What is COBRA, and What Are The Top Questions Employers Ask About It?

What is COBRA, how does it work, and who is eligible? Benefits Advisor Bud Bowlin breaks down some of the top FAQs employers ask about COBRA.

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PEO Considerations

COBRA, or the Consolidated Omnibus Budget Reconciliation Act, is the source of many questions from our HR partners here at Zenefits. I thought that I’d give a brief review and try to address answers to some of the most frequently asked questions.

What is COBRA and who does it apply to?

In 1985, President Reagan signed the Bill, giving most employees and their dependents the ability to continue health insurance coverage after the insured employee leaves their job. However, only employers with 20 or more employees (both full or part time) are generally subject to the Bill.  Some states have passed laws to require Employers with fewer than 20 employees to provide coverage. These state laws are referred to as mini-COBRA. COBRA doesn’t apply to Federal Government sponsored plans or to churches and other religious oriented groups.

Who can utilize COBRA?

For employees to utilize COBRA, an employer’s health plan must be covered. Then a qualifying event must occur and the employee or dependents must be a qualified beneficiary.

  • Qualifying events for employees occur when the employee’s job is terminated for any reason other than gross misconduct or if the employee loses coverage due to a reduction in hours worked.  
  • Qualifying events for dependents occur when an Employee becomes covered by Medicare.  
  • If an employee dies or becomes divorced then the qualified dependents are entitled to COBRA benefits.
  • With passage of the Affordable Care Act allowing children to stay on health plans until age 26, those children are also eligible for COBRA benefits when they lose coverage due to age.

How long is COBRA typically offered?

COBRA benefits last either 18 or 36 months (unless state law mandates differently).

  • If the qualifying event is termination or reduction of hours, then length of benefits is 18 months.
  • For other qualifying event, such as death or divorce, beneficiaries are covered for 36 months.

Who pays for COBRA?

Employees and dependents are required to pay for benefits during the extension period. An insurance company, employer or administrator can charge up to 102% of the “normal” monthly premium for benefits.  The 2% difference is considered an “admin” fee. However, by law the benefits must be identical to those currently in force at the company.

What’s a common problem employers or employees experience with COBRA?

Having been around since this law was passed, one of the most common misunderstandings about COBRA is what happens to people with COBRA coverage when the employer goes out of business or discontinues the health plan. The answer: They lose coverage just like the current non-COBRA employees. In order to provide continuation, you must have a plan to continue. No plan, no COBRA.

How can I get started with COBRA?

Zenefits provides COBRA administration to its clients that are COBRA eligible. One of the most important compliance aspects under the law is employee notification of COBRA eligibility, which employers are required to execute within 30 days. This notification is a feature of our free Zenefits HR software. For even more FAQs, customers can visit our COBRA help center page or google FAQs about COBRA continuation health coverage at the US Department of Labor.  And as always, if you don’t have a modern broker… get one!

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