COBRA and the Affordable Care Act

COBRA has presented administrative challenges to employers since 1985. The Affordable Care Act promises to make health insurance available and affordable for all Americans. This eliminates employers’ need to offer COBRA continuation coverage. Or does it?

The Patient Protection and Affordable Care Act (PPACA) did not eliminate COBRA or change the COBRA rules. In fact, the notice health plans subject to COBRA must provide to new enrollees specifically mentions the Health Insurance Marketplace created by the Affordable Care Act.

COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1986, allows workers and family members who would otherwise lose their health insurance benefits to temporarily continue health coverage at group rates. If you had 20 or more employees in the prior year and offer a group health plan, COBRA applies to your organization. Here’s what you need to know about COBRA’s requirements.

Employee count. Your employee count must include part-time employees; add part-timers’ hours together to determine the number of full-time equivalents.

Qualified beneficiaries. Eligibility is limited to those covered by a group health plan on the day before a qualifying event (see below).

Qualifying events. Certain events will trigger the right to continue coverage under COBRA, including termination of employment (voluntary or involuntary, unless it is for gross misconduct) and reduction in hours worked (e.g., from full-time to part-time). An employee’s death, divorce, legal separation or eligibility for Medicare are all considered qualifying events, as is a change in status of a covered dependent or spouse. Being called up for active military duty also triggers COBRA eligibility when an employer doesn’t voluntarily maintain a reservist’s health coverage.

Types of coverage. Employers must offer COBRA beneficiaries the same coverage as they do to non-COBRA beneficiaries — usually the same plan that was in place immediately before the qualifying event. Any benefit changes for active employees will also apply to COBRA beneficiaries, who are entitled to the same coverage choices as all other employees, such as during periods of open enrollment.

Length of coverage. COBRA provides for up to 18 months’ coverage for qualifying events such as job termination or a reduced work schedule. Certain qualifying events, or a second qualifying event during the initial coverage period, may extend coverage to a maximum of 36 months. Employers may also provide coverage beyond COBRA maximums. Coverage begins on the date that benefits would otherwise have been lost because of a qualifying event. It may end earlier than the maximum period if the beneficiary does not pay premiums on time or if the employer stops offering any group health plan.

Coverage options. Health plans must provide COBRA beneficiaries the same plan and benefits as active employees. They can charge COBRA beneficiaries 100 percent of premium, plus a 2 percent administrative charge, for continuation coverage. Employers can choose to pay COBRA premiums, although few do so.

COBRA and Marketplace plans. Individuals and families who might qualify for health insurance tax credits might opt to buy coverage in the Health Insurance Marketplace instead. Being eligible for COBRA does not limit eligibility for coverage or a tax credit through the Marketplace.

COBRA-eligible employees and their dependents should be aware of changes the Affordable Care Act has made to insurance enrollment. Formerly, a person could buy individual market health coverage at any time. Now, individuals and families can buy coverage only during an open enrollment period.

If their COBRA coverage ends outside the open enrollment period, beneficiaries qualify for a special enrollment period. In the Marketplace, you generally qualify for a special enrollment period of 60 days following certain life events (for example, marriage or birth of a child) or loss of other health coverage. Job-based plans generally allow special enrollment periods of 30 days.

If beneficiaries decide to end their COBRA coverage early, they must wait until the next open enrollment before they can buy a Marketplace plan. Open enrollment for 2015 coverage begins November 15, 2014 and ends February 15, 2015.

Compliance Tip: Check your organization’s COBRA general notice. Your notice should contain a section stating that COBRA-eligible plan enrollees have the option to buy coverage in the Health Insurance Marketplace and discussing tax credits. If your notice doesn’t contain this wording, you can download an updated model notice from the U.S. Department of Labor at http://www.dol.gov/ebsa/publications/cobraemployer.html#COBRANoticeandElectionProcedures.