Consolidated Omnibus Budget Reconciliation (or COBRA) Health Coverage
The Consolidated Omnibus Budget Reconciliation Act of 1985 (or COBRA) is a law that the U.S. Congress has passed on a basis of reconciliation which was signed by President Ronald Reagan mandating an insurance program for employees to continue their health insurance coverage after leaving employment. This law, among other things, includes amendments to the Employee Retirement Income Security Act of 1974, commonly know as ERISA. COBRA applies to plans maintained by employers in the private sector and is sponsored by most of the state and local governments.
This amends the Internal Revenue Code and the Public Health Service Act to deny income tax deductions to employers with 20 or more full-time equivalent employees for contributions to a group health plan. This is only if such group health plan meets certain continuing coverage requirements. An excise tax will be given for employees who fail to meet certain criteria. This law also amends the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code (IRC) and the Public Health Service Act (PHSA) to provide continuation of group health coverage.
However, this coverage is only available when it is lost due to inevitable circumstances. Most of the time, the group health coverage for COBRA participants is more expensive than the health coverage for active employees This is usually because the employer pays the premium for active employees in partial, while COBRA participants pay the entire premium themselves. Employers who have twenty or more employees are required to offer COBRA coverage; and they have to notify their employees of its availability. This law has also established specific criteria for plans, qualified beneficiaries, and qualifying events.
To determine whether a plan is subject to COBRA, all employees should be counted. Each part-time employee are counted as a fraction of a full-time employee. This fraction is equal to the number of hours that the part-time employee has worked, divided by the hours a regular employee must work to be considered full-time.
There are cases when a retired employee, its spouse and dependent children may be qualified as beneficiaries. Any child born to or even placed for adoption with a covered employee during the COBRA coverage is also considered as a qualified beneficiary.
The third element is the qualifying events that would cause an individual to lose his or her health coverage. There are different types of qualifying event that will determine who the qualified beneficiaries are. The plan will also determine the amount of time that the health coverage must be offered to them under COBRA. At its discretion, a plan may provide longer periods of continuation coverage.
Qualified beneficiaries must be offered with coverage similar to that available to beneficiaries who have not been receiving COBRA coverage under the plan. They also must be allowed to make identical choices that are given to non-COBRA beneficiaries under the plan.
The COBRA coverage starts on the date of the qualifying event, and the length of the period of the coverage depends on the type of qualifying event that made the qualified beneficiary lose group health plan coverage.That is when one pays all the required premiums.
For employees covered under the coverage, the only qualifying event is their termination of employment including retirement, or reduction of employment hours. In that case, COBRA coverage is going to lasts in the period of eighteen months. If the covered employee undergoes qualifying events such as divorce or legal separation, death or being entitled to Medicare, COBRA for the spouse or dependent child will last for 36 months.
The beneficiary is usually required to pay the entire cost of COBRA coverage. There are also a few employers who choose to subsidize COBRA. However, in the event that the employer chooses not to subsidize COBRA, the COBRA premium should not exceed 100 percent of the group health plan’s cost for individuals who have not incurred a qualifying event. This includes both the portion paid by the employees and the employer before to the qualifying event happened. An additional of 2 percent for administrative costs is topped to it. Apart from this, the employer may also have the chance to charge up to 150 percent for an 11-month disability extension of COBRA coverage.
The COBRA administration is shared by three federal agencies: the U.S. Department of Labor that handles questions about notification rights under COBRA for private-sector employees; the Department of Health and Human Services that handles questions relating to state and local government workers; and the Internal Revenue Service, Department of the Treasury that has other COBRA jurisdiction.