When to Offer COBRA
To begin with, there are three requirements that need to be considered:
- Employee Count. An employer must comply with COBRA only if it has 20 or
more employees on 50 percent of its typical business days during the
preceding calendar year.
- Qualified Beneficiaries. In order to be eligible for COBRA an individual
must be a qualified beneficiary (QB). This refers to the employee, the
employees’ spouse or dependent child was covered by the group health plan on
the day before the qualifying event. HIPAA special enrollees are also
considered qualified beneficiaries.
- Qualifying Event. There are certain events which cause individuals to
lose coverage and these events also determine the length of time offered
The following events are defined by the regulations as being qualifying
events if they also cause a loss of coverage:
- Termination of Employment. This can either be voluntary or on
involuntary, as long as it is not due to “gross misconduct.”
- Reduction in Hours. The number of hours worked is now below the level
allowed on the health plan.
- Divorce or Legal Separation. When the employee legally divorces or
separates from a spouse, COBRA is offered to the spouse and dependents but
not the employee.
- Death of the Employee. The employee’s death is an event for the covered
spouse and dependents.
- Dependent Ceases to be a Dependent. Under the plan terms, a dependent is
no longer eligible for coverage.
- Medicare Entitlement. A covered employee becomes entitled to benefits
under Medicare although this is rarely a qualifying event due to the
Medicare Secondary Payer [MSP] rules.
- Bankruptcy. When an employer files for bankruptcy under Title 11, this
is only regarding health coverage for retirees and their families.
Finally, these are examples of when COBRA should NOT be offered:
- Changing provider contracts
- Legal Separation Without Loss of Coverage
- Family and Medical Leave Act
- Turning Age 65
- Terminating a Health Plan
- Voluntary Removal
- Terminating Coverage for a Class of Employees
COBRA & Dependent Children
COBRA regulations for dependent children can be confusing and we field many
calls from administrators about what must be offered to dependent children,
newborns, and adopted children in regards to COBRA coverage. Hopefully the
following will provide a better understanding on how to administrate COBRA for
children as beneficiaries.
It is important to remember that the term “dependent child” is not defined by
COBRA, but rather by the terms of the group health plan. Therefore the Cobra
term “dependent Child” is not to be confused with the terms “dependent” or “tax
dependent” which are used for federal tax purposes. For example, it is possible
that an individual living in the household might be a tax dependent and yet not
a Cobra qualified beneficiary because he or she is not a dependent child of the
covered employee. Furthermore, dependent children who are qualified
beneficiaries have COBRA rights separate from and independent of the covered
employees and spouses who are their parents.
There is one circumstance that allows a child to be a qualified beneficiary
regardless of whether that he or she is a dependent of the covered employee. For
example, a child is receiving benefits according to a qualified medical child
support order (QMCSO). A QMCSO creates the right of a child of a plan
participant to receive benefits under the participant’s group health plan. It
may be required that the health plan of a noncustodial parent provide coverage
for that child even though he or she is not considered to be a “dependent” per
the health plan’s definition. When a child is enrolled in a group health plan
under a QMCSO he or she is treated as a beneficiary for all purposes of ERISA
regardless of his or her status as a dependent of the covered employee.
In terms of adult children, if the group health plan provides coverage for
the children of their participants, then the coverage generally must be
available until the child turns age 26 regardless of their student status.
Furthermore, a child enrolling under this mandate must be treated as a HIPAA
special enrollee and be offered all of the benefits available to similar
individuals who did not lose coverage due to loss of dependent status.
Newborn and newly adopted children that are born to or placed for adoption
with the covered employee during COBRA continuation coverage are also considered
to be a qualified beneficiary. However, there is a limitation added per the IRS
COBRA regulation: If a covered employee who is a qualified beneficiary has not
elected COBRA coverage then any newborn or adopted child of the employee born or
adopted after the qualifying event is not a qualified beneficiary. It must be
pointed out, however that the meaning of this statue is somewhat unclear and may
be difficult to interpret in various scenarios. One thing is clear – the newborn
or newly adopted baby must be born to or adopted by the covered employee in
order to be a qualified beneficiary. For example, if a dependent child Mary
ceases to be a dependent and elects COBRA, then gives birth to a baby, that baby
would not be considered a qualified beneficiary.
As for a newborn or newly adopted child added at Open Enrollment, the
qualifying event giving rise to the period of coverage during which the child is
born or adopted determines the amount of remaining coverage. However, if there
is a second qualifying event, such as the death of the covered employee, then
the child’s COBRA coverage will be extended 36 months from the employee’s
termination date. A newborn child has the parent’s maximum coverage period and a
child is entitled to the same coverage as children of active employees. For
example, if the active employee is allowed to change coverage or add dependents
at subsequent open enrollments, then the newborn or adopted child must be
allowed to do so as well. Additionally, there are stipulations in the case of an
adopted qualified beneficiary with a dependent. For example, if 18 year old
Julie is adopted by an active employee during his COBRA coverage, but her
daughter Natalie is not adopted, then only Julie can elect coverage at that
time. However, at the next open enrollment Natalie can become covered, although
Natalie will not be considered a qualified beneficiary.
It must be noted that COBRA’S election rules (including the 60-day deadline)
do not apply to the children born or adopted during the COBRA continuation
period. They must be enrolled during either the plans’ special 30-day enrollment
period or some other period such as open enrollment. In summary although a
newborn or newly adopted child is automatically considered a qualified
beneficiary, the child is not covered until enrollment occurs. Because the IRS
COBRA regulations do not provide for a specific period in which a newborn or
newly adopted qualified beneficiary must enroll for COBRA coverage, special
caution and legal counsel should be taken before rejecting late enrollments.
Furthermore, because the plan administrator is not required to provide a
separate COBRA election notice for the newborn or adopted child, the rights of
these children should be clearly explained in the election notice that is
provided to the qualified beneficiary. The IRS regulation’s definition of
adoption or placement for adoption means, “The assumption and retention by the
covered employee of a legal obligation for total or partial support of a child
in the anticipation of the adoption of the child.” ERISA offers more guidance on
what “placed for adoption” means however plan administrators should note that a
child may be placed for adoption prior to the adoptive parents having physical
custody of the child. Typically when COBRA is elected coverage begins on the
date of the qualifying event. Because this rule cannot be applied to a newborn
or adopted child who becomes a qualified beneficiary during a COBRA continuation
period caused by another qualifying event, the plan administrator will need to
determine when the child’s coverage is effective.
Is Your Cafeteria Plan Ready for 2017?
Most employers have been receiving large rate increases over the last several
years from their insurance providers because medical trend is over 15%. In many
cases, the employer is forced to pass on the increase to employees. A good way
to minimize rate increases is to start a Cafeteria Plan. A Cafeteria Plan allows
employees to pay for their portion of premiums on a pre-tax basis. This lowers
their taxable base, therefore decreasing federal, FICA and most state's taxes.
Most employees (depending on their tax bracket) will see that a Cafeteria Plan
saves them 20% to 35% of their cost of premiums. Not only does the employee save
money but the employer sees a reduction in their FICA and other payroll taxes.
In addition to paying for premiums on a pre-tax basis, employees may set up
Flexible Spending Accounts (FSAs) to pay for items not covered by an insurance
plan (i.e. deductibles, copays, coinsurance, over the counter medication, etc.)
and even Dependent Care expenses. It is a win-win situation; both the employer
and employee save money in taxes.
COBRA Solutions offers Cafeteria Plan Manager software program that assists
employers with the administration of a Cafeteria Plan. Please visit our website
at www.cobrasolutions.com for
further information and a free 60-day no obligation demonstration version of
Cafeteria Plan Manager. It is an outstanding software program that will pay for
itself in the first few months, and the savings will continue for years. To see
what your firm may save by implementing a Cafeteria Plan, visit our site at
http://www.cafeteriaplanmanager.com and click the "Calculate Your