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From CBIA News, June 2002
SMALL BUSINESS
Know your obligations under COBRA
First employee notification due at time group coverage
begins
By Kerri M. Willis & Bruce B. Barth
Willis is an associate and Barth is a partner in the
Hartford Office of Robinson & Cole LLP
If your company provides group health insurance, you’ve no doubt
heard about COBRA. But you might not realize that your COBRA obligations
begin the same day an employee’s group coverage starts. And even
if your company is too small to fall under federal COBRA, a similar state
law affects companies of all sizes, except those that self-insure. Here
is a summary of what you need to know.
The federal Consolidated Omnibus Budget Reconciliation Act (COBRA) requires
employers to extend employees’ health insurance coverage (and the
health coverage of employees’ covered spouses and dependents) in
certain instances where an employee might otherwise lose coverage. An
employer is not required to pay the cost of this “continuation coverage,”
but COBRA does impose certain obligations that must be met.
An employer is required to offer a “qualified beneficiary”
who experiences a “qualifying event” the opportunity to continue
health insurance coverage for up to 18, 29 or 36 months, depending on
the type of event and any subsequent events that may occur and result
in a loss of coverage. Generally, a qualified beneficiary is a person
who is covered by an employer’s health plan on the day before the
qualifying event.
Qualifying events include the following events that cause an employee
or the employee’s spouse or dependent to lose coverage under the
plan:
- termination of employment or reduction in hours;
- divorce or legal separation;
- death;
- enrollment in Medicare;
- loss of dependent status under the plan; and
- for retired employees, filing of bankruptcy by the employer.
Continuation coverage must be the same coverage the qualified beneficiary
had on the day before the qualifying event. An employer can, however,
require the qualified beneficiary to pay the entire cost of any premiums.
An employer also may, and usually does, require the qualified beneficiary
to pay an additional 2% administrative fee.
Connecticut’s COBRA-like law affects employers of all sizes
While COBRA applies only to employers with 20 or more employees, any
group health insurance contract purchased in Connecticut, regardless of
the company’s size, must include continuation coverage requirements
virtually identical to those of COBRA. This means that a Connecticut employer
that has fewer than 20 employees and offers a group health plan that is
not a self-insured plan is subject to the insurance continuation requirements
imposed by Connecticut state law, even though that employer is not subject
to federal COBRA.
COBRA’s general notice
Under COBRA, a group health plan is required to give employees (and
covered spouses and dependents) written notice of their COBRA rights at
the time initial coverage begins under the plan or at the time the health
plan becomes subject to the COBRA requirements. This notice must set out
the employee’s (and a covered spouse’s or dependent’s)
right to continue coverage under the plan in the event the employee (or
a covered spouse or dependent) loses coverage due to a qualifying event.
Generally, an employer is considered to have made a “good faith
effort” to comply with the general notice requirement if the notice
is addressed to both the employee and the employee’s spouse and
is sent to the employee’s last known address by first-class mail.
General notice also must be provided to a new spouse who is added to the
plan. In-person delivery to the employee at work does not meet the notification
requirement for either the employee or the employee’s spouse.
Second notice
A second notice must be provided to a covered employee (or spouse or
dependent) when a qualifying event occurs. The notification time period
depends on the type of qualifying event, as follows:
If the qualifying event is a termination of employment, a reduction in
hours, entitlement to Medicare, the employee’s death or the employer’s
bankruptcy proceeding, the employer must notify the plan administrator
of the qualifying event within 30 days. The plan administrator then has
14 days in which to notify the qualified beneficiaries of their rights
to continue coverage under COBRA. (Note: Often, the employer is the plan
administrator; in this case, the employer/administrator has a total of
44 days in which to notify qualified beneficiaries of their continuation
rights.)
If the qualifying event is a divorce or legal separation or loss of dependent
status, the employee is responsible for notifying the employer of the
event within 60 days of the event. Once the employer has been notified,
the employer/plan administrator must notify the qualified beneficiaries
of their continuation rights within 44 days, as described above.
Any spouse who is a qualified beneficiary should receive a notice separate
from the notice sent to the employee. However, notice sent to the spouse
is treated as notice to any dependent children living with the spouse.
In addition, if the employee, spouse and any dependents live at the same
address, a single first-class mailing addressed to each qualified beneficiary
complies with COBRA’s notice requirements. Such mailing must either
include a separate election notice for each qualified beneficiary or identify
each separate qualified beneficiary and make clear that each qualified
beneficiary has an independent right to elect coverage.
Election of coverage
Qualified beneficiaries have 60 days from the later of either the date
coverage is lost or the date notice is provided to elect continuation
coverage. They may elect to continue coverage at any time during the 60-day
period and revoke any prior waiver of coverage, as long as the 60-day
election period has not expired.
Depending on how the plan documents are drafted, an employer may continue
a qualified beneficiary’s coverage throughout the 60-day period
and cancel it retroactively if continuation coverage is not elected, or
the employer may cancel coverage and reinstate it retroactively if the
qualified beneficiary does elect to continue coverage under the plan.
Employers must give qualified beneficiaries 45 days to make an initial
premium payment and must provide a 30-day grace period beyond the due
date for subsequent premiums.
Penalties
Employers that fail to comply with COBRA’s requirements are subject
to an excise tax of $100 per day for each qualified beneficiary who is
affected by the employer’s failure to comply. In addition, plan
administrators who do not comply with COBRA’s notice requirements
are subject to a fine of $110 per day for each qualified beneficiary who
is not notified. Also, a group health plan can be sued for COBRA violations,
and in the past courts have awarded attorney’s fees in connection
with these suits.
Note: If you have questions about COBRA or about CBIA’s
COBRA Administration Services, call 860–244–1900.
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