COBRA QUALIFYING EVENTS COBRA is a federal law that requires employers to allow employees and dependents losing health insurance to stay on the employer’s plan. If an employer provides health care coverage, Consolidated Omnibus Budget Reconciliation Act (COBRA) issues produce questions that come up regularly. The COBRA issues arise every time an employee is terminated or quits, reduces work hours, or gets divorced. Under COBRA, employers with 20 or more employees that provide group health plans must offer continuation coverage to qualified beneficiaries who have lost coverage as a result of certain qualifying events. Coverage can last between 18 and 36 months, and if you fail to properly provide beneficiaries an opportunity to elect continued coverage, you will face significant fines and penalties. Accordingly, you need to understand which employee activities can trigger COBRA coverage. The choice to continue coverage can be made when a person has a "qualifying event" that results in the loss of coverage.
Who is covered by the law? • Almost all employers who provide health insurance to their employees except: • The federal government and its employees • Churches and most religious affiliated employers such as church-owned hospitals • Employers with less than 20 employees.
Qualifying Events Qualifying Events are events that occur that cause an employee and/or his/her dependents to lose company-sponsored group health coverage. When a qualifying event occurs, a covered plan member becomes a Qualified Beneficiary, and gains rights to continue coverage under COBRA. These events apply to the covered employees and their dependents that are covered under the policy. Below is an explanation of the seven qualifying events covered by COBRA. Loss of coverage does not have to occur immediately after the event. Rather, it must occur before the maximum COBRA coverage period is exhausted. The seven qualifying events include:
1. Voluntary or involuntary termination of employment (unless due to gross misconduct) Termination of employment, either voluntarily or involuntarily, is a qualifying event unless the employee is terminated for "gross misconduct." Accordingly, an employee resignation, layoff, retirement, strike, or lockout could trigger COBRA continuation coverage. The qualifying dependents are the employee, his/her spouse and the dependent child. The COBRA coverage can last up to 18 months.
2. working hours have been reduced If the covered employee's hours are reduced below the minimum threshold for participating in your health plan, this reduction triggers COBRA rights. Take as an example a full-time employee who switches to a part-time position working only 20 hours a week, and the threshold for participating in your group health plan is 30 hours a week. In this case, the employee loses the health care coverage and is entitled to COBRA continuation coverage. An employee who takes a leave of absence also generally will experience a qualifying event because his hours will be reduced to zero, unless he is taking a leave under the Family and Medical Leave Act (FMLA). The qualifying dependents are the employee, his/her spouse and the dependent child. The COBRA coverage can last up to 18 months.
3. Death of the covered employee Death is a qualifying event for the qualified beneficiaries, such as the remaining spouse and dependent children. The COBRA coverage can last up to 36 months.
Divorce or legal separation of the covered employee from spouse Only the actual divorce or legal separation that causes a loss of coverage will trigger COBRA coverage. The COBRA regulations state that if a covered employee eliminates or reduces coverage for his spouse in anticipation of a divorce or legal separation, a qualifying event does not occur. The qualifying dependents are the employee’s spouse and the dependent child. The COBRA coverage can last up to 36 months.
5. Employee is entitled to Medicare benefits The covered employee becomes entitled to benefits under Medicare. The qualifying event occurs when the employee gets enrolled in Medicare, not when the employee merely becomes eligible for it. The qualifying dependents are the employee’s spouse and the dependent child. The COBRA coverage can last up to 36 months.
6. Loss of dependent status The covered employee becomes entitled to benefits under Medicare. The qualifying event occurs when the employee gets enrolled in Medicare, not when the employee merely becomes eligible for it. The qualifying dependents are the employee’s spouse and the dependent child. The COBRA coverage can last up to 36 months.
7. Bankruptcy of employer This qualifying event is limited to retirees and their covered families and does not apply to active employees and their covered families. For retirees, a qualifying event will be considered as having occurred if coverage is substantially eliminated within one year before or after the start of bankruptcy proceedings.
Second Qualifying Events There are situations where a second qualifying event occurs. For example, an employee terminates employment and then subsequently divorces. In this situation, the maximum period of coverage for the employee remains 18 months, and the maximum period for the impacted dependent(s) remains 36 months. You must provide proper notice to the Plan administrator within the required timeframes in order to receive this extension.
Three Events Not Covered by COBRA Three employment actions are not considered qualifying events under COBRA:
A. Termination of health care plan If an employer terminates a group health plan, and the termination does not occur within one year of the employer's filing for bankruptcy, that termination is not a qualifying event, even for retirees.
B. Employee transfer If an employee transfers to a position within the organization that is not covered by a group health plan, the transfer by itself will not be a qualifying event. However, if the employer uses the transfer in an effort to avoid COBRA liability, the transfer will be disregarded in determining whether a qualifying event has occurred. An example would be an employer-initiated transfer of the employee to a position without health insurance done in anticipation of termination. Note, though, a transfer from a full-time job to a part-time job likely will be a qualifying event because of the reduction in hours.
C. FMLA leaves As discussed above in the section on reduction in hours, a leave of absence or reduced work schedule covered by the FMLA is not a qualifying event under COBRA. The FMLA requires employers to maintain health care coverage during FMLA leave, so there is no triggering event. However, employees who do not return from FMLA leave may be entitled to elect COBRA continuation coverage, if a continuation of the leave would result in a loss of coverage.