COBRA
If your company employed twenty or more people consecutively on any day over the past year and offers medical, dental, or vision insurance, COBRA provisions will apply. COBRA is the Consolidated Omnibus Budget Reconciliation Act that went into effect in 1985. It provides separating employees with the option to continue medical, dental, and life insurance coverage at the group rates that the employer pays. If the employee is leaving to work for another company and insurance does not start right away, he may enroll in COBRA coverage to cover the period between the end of one policy and the start of another. If the new job does not provide insurance, COBRA will allow him and/or his dependents to pay for and keep his current plan for eighteen months. If another qualifying event occurs during this eighteen-month period, eligibility may be extended for another eighteen months.
When an employee leaves a company for any reason other than gross misconduct, they are eligible to enroll in COBRA. Gross misconduct is defined as something criminally serious. Poor performance, unsatisfactory attendance, and insubordination are not considered gross misconduct. Therefore, even if someone is involuntarily terminated, they are still eligible in most situations.
Are COBRA rates the same as the employee's usual payroll deduction for insurance?
No. Under coverage through COBRA, the employee pays the group rates that the employer pays. An employee's medical coverage may be $450 per month, in which the employer pays $400 and the employee contributes $50 through payroll deductions. Under COBRA, the employee would pay the entire $450 per month. This group rate is lower than what the employee would be charged through private insurance.
Employers are required to send COBRA notification to the insured parties of medical plans within fourteen days of employment termination. The paperwork can be hand delivered to the employee, and it is in your best interest to get a signed receipt. Send a COBRA notification letter and COBRA enrollment form via certified mail addressed to both the employee and spouse, if there is one. If the employee has a covered adult dependent child that lives at another address (a full-time college student), send a separate enrollment packet to that person. The reason that eligible adults need to be notified is that they are eligible for enrollment even if the former employee chooses not to sign up. The enrollment papers must be filled out within sixty days of the date the medical insurance ends or of receiving the notification, whichever is later. The first payment must be made within forty-five days of enrollment.
The COBRA notification that you send to employees should provide the following information:
Date medical/dental/vision insurance will end
Deadline to enroll in COBRA
Where and when to send payments
Cost of coverage
Name and contact information for plan administrator
COBRA enrollment form
Leaving a company is only one of a few qualifying events for COBRA coverage eligibility. A reduction in hours that makes the employee ineligible for insurance is also a qualifying event. If there is a divorce, the employee's spouse can enroll in COBRA. Children who are no longer dependents due to a change in custodian or passing the age of eligibility may enroll as well.
COBRA is a complex issue under IRC Section 4980B. In a nutshell, it means that departing employees who currently have insurance are eligible to retain coverage at their expense. This is an easy way to explain it to employees and you shouldn't assume that they know what COBRA is. Let them know the importance of the enrollment paperwork that you provide to them. You can learn more about COBRA on the U.S. Department of Labor's Web site.
