The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), is a federal law that requires employers offering health care benefits to offer the option of continuing such coverage to qualified beneficiaries – at their own expense – who would otherwise lose their benefits due to employment termination, reduction in hours, or certain other events.

COBRA legislation allows employees and their dependents who were covered under an employer’s group health plan to continue their health coverage in situations when it would ordinarily be lost, such as a layoff or reduction in the number of hours worked.

COBRA legislation applies to all employers’ group health plans, with the exception of small employers with less than 20 employees.

Complying with COBRA laws can create extra demands on employers. Optum Financial’s COBRA and direct billing solutions provide unlimited scale and maximum efficiency to alleviate all COBRA-related administrative burdens. Our real-time, web-based software and integrated payment processing/print fulfillment services allow employers to rest easy and reduce worries over complex processes and potential compliance violations.

COBRA applies to employers with 20 or more employees.

A qualified beneficiary is anyone covered under an employer’s group health plan on the day before an event that causes loss of coverage, including:

• Full- and part-time employees
• Their spouses and dependents
• Retirees (unless eligible for Medicare)
• Partners in a partnership

COBRA coverage does not need to be offered to:

• An employee who is not yet eligible for the employer’s group health plan
• An eligible employee who declined to participate in the employer’s group health plan
• An individual who is enrolled for benefits under Medicare

Qualifying events for COBRA coverage include:

• An employee’s voluntary or involuntary termination of employment, unless it is for gross misconduct. While COBRA does not define misconduct, criteria to use if an employer is contemplating denying COBRA benefits due to misconduct are:
  • There must be a connection between the offense and the employee’s job.
  • The employee must be able to understand the gravity of the misconduct.
  • The offense must be willful.
• An employee’s reduction in employment hours (for example, from full time to part time)
• A covered spouse’s divorce or legal separation from an employee
• An employee’s death
• An employee’s entitlement to Medicare
• A covered dependent’s change in status (for example, reaching an age that no longer qualifies the dependent for coverage under the parent’s health plan)
• Active military duty when health coverage is not voluntarily maintained
• Failure to return to work at the end of family and medical leave where coverage was in effect at the beginning of the leave but was lost during the leave
• An employer’s bankruptcy

When a qualifying event triggers COBRA, coverage extends to the following plan types: healthcare, medical spending accounts, vision, dental, prescription drug, hearing, substance and alcohol abuse, and mental health.

COBRA coverage does not extend to life insurance, disability insurance, retirement plans, and vacation plans.

• Employers must notify covered employees and covered spouses of their initial rights under COBRA when they first join the plan.
• Employers must notify covered persons of their election rights to continue coverage after a qualifying event takes place.
• Employers have 30 days to notify the plan administrator (typically the insurance   company) when a qualifying event occurs.
  • In the event of divorce or change of status by a dependent, employers have 60 days. Once notified, the administrator has 14 days to notify the   individual entitled to COBRA coverage.

After an employee receives notification from an employer, the employee has 60 days to notify the employer that he or she wants coverage. The employee generally pays the full cost of COBRA insurance premiums. (The law allows the employer to charge 102 percent of the premium, keeping two percent to cover administrative costs. If an employee receives extended COBRA coverage due to disability, the employer can charge 150 percent of the premium for months 18 through 29.)

When an individual chooses to take COBRA coverage, he or she has 45 days to make the first payment. (The employee generally pays the full cost of COBRA insurance premiums.) Federal law states that COBRA coverage can be terminated if premium payments are late. Payment is considered timely if it is made within 30 days after the due date or within a longer period set out under the plan.