COBRA and Continuation of Coverage

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We field many calls from people who are confused about COBRA, who it applies to and how to decipher the rules and terminology. Some fall into taking up COBRA because they are not armed with all the facts and do not understand all their options. With so many rules, stipulations and interventions it is difficult to get to grips with exactly:

  • What it is
  • Who qualifies?
  • Under what circumstances?
  • What are the rules?
  • Who is eligible for a subsidy?
  • How the subsidies work?

What is COBRA Continuation of Coverage?

In 1986 Congress passed the landmark Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions. The aim was to provide continuation of group health coverage that otherwise might have been terminated.

Who Qualifies?

As with all legislation, it never appears straightforward. However once you understand the criteria, it becomes easier to understand.

It is easier to break this into three sections.

  • Which plan types qualify for COBRA benefits
  • Who, or which beneficiaries qualify and
  • How the subsidies work? Qualifying Events

Which Plan Types Qualify?

To be subject to COBRA you need to have been on a group health plan run by a company or organization for employees. The group plan should have 20 or more employees on more than 50% of its business days for the previous calendar year.

So basically the first hurdle to qualifying for COBRA is having been on an employer sponsored group health insurance plan that has been operational for more than a calendar year and, has 20 or more participating members. That plan must still be in operation for active employees after a qualifying event.

Which Beneficiaries Qualify?

Anyone who was covered by the authorized group plan on the day before a qualifying event. This includes employees, an employee’s spouse or an employee’s dependent child. Basically if they were covered by a qualifying plan, they are also eligible for COBRA if they lose their health coverage through a qualifying event.

Qualifying Events

So what are qualifying events? Qualifying events are any incident or happening that would cause a person to lose their health coverage from a participating plan. Because of the extended relationship of some of the beneficiaries, qualifying events differ between employees, their spouses and their dependent children.

Qualifying Events for Employees

  • Voluntary or involuntary termination of employment for any reasons other than gross misconduct.
  • Reduction in the number of hours of employment

Qualifying Events for Spouses:

  • Voluntary or involuntary termination of employment for any reason other than gross misconduct
  • Reduction in the number of hours of employment
  • Covered employee’s becoming entitled to Medicare
  • Divorce or legal separation
  • How the subsidies work? Death of the covered employee

Qualifying Events for Dependent Children

  • Voluntary or involuntary termination of employment for any reason other than gross misconduct
  • Reduction in the number of hours of employment
  • Covered employee’s becoming entitled to Medicare
  • Divorce or legal separation
  • Death of the covered employee
  • How the subsidies work? Loss of dependent child status under the plan rules.

I have had a Qualifying Event: What now? What is the process?

Your employer will notify plan administrators within 30 days of a qualifying event that relates directly to your employment or entitlement to Medicare. In other words, if the qualifying event is caused through a direct relationship with your employment, your employer has a duty to notify the plan administrators.

If the qualifying event relates to events outside of the workplace, such as divorce, legal separation or a child ceasing to be covered as a dependant, qualifying beneficiaries must notify the plan administrator within 60 days of the qualifying event.

Once the plan administrator(s) receive notice of a COBRA Qualifying Event, the plan administrator has 14 days to mail the COBRA Election Notice. You will have 60 days to decide whether to take up COBRA or not.

You now have 60 days to make up your mind, either from the date your notice was mailed, or the date your benefits, through your (former) employer, would end.

What about the Costs of Coverage? Who Pays What?

Although beneficiaries will still be part of an employer’s health plan, the entire responsibility for payment rests on the beneficiaries. On top of this, the employer is entitled to add a maximum of 2% administration cost onto the plan. The maximum a beneficiary can be expected to pay would be 102% of the cost of the plan.

Beneficiaries must pay all co-payments and deductibles, as well as satisfy all the other payment rules attached to the plan.

What about the Subsidy?

Not everyone qualifies for the subsidy. To add to the confusion, there have been some extensions and proposals for extensions. At present the subsidy covers anyone whose qualifying event was related to an involuntary termination from employment that happened during the period September 1, 2008 through to February 28, 2010.

A Few Things to Think About

Adding up all these days throughout the process adds up to quite a few days. Remember these are maximum numbers and do not necessarily reflect the amount of time needed to start your COBRA continuation coverage.

Depending on your circumstances, you can speed the process up through getting your paper work in early or asking your employer to do the same, or you can stretch the time out to give you more time to consider your alternatives.

Here are a few points to consider while deciding on electing COBRA continuation of coverage:

  • It is always advisable to know and research your options before you elect COBRA. It can be expensive, especially for a plan that you have little control over. Talking to a qualified broker, or researching your options online is a good place to start. Make sure you are empowered to make the right choice according to your needs and resources.
  • In some circumstances, when dealing with pre-existing conditions, for example, COBRA may be your best option. However it is always wise to check your other options first.
  • Electing COBRA in many cases has you paying the entire costs of the plan, while having little control over how the plan is structured or administered. Taking an honest look at your needs and considering the true costs of a policy, for example deductibles, exclusions and copay levels, is a good approach to take when considering alternatives. A good broker or adviser should be able to take you through your options.
  • For the period of time you are processing your COBRA, or making your decision you are not covered by Health Insurance. This has implications for scheduled treatments, emergencies and current treatments. Ensure you plan for this.

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