COBRA Continuation Coverage Explained for Employers

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is an important law that allows employees to elect to continue their healthcare coverage after a significant life event that causes them to lose their current job. COBRA was designed as a quick way to allow employees to continue their employer-offered healthcare. This blog will help you understand COBRA from an employer perspective, to make sure you remain compliant with this important federal rule. 

What is COBRA? 

COBRA affected healthcare insurers, employers, and workers. The law required an employer’s selected healthcare insurance carrier to offer temporary insurance coverage to a former employee. This coverage extends to whoever was covered by the employer health plan, including employees and spouses, and dependent children. 

What are COBRA Qualifying Events? 

According to the U.S. Department of Labor, COBRA kicks in if any of these events occur: 

  • The death of a covered employee. 
  • The covered employee loses their job through something other than gross misconduct or has a reduction in hours that affects health insurance. 
  • The covered employee qualifies for Medicare. 
  • The covered employee experiences divorce or a legal separation. 
  • A child loses their dependent status. 

If the employee experiences any of these scenarios, under the law, the employer must allow the worker to select healthcare continuation. The employee (or former employee) must pay the full cost of coverage plus a two percent administrative charge. Since many employers cover at least part of the costs of health insurance, this makes the COBRA option quite expensive for workers. 

What Types of Employers Must Follow COBRA? 

All healthcare plans maintained by employers in the private sector with 20 employees must follow COBRA. State and local government employers must also follow these rules. The law doesn’t apply to churches or church-related employers, or health plans sponsored by governments. Interestingly, many states have their own rules similar to COBRA, so the laws can get tricky in this area if you do business across state lines. 

What Does COBRA Insurance Cover? 

COBRA requires the same health insurance coverage for the employee; the difference is that they take on the costs. This includes: 

  • Inpatient or outpatient hospital treatments. 
  • Physician or ancillary care. 
  • Surgery or other types of major medical benefits. 
  • Prescription drugs. 
  • Dental and vision coverage. 

However, this does not cover life insurance or disability benefits. 

What is the Employer Responsible for if a Qualifying Event Occurs? 

The employer must notify the health insurance carrier if a qualifying event occurs. The healthcare plan isn’t required to do anything until they receive notification from your business. But even in this area, the law has stipulations. For example, the employer must notify the plan within 30-days if: 

  • There is an employee termination or hours reduction. 
  • The death of the covered employee occurs. 
  • The employer experiences bankruptcy. 
  • The covered employee is entitled to Medicare. 

However, the employee must notify the health insurance company if they get divorced or have a legal separation or if one of their dependent children is no longer dependent. 

Employers that fail to comply with these rules, even if it is an inadvertent error, can pay a high price; fines of up to $110 per day per covered employee along with the cost of any medical expenses that occur during this time. However, there is an alternative to lessen your risk.  

As an employer of record (EOR), FoxHire specializes is handling all of the complexities relating to hiring and termination. Talk with our team about how our services lessen your risk.