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COBRA is not going away

December 11, 2013

Article courtesy of SBAM Approved Partner ASE

By Anthony Kaylin

With Obamacare becoming truly functional, is COBRA necessary?

Through the public exchanges, terminated employees will have access to healthcare and quite possibly similar insurance at lower costs.  Moreover, employers don’t pay for COBRA, just the administration of it.  Therefore, it would seem that COBRA has run its course.  But Obamacare did not repeal the law and until it does, it is here to stay.

Basic COBRA Requirements

The Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA as it is affectionately known, has been a complex character in the scheme of employer/employee relations.  COBRA applies to employers who offer a group health plan and had 20 or more employees on at least 50% of their typical business days in the preceding year. Regardless of insurance or funding arrangements, group health plans subject to COBRA include, but are not limited to:

  • traditional indemnity insurance
  • health maintenance organizations (HMOs) and preferred provider organizations (PPOs)
  • cafeteria plans
  • flexible benefit plans
  • flexible health spending accounts
  • drug and alcohol treatment programs

COBRA does not apply to medical savings accounts and group health plans that offer only qualified, long-term care services.

COBRA Eligibility

To be eligible for COBRA coverage, qualified beneficiaries—employees, their spouses, and dependents—must have been enrolled in the employer’s health plan on the day before a qualifying event occurs. The health plan must continue for active employees after this qualifying event. “Qualifying events” are certain situations that would cause an individual to lose health coverage, such as the covered employee’s:

  • change in work status (such as a military leave of absence, a reduction in work hours, or a termination for reasons other than gross misconduct)
  • death
  • divorce or legal separation
  • enrollment in Medicare
  • loss of dependent-child status

The employer’s bankruptcy may also serve as a qualifying event.

Continued Coverage

Depending on the type of qualifying event, COBRA requires a maximum period of 18 to 36 months for continued coverage. For most qualifying events affecting an employee’s coverage—such as termination, reduction in work hours, or military leave—the maximum COBRA coverage period is 18 months. However, if an employee is disabled at the time of the qualifying event or becomes disabled within the first 60 days of COBRA coverage, continuation coverage may extend an 11 additional months for a total of 29 months.

Spouses and dependents faced with loss of coverage due to an employee’s death, enrollment in Medicare, or divorce or separation can elect up to 36 months of coverage. In addition, when an employee’s child ceases to meet a plan’s definition for dependent coverage, the maximum COBRA duration is 36 months. COBRA requires that retirees losing coverage due to an employer’s bankruptcy receive coverage until their death.  In such bankruptcy cases, the retired employee’s spouse and dependents may elect COBRA coverage until the earlier of their deaths or 36 months after the retiree’s death.

Assuming eligibility, the terminated employee must pay up to 102% of the premiums.  Disabled employees who extend COBRA for up to 11 months beyond the standard 18 months will pay up to 150% of the standard premium for additional coverage.

Why COBRA Doesn’t Go Away

Obamacare does not exclude pre-existing conditions, so employees can find policies without too much difficulty. So why doesn’t COBRA go away?

  1. COBRA vendors have no initiative to discontinue their business. And many employers do not require COBRA vendors to provide cost and benefit comparisons for current plan and those found on the local health exchanges.
  2. The public exchanges may not include the COBRA eligible participant’s insurance carrier. If the employee is happy with this insurance carrier and does not find it listed on the local health exchanges, there is no incentive to change.
  3. Even if the COBRA eligible participant wants to change, the carrier networks on the public exchange may not include the individual’s doctor network.
  4. A health exchange bases acceptance on income, age, smoking status, and geographical factors.   Subsidies make plans affordable on the exchanges. (To qualify for a subsidy, the participant’s income must be at or below four times the federal poverty level. In 2013, the amount is $45,960 for a single person, and $94,200 for a family.)  But if the COBRA eligible participant does not qualify for the subsidy, a COBRA elective will likely be a cheaper option.

So the pundits who state that COBRA will disappear with the implementation of Obamacare are most likely wrong.  COBRA is here to stay, and employers need to take this law — with all its complexities and requirements — as seriously as in the past.

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