COBRA Administration

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) is the federal health care continuation law. COBRA requires group health plans to offer continued health care coverage to certain former employees, retirees, spouses, and dependent children. The length of continuation coverage offered depends on the "qualifying event."

Any employer who employed 20 or more employees on at least 50% of its typical business days during the preceding calendar year must comply with COBRA. Employers with fewer than 20 employees are granted a small employer exemption and are not subject to COBRA. Only common-law employees are counted in determining the number of employees to qualify for a small employer exception. For all plan years on and after January 1, 2000, independent contractors, self-employed individuals, or members of a corporation's board of directors are not counted as common-law employees. Part-time employees and employees working outside the United States must be counted.

What is a qualifying event? Qualifying events are certain types of events that would cause, except for COBRA continuation coverage, an individual to lose health coverage. The type of qualifying event will determine who is entitled for continuation coverage and the required amount of time that the plan must offer the health coverage under COBRA.

A COBRA qualifying event is any of the following that causes a covered employee or qualified beneficiary to lose coverage:

1. Death of covered employee.

2. The termination, voluntary or involuntary (other than for gross misconduct), of the covered employee's employment.

3. Loss of eligibility due to a reduction in hours of the covered employee's employment.

4. The divorce or legal separation of the covered employee from the employee's spouse.

5. The covered employee becomes entitled to benefits under Title XVIII of the Social Security Act.

6. A dependent child ceasing to be a dependent child under the generally applicable requirements of the plan.

7. Bankruptcy reorganization under Title 11 for persons with retiree coverage if it causes a substantial loss of coverage within one year before or after filing.

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The length of time that one is entitled to COBRA coverage depends on the qualifying event:

COBRA Coverage Maximums

Extensions may be granted for multiple qualifying events, disability and covered employee's Medicare entitlement.

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The employer is responsible for notifying employees and their qualified beneficiaries of their COBRA rights when they first become covered under the group health plan. Subsequently, employers must re-notify employees and qualified beneficiaries when there is a COBRA qualifying event that leads to a loss of health plan coverage or other events related to COBRA continuation coverage, and provide them with the option to elect COBRA coverage.

Employers have 14 days from the date the employee or qualified beneficiary notifies you of a qualifying event to send out a COBRA Election Notice. Qualified beneficiaries have a 60-day period to elect whether to continue coverage. This period is measured from the later of the coverage loss date or the date the notice to elect COBRA coverage is sent.

It is the employer's responsibility to be in compliance with all COBRA regulations including initial notifications, sending election forms, etc. However, you may contract with ISEBA to handle certain aspects of your COBRA administration. This service is available for an additional fee and will require you to complete a special COBRA services agreement with ISEBA. Please  notify ISEBA if you are interested in utilizing this service.

ISEBA can administer COBRA billing two ways:

1) Group Billed

Employers have the option of self-administering COBRA billing, in which case, the employer is responsible for the billing and collection of monthly premiums. The COBRA participant should remain on the group's monthly invoice. The employer should remit the COBRA premium as part of the monthly total premium payment for the entire group.

2) Direct Billed

The direct billed option eliminates the employer's need to be involved in any type of premium collection. The employer should remove the qualified employee from the invoice, using the end of the month in which the qualifying event occurred as the termination date.

If the qualified individual elects COBRA, a completed COBRA election form is required to enroll the employee in our billing system. A monthly billing statement will be sent directly to the COBRA participant's home address. The initial premium payment must be made within 45 days after the date of the COBRA election by the qualified beneficiary. Payment must cover the period of coverage from the date of COBRA election retroactive to the date of the qualifying event.

After the initial COBRA payment, premiums are due on the first of each month, subject to a 30-day grace period. Employers will be notified of all COBRA participants who fail to remit payment timely.

If you choose the direct billed option, you will need to complete a special COBRA service agreement. Please note this option only pertains to COBRA billing administration. It is still the employer's responsibility to administer COBRA and determine maximum coverage periods, notify participants of rate changes, process COBRA terminations, etc.

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  Last updated: Thursday, August 19, 2004  Page: 

This information is not intended for use without professional advice. While we have attempted to make this site as accurate as possible, it is only a summary. For more information, see our disclaimer.

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