If you are an employer in Nebraska who offers group health insurance to your employees, you may have heard of COBRA, the Consolidated Omnibus Budget Reconciliation Act. COBRA is a federal law that gives workers and their families the right to continue their health coverage for a limited time after certain events that would otherwise cause them to lose their benefits, such as termination, reduction of hours, divorce, death, or Medicare eligibility. COBRA can help your employees maintain their health and financial security during these transitions, and also protect you from potential lawsuits or claims.
However, COBRA is not a simple or automatic process. As an employer, you have certain obligations and responsibilities under COBRA, such as notifying your employees of their rights, providing them with the option to elect continuation coverage, collecting and remitting their premiums, and reporting and documenting your compliance. Failing to comply with COBRA can result in costly penalties, audits, lawsuits, and reputational damage.
In this article, we will explain what COBRA is, how it works, who it applies to, and how to comply with it. We will also explain how Vesta Employee Benefit Solutions can help you with your COBRA administration and management.
What is COBRA and how does it work?
COBRA is a set of laws enacted by Congress in 1986 to amend the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code (IRC), and the Public Health Service Act (PHSA). COBRA requires group health plans sponsored by employers with 20 or more employees in the previous year to offer continuation coverage to qualified beneficiaries who lose their health benefits due to certain qualifying events.
Continuation coverage is a temporary extension of the same health coverage that the qualified beneficiary had before the qualifying event, such as medical, dental, vision, or prescription drug plans. Continuation coverage must be identical to the coverage that is currently available under the plan to similarly situated active employees and their families.
Qualified beneficiaries are individuals who were covered by the group health plan on the day before the qualifying event, and who are affected by the qualifying event. Qualified beneficiaries include:
- The employee
- The employee’s spouse or former spouse
- The employee’s dependent children
- Any child born to or placed for adoption with the employee during the period of continuation coverage
Qualifying events are events that cause the qualified beneficiary to lose their health coverage under the group health plan. Qualifying events include:
- Termination of the employee’s employment for any reason other than gross misconduct
- Reduction of the employee’s hours of employment
- Divorce or legal separation of the employee from their spouse
- Death of the employee
- Entitlement of the employee to Medicare
- Loss of dependent child status under the plan
The duration of continuation coverage depends on the type of qualifying event and the type of qualified beneficiary. Generally, continuation coverage lasts for:
- 18 months for employees and their dependents who lose coverage due to termination or reduction of hours
- 36 months for spouses and dependents who lose coverage due to divorce, death, Medicare entitlement, or loss of dependent status
- 29 months for employees and their dependents who are disabled at the time of termination or reduction of hours, or within the first 60 days of continuation coverage
The cost of continuation coverage is usually borne by the qualified beneficiary, who may be required to pay up to 102% of the premium for the coverage, which includes the employer’s and the employee’s share, plus a 2% administrative fee. However, some employers may choose to subsidize or pay the entire cost of continuation coverage for their employees as a benefit or incentive.
Who is subject to COBRA and who is exempt?
COBRA applies to most private sector employers who have 20 or more employees on more than 50% of their typical business days in the previous calendar year. Both full-time and part-time employees are counted to determine the number of employees, using a fraction that equals the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full-time.
Some group health plans are exempt from COBRA, such as:
- Plans that cover only one individual or one individual and their spouse, who are owners or partners of the business sponsoring the plan, and who have no employees covered by the plan
- Plans that cover only a select group of management or highly compensated employees, such as top-hat plans or excess benefit plans
- Plans that are unfunded or insured and cover only a small number of employees, such as plans that have fewer than 20 participants at the beginning of the plan year and are either paid directly from the employer’s general assets or fully insured by an insurance company
How to comply with COBRA?
As an employer, you have the following responsibilities and obligations under COBRA:
- You must notify your group health plan administrator within 30 days of a qualifying event that is caused by your action or decision, such as termination, reduction of hours, death, or Medicare entitlement of an employee.
- You must notify your employees and their spouses of their COBRA rights when they first join the plan, and again when a qualifying event occurs. You must provide them with an election notice that explains their right to choose continuation coverage, the terms and conditions of the coverage, the cost and duration of the coverage, and the deadline and procedure for electing the coverage. You must provide the election notice within 14 days of receiving notice of the qualifying event from the plan administrator, or within 44 days of the qualifying event if you are the plan administrator.
- You must allow your employees and their spouses at least 60 days to elect continuation coverage from the date of the qualifying event or the date of the election notice, whichever is later. You must also allow them to revoke their election within this period if they obtain other coverage.
- You must provide continuation coverage to your employees and their spouses who elect it, and ensure that the coverage is identical to the coverage that is currently available under the plan to similarly situated active employees and their families. You must also allow them to change their coverage during open enrollment or special enrollment periods, as well as to add or drop dependents.
- You must collect and remit the premiums for continuation coverage from your employees and their spouses who elect it, and ensure that the premiums are reasonable and consistent with the cost of the coverage. You must allow them to pay the premiums on a monthly basis, and give them a 30-day grace period for late payments. You must also notify them of any changes in the premiums at least 30 days in advance.
- You must report and document your compliance with COBRA, and keep records of the notices, elections, premiums, and benefits related to continuation coverage. You must also file annual returns with the IRS and the DOL using the Form 5500 series, and provide summary annual reports to your employees and their spouses who receive continuation coverage.
How can Vesta help you with COBRA?
Complying with COBRA can be a complex and time-consuming task for employers, especially if they have a large or diverse workforce, multiple group health plans, or frequent qualifying events. You may face challenges in understanding the COBRA rules and regulations, notifying your employees and their spouses of their rights, providing them with the option to elect continuation coverage, collecting and remitting their premiums, and reporting and documenting your compliance. You may also face risks of noncompliance and penalties if you fail to comply with COBRA on time, accurately, and completely.
That is why you need Vesta Employee Benefit Solutions, a leading provider of employee benefits solutions in Nebraska, with over 10 years of experience and expertise. Vesta can help you with the following services:
- Design, implement, and manage a group health plan that meets your specific needs and goals, and that complies with COBRA and other applicable laws
- Determine if your group health plan is subject to COBRA, and identify the qualifying events and the qualified beneficiaries for your plan
- Notify your employees and their spouses of their COBRA rights when they first join the plan, and again when a qualifying event occurs, using clear and timely election notices
- Provide your employees and their spouses with the option to elect continuation coverage, and ensure that the coverage is identical to the coverage that is currently available under the plan to similarly situated active employees and their families
- Collect and remit the premiums for continuation coverage from your employees and their spouses who elect it, and ensure that the premiums are reasonable and consistent with the cost of the coverage
- Report and document your compliance with COBRA, and keep records of the notices, elections, premiums, and benefits related to continuation coverage
- File annual returns with the IRS and the DOL using the Form 5500 series, and provide summary annual reports to your employees and their spouses who receive continuation coverage
- Provide you with guidance and support on how to avoid and correct common errors, how to request and file an extension, and how to respond to inquiries or audits from the IRS, the DOL, or your employees