December 5, 2008
COBRA CONTINUATION OF GROUP HEALTH BENEFITS
By: Janet L. Kaminski Leduc, Senior Legislative Attorney
This OLR Backgrounder provides information about federal and Connecticut continuation of health insurance requirements.
FEDERAL LAW: COBRA
COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1986 (PL 99-272, as amended), amends ERISA, the Employee Retirement Income Security Act, to provide continuation of group health coverage that might otherwise be terminated. COBRA applies to employers with 20 or more employees.
COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage under the employer's group health plan, so long as the insured pays the required premiums. The premium for COBRA coverage cannot exceed 102% of the plan's group rate for coverage, plus 2% for administrative costs. (Costs may increase if coverage is further extended because of disability.)
COBRA Qualifying Events
Continuation of coverage is only available when coverage is lost due to certain “qualifying events.” Qualifying events for employees are (1) voluntary or involuntary termination of employment for reasons other than gross misconduct and (2) reduction in the number of hours worked.
For spouses and dependent children, the qualifying events are the:
1. voluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct;
2. reduction in the hours worked by the covered employee;
3. covered employee's eligibility for Medicare;
4. covered employee's divorce or legal separation;
5. death of the covered employee; and
6. if a dependent child, loss of dependent child status under the plan.
Period of Coverage under COBRA
COBRA establishes required periods of coverage for continuation of health benefits. A plan may, however, provide longer periods of coverage beyond those required. COBRA requires coverage to extend for 18 months when the qualifying event is an employment termination or a reduction of hours worked. Other qualifying events, or a second qualifying event during the initial period of coverage, may extend the coverage up to 36 months. Longer periods of coverage may be available for a person with a disability.
COBRA continuation coverage begins on the date that coverage under the group health plan ends due to a qualifying event and ends after the maximum allowed period of coverage expires. However, COBRA coverage may end earlier if:
1. premiums are not paid on a timely basis;
2. the employer ceases to maintain any group health plan;
3. after the COBRA election, coverage is obtained through another group health plan; or
4. after the COBRA election, the insured becomes eligible for Medicare.
To be eligible for COBRA coverage (a “qualified beneficiary”), the employee, while working, must have been enrolled in the employer's health plan and lost coverage due to a qualified event and the health plan must continue to be in effect for active employees. COBRA continuation coverage will not be available if the employer discontinues all of its health plans. In that case, employees have to seek other coverage.
COBRA Benefits, Plan Changes, and Plan Termination
Qualified beneficiaries must be offered coverage identical to that available to similarly situated beneficiaries who are not receiving COBRA coverage (e.g., active employees). This is generally the same coverage that the qualified beneficiary had immediately before qualifying for continuation coverage.
A change in the active employees' plan benefits also applies to qualified beneficiaries. Qualified beneficiaries must be allowed to make the same choices given to non-COBRA plan beneficiaries (e.g., during the plan's open enrollment). Thus, if an employer replaces its group health care plan with another, then qualified beneficiaries receiving COBRA coverage must be given the same opportunity to select the new plan as active employees. If a qualified beneficiary does not elect the new plan, his or her coverage ceases on the last day of the plan year.
When an employer cancels all group health care plans, there is no coverage that can be continued. As a result, employees and qualified beneficiaries previously covered through the employer's plans have to obtain coverage elsewhere.
The law requires plan administrators (typically the employer) to give employees and qualified beneficiaries notice of COBRA rights and enrollment information at specific times, as shown in Table 1. In 2004, the DOL issued final regulations that include two notice requirements not specified in the COBRA statute—notice of unavailability of COBRA and notice of early termination of COBRA coverage.
The “notice of early termination of continuation coverage” requirement is triggered when a plan cancels a beneficiary's coverage before benefits are exhausted as otherwise allowed under COBRA, such as for nonpayment or when the employer ceases to offer any health care coverage to its active employees. The notice must include the reason the coverage is ending early, the coverage termination date, and any conversion rights (e.g., to an individual policy) the beneficiary has under the plan. The regulations specify that the notice must be provided “as soon as practicable” following the administrator's determination that coverage is terminating.
Table 1: Required COBRA Notices
Initial COBRA notice
Notice of rights to purchase temporary extension of group health coverage when coverage is lost due to a qualifying event.
Covered employees and covered spouses.
When group health plan coverage begins.
COBRA election notice
Notice to qualified beneficiaries of their right to elect COBRA coverage upon the occurrence of a qualifying event.
Covered employees, covered spouses, and dependent children who are qualified beneficiaries.
Generally within 14 days after the employee or qualified beneficiary notifies the administrator of the qualifying event.
Notice of unavailability of COBRA
Notice that an individual is not entitled to COBRA
Individuals who provide notice to the administrator of a qualifying event whom the administrator determines are not eligible for COBRA coverage.
Generally within 14 days after the individual notifies the administrator of the qualifying event.
Notice of early termination of COBRA coverage
Notice that a qualified beneficiary's COBRA coverage will terminate earlier than the maximum period of coverage.
Qualified beneficiaries whose COBRA coverage will terminate earlier than the maximum period of coverage.
As soon as practicable following the administrator's determination that the coverage will terminate.
Source: U.S. Department of Labor, Employee Benefits Security Administration
Several federal agencies administer and enforce COBRA. The Department of Labor (DOL) and the Treasury have jurisdiction over private-sector health plans. The Department of Health and Human Services has jurisdiction over public-sector health plans.
The Internal Revenue Service has issued regulations on COBRA provisions relating to eligibility, coverage, and premiums. DOL and the Treasury share jurisdiction for enforcing these provisions.
More COBRA information is available at http://www.dol.gov/dol/topic/health-plans/cobra.htm.
An employer or plan administrator that does not comply with COBRA is subject to the following penalties:
1. an IRS excise tax of $100 per day per violation ($200 a day if the violation affects more than one beneficiary);
2. ERISA penalties of $110 per day, per qualified beneficiary, per violation;
3. claim costs the qualified beneficiary incurred; and
4. damages and attorney fees.
Other Coverage Options
When COBRA coverage is not available or is exhausted, a person may have other coverage options, including a spouse's group health plan, an individual policy, or a government program.
Spouse's Group Health Plan. An employee losing coverage may have a right to special enrollment in a spouse's group health plan. HIPAA, the Health Insurance Portability and Accountability Act of 1996 (PL 104-191), requires a group health plan to allow special enrollment for certain individuals to enroll in the plan without having to wait until the plan's next regular open enrollment period. A special enrollment opportunity occurs if a person (1) with other health insurance loses that coverage or (2) becomes a new dependent (e.g., through marriage, birth, adoption). However, the person must request special enrollment within 30 days of losing other coverage or becoming a new dependent.
Individual Policy. An employee losing coverage could convert from the employer's group health plan to an individual policy. HIPAA guarantees eligible individuals access to individual policies. Eligible individuals are those who:
1. have had coverage for at least 18 months without a significant break in coverage where the most recent period of coverage was under a group health plan;
2. did not have their group coverage terminated because of fraud or nonpayment of premiums; and
3. are ineligible for COBRA continuation coverage or, if offered such coverage (or continuation coverage under a similar state program), have both elected and exhausted their continuation coverage.
Government Program. An employee losing coverage may qualify for health coverage through state or federal government programs. These include Medicaid (for low-income individuals and individuals with special needs), a state children's insurance program (e.g., Connecticut's HUSKY plan), a state high-risk pool (for individuals denied insurance for health reasons, e.g., Connecticut's Health Reinsurance Association), and Medicare (for people age 65 and over, and for certain people who are disabled or have end-stage renal disease).
The Charter Oak Health Plan is a new Connecticut program that began accepting applications on June 30, 2008. To qualify for Charter Oak, an individual must be uninsured for six months before enrolling. But applicants may request an exception to this waiting period. The Department of Social Services is finalizing exceptions to this six-month “crowd out” provision. Exceptions may include job loss, financial hardship, loss of HUSKY plan eligibility due to age or income, or exhaustion of COBRA benefits. And, a person who has access to other insurance but chooses not to enroll in it may apply for Charter Oak.
More information about Charter Oak is available at http://www.charteroakhealthplan.com/coh/site/default.asp.
STATE LAW: CONTINUATION OF COVERAGE
Connecticut law requires employers to comply with COBRA (CGS § 38a-538). It also requires each group health insurance policy, regardless of the number of insureds, to provide continuation and conversion benefits. These are described in CGS §§ 38a-554(b) and (d), respectively (CGS § 38a-546).
Continuation of Coverage
CGS § 38a-554(b) requires each group health insurance policy to give individuals the option to continue coverage under certain circumstances until they are eligible for other group insurance. Continuation of coverage is available to an employee and his or her covered dependents if the employee is laid-off, is given reduced work hours, takes a leave of absence, or terminates employment, unless it is for gross misconduct.
The employee's spouse and dependent children can continue coverage under a group health plan if the employee dies; there is a divorce, court ordered annulment, or legal separation; or the child loses dependent status.
Continuation of coverage generally extends for the periods of coverage set forth in COBRA. This means that coverage will extend for 18 or 36 months, depending on the qualifying event, and possibly longer if the person has a disability. However, for group health insurance policies issued, renewed, or continued in Connecticut on or after October 1, 2003, an employee and his or her covered dependents also are entitled to continue coverage until midnight of the day preceding the employee's eligibility for Medicare if the employee's reduced hours, leave of absence, or termination of employment results from his or her eligibility for Social Security income.
An individual may be required to pay the premium, up to 102% of the group rate, for the continued coverage.
Continuation after Health Plan Termination
CGS § 38a-554(b)(4) provides limited continuation of coverage for people with disabilities after a group health plan terminates. Regardless of a person's eligibility for other group insurance, when a group health plan terminates, coverage for covered individuals who were totally disabled on the date the plan terminated continues for 12 calendar months without payment of premium, provided a claim for coverage is submitted within one year of the plan termination. The person receives continued coverage only for claims related to the disability.
If a person is not totally disabled on the date the plan terminates, state law does not require coverage continuation.
Conversion to Individual Coverage
CGS § 38a-554(d) requires each group health insurance policy to give Connecticut residents the right to convert to an individual policy immediately upon termination of coverage under the group plan. The terms and benefits offered under the conversion plan must be at least equal to those in an individual comprehensive health care plan as described in CGS §§ 38a-553 and 38a-555.
Plan documents for a group health insurance policy explain how a person can convert to an individual policy. State law does not require employers or insurers to contact people losing coverage to offer the individual conversion plan. Thus, it is up to the individual to request conversion.
In Connecticut, most plans offer conversion through the Health Reinsurance Association, the state's high-risk pool. Information about, and applications for, the Health Reinsurance Association can be obtained by calling the high-risk pool at 1-800-842-0004 or visiting its website http://www.hract.org/hra/index.htm.
Sources of Information for Individuals
People with questions about continuation of coverage and conversion privileges should consult their plan documents and human resources department.
They may also contact the Connecticut Insurance Department's Consumer Affairs Division at 1-800-203-3447. The division can provide a list of individual insurance carriers doing business in Connecticut. The list may also be found on the department's website at http://www.ct.gov/cid/cwp/view.asp?Q=390126&cidNav=|.
RELATED OLR REPORTS
For related information, see the following OLR Reports:
● 2004-R-0004, Continuation of Coverage for Individuals Age 62 and Older
● 2004-R-0020, Coverage Continuation Following Liquidation
● 2004-R-0646, COBRA Coverage after Sale of Company
● 2007-R-0528, Notification of Group Health Care Plan Change