees of the company.
If you acquire a new dependent (due to marriage, birth or adoption) and that dependent would have qualified for group coverage if you were still covered as an employee, you may elect to add your new dependent to your COBRA Continuation Coverage. You are responsible for notifying both Sterling and your insurance carrier directly within 30 days of the formal date of marriage, birth, or adoption. After 30 days, your special open enrollment option to add your new dependent expires.
Yes, COBRA coverage runs month to month, so you may drop coverage for a dependent in any given month as well as terminate coverage for yourself.
When the eligible coverage period ends (generally 18 months, but may be longer under special circumstances), COBRA coverage ends. Other reasons why COBRA coverage terminates during the coverage period is for failure to pay the COBRA premiums on time, if qualified beneficiaries under COBRA become covered under another group health plan, or if Medicare is elected after the COBRA election date. Employers can also terminate group health plan coverage and therefore terminate COBRA coverage since it is an extension of employer group coverage.
Qualified beneficiaries can ask for early COBRA termination by submitting a written request signed by the QB and spouse (if applicable) specifying the coverage to cancel and the effective date. The date of terminationcannot be retroactive after premium has been paid. Upon COBRA termination, the QB will receive a termination notice and certificate of creditable coverage.
In some cases, state continuation extensions of COBRA apply. Some COBRA coverage can also be converted to an individual health plan. Contact your insurance carrier before COBRA expires to find out.
