From a broad perspective, you need to understand whether your company needs to comply with the Consolidated Omnibus Budget Reconciliation Act (COBRA). This article assumes you already have this understanding and you actually want to handle COBRA administration for your company…
To become eligible for COBRA, an employee or one of their dependents must have a qualifying event.
What are these qualifying events that determine COBRA eligibility?
- Reduction in hours – once an employees’ hours are reduced to the point of the employee becoming part-time, depending on the company’s policies, they may no longer qualify for the company’s group insurance plans. If this is the case, this is a COBRA qualifying event, and the employee must be sent a COBRA election notice. However, if the company provides the same benefits to part-time employees, that they do full-time employees, the employee would not be eligible for COBRA.
- Involuntary termination – outside of terminations as a result of gross misconduct, if an employee is involuntarily terminated (i.e. fired, laid off, dismissed, canned, etc.), they too are eligible for COBRA and need to be provided with access to the company’s group health plans.
- Voluntary termination – even if an employee leaves a company (i.e. quits, resigns, stands down, vacates, etc.), that individual still qualifies for COBRA. You may be asking yourself, “But why?” Even though an employee voluntarily leaves a company, there is typically a period of time where they wouldn’t have access to a health insurance plan. This may be because they’re starting their own company or taking another job and maybe that job has a 90-day onboarding period before they can enroll. So, I guess the answer to your question is – “Because it makes sense.”
- Medicare eligibility – if an employee turns 65 and becomes eligible for Medicare, then that employee wouldn’t need access to COBRA, but this is still a COBRA qualifying event. Here’s why – because this individual's spouse and/or dependents would otherwise have lost coverage. So the access to the health plan isn’t for the employee, it’s for their family. Whoever else was covered by the plan must be provided with a COBRA election form.
- Divorce or legal separation – when an employee gets a divorce or becomes legally separated, this again would put that employee’s spouse and / or dependents in a situation where they would lose access to coverage. With that, this too is a qualifying event for COBRA in which notices must be provided to this employee’s spouse and / or dependents.
- Child loses dependent status – when an individual turns 26 years old, they’re no longer able to be on a parent’s health plan. If this happens to an particular employee’s dependent, then this is a COBRA qualifying event. This dependent must be sent a COBRA election form.
- Death – If a covered employee passes away, no matter how it happens, this would too indicate a COBRA qualifying event for that employee's surviving spouse and / or dependents.
The qualifying event that triggers COBRA eligibility can result in varying coverage periods. To make it easy for you determine how long you must make health plans available to these COBRA eligible employees (and/or those employees’ spouse / dependents), we developed this nifty guide:
*May be extended up to 36 months due to a 2nd qualifying event during the coverage period counted from the date of the 1st occurrence of a qualifying event.
Overall, COBRA administration is an extremely complex process and providing COBRA election notices is the most important part of COBRA compliance. If you’re not providing these forms to COBRA qualified beneficiaries you DEFINITELY need to start doing so.
Due to its complexity, lot of companies choose to outsource COBRA Management (here's why). We'd love to show you how our COBRA Administration solution can help keep your company compliant and save you time and money.