Losing their jobs can be a big financial hit for employees, but losing health benefits can be catastrophic. But the U.S. government has passed the Consolidated Omnibus Budget Reconciliation Act, commonly called COBRA, which gives some terminated workers the right to temporarily – for 18 months – continue participating in their former employer's group health plan.
However, just because your company picks up all or part of the cost for covered employees, it doesn’t have to continue paying its part for departed employees. They will have to carry the entire load of health insurance themselves, and you're allowed to add a 2 percent administrative fee.
What Are the Key Rules Under COBRA?
Your company comes under COBRA's provisions only if it has 20 or more employees. And each employee's qualifications under COBRA depends on his or her employment status, as explained below.
COBRA extends to former employees, retirees, spouses (current and former) and dependent children. These folks are eligible for COBRA only if the employee was terminated from his job or had his hours reduced for a reason other than gross misconduct. (There are some subtleties here, so check the guidance in the booklet noted below.)
If any of your employees qualify for COBRA, they must receive the same health care benefits they received when they were gainfully employed. Whatever changes you, the employer, make to the plan apply to COBRA participants as well.
COBRA begins the day an employee otherwise would have lost health care coverage and usually lasts for 18 months. If an employee or a member of your family is disabled, coverage may be extended to 36 months. However, the Social Security Administration must agree that the employee is legitimately disabled and the premium costs are allowed to rise 150 percent for the extension.
An employee must make payments to COBRA within 45 days of the date he or she elected to participate and then at intervals set within the plan. If the account is more than 30 days past due, the plan can cancel coverage until the employee sends a check.
These are just the basics; there are a lot more details in our free guide, The Employer's Guide to COBRA.