COBRA is a federal law appearing in three places: the Employee Retirement Income Security Act (ERISA); the Internal Revenue Code (Code); and the Public Health Service Act (PHSA).
These laws allow qualifying employees who lose their health benefits through termination or a “qualifying event” to continue with the group health plan for a limited time. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) says that any company with 20 or more employees must offer a “temporary continuation” of group health and Section 125 benefits.
Compliance with COBRA statues is a huge administrative burden for many companies and it comes with the threat of stiff legal penalties. Rocky Mountain Reserve offers COBRA Administration services to reduce the risk of non-compliance and dramatically simplify HR paperwork.
What Employers Are Subject to COBRA?
Most group health plans of private and public employers are required to comply with COBRA. Some church plans and federal government plans are exempt, as well as small employers with fewer than 20 employees during the previous calendar year.
Note Regarding State Laws. Many states have health continuation coverage laws. Employers need to be aware of state-law requirements that may affect their business or their health plans, in addition to the obligations imposed by COBRA. The COBRA services from Rocky Mountain Reserve include management of state and federal laws.
What Plans Are Subject to COBRA?
Group Health Plans: COBRA applies to nearly all plans that provide medical care and are maintained by the employer. The term “medical care” has a broad definition in the law. It includes medical, dental, vision, and drug treatment coverage.
Example: Health and Life Insurance. An employer covers all employees under a medical plan and group term life insurance. When an employee quits, he or she may elect to continue coverage under only the medical plan. The employee has no right under COBRA to continue group term life insurance because it is not medical care. (Note, however, that some state laws give employees the right to continue group term life insurance.)
Certain plans that provide for long-term care services are not considered group health plans and are not subject to COBRA – even when they provide for benefits that include medical care.
Plans Subject To COBRA:
- plans for which an HMO provides the medical services;
- group insurance plans in which employees pay the premiums;
- treatment programs and clinics maintained by employers;
- self-insured medical reimbursement plans;
- employee assistance programs;
- health flexible spending accounts;
- health reimbursement arrangements (HRAs);
- discount programs; and
- wellness programs.
Caution: Some Voluntary Plans Are Subject to COBRA. Some employers offer their employees voluntary employee-pay-all medical insurance programs, in which the employers have minimal involvement (such as allowing the insurer to contact employees during working hours, collecting employee premiums and remitting them to the insurer, and similar activities). These arrangements can be subject to COBRA, and employers should get advice before encouraging or allowing them; otherwise, employers can be left with COBRA obligations and no corresponding insurance coverage.