Today we’re answering some common questions regarding COBRA benefits. Please take a moment to review the details below, including an overview of COBRA and how it applies to covered employers, as well as the process for determining employee count.
Understanding Your COBRA Benefits
Make this a part of your Employee Benefits Due Diligence in 2024!
As an employer, it’s critical to keep track of COBRA eligibility, required paperwork and documentation, and any changes to a participant during COBRA coverage.
COBRA allows employees and their beneficiaries the option to keep group health coverage at group rates temporarily, after certain qualifying events that would otherwise terminate their eligibility for the coverage, often at the employee’s own cost.
What Constitutes as a Qualifying Event?
Qualifying events are specific events that cause an individual to lose group health plan coverage, triggering COBRA continuation rights. The following are considered qualifying events under COBRA if they cause a loss of coverage:
- Separation of the covered employee’s employment for any reason other than “gross misconduct”
- Reduction in the covered employee’s work hours to fewer than the number required for plan participation
- Covered employee becomes entitled to Medicare
- Divorce or legal separation of the spouse from the covered employee
- Death of the covered employee
- Loss of Dependent Child status under the plan rules
- A substantial loss or elimination of coverage for a retiree (or a retiree’s spouse or children) within one year before or after a Title XI bankruptcy filing
The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows certain individuals who would otherwise lose their group health plan coverage due to a qualifying event to continue coverage, for a limited period of time, through their employer or former employer at group rates. Individuals who elect COBRA coverage are responsible for paying the full premium themselves.
COBRA applies to employers with 20 or more employees who offer group health plan coverage. However, many states have their own health coverage continuation laws, which cover employers with fewer than 20 employees. Check your state law to ensure compliance.
COBRA generally applies to all private-sector group health plans maintained by employers that have at least 20 employees on more than 50 percent of their typical business days in the previous calendar year.
Determining Employee Count
Both full- and part-time common law employees are counted to determine whether a plan is subject to COBRA. An employer may determine the number of its employees on a daily basis or a pay period basis. If an employer makes this determination on a daily basis, each part-time employee counts as a fraction of a full-time employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work on a typical business day to be considered a full-time employee.
Individuals who are not common law employees are not counted when determining employee count. This means that the following individuals are not included:
- Self-employed individuals (within the meaning of IRC section 401(c)(1))
- Independent contractors (and their employees and independent contractors)
- Directors (in the case of a corporation)
Note: These individuals may qualify as employees for other purposes and may be eligible for COBRA continuation coverage if they have coverage under a group health plan that is covered by COBRA.