INSURANCE

The Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA, is a law passed by the U.S. Congress and signed by President Reagan that, among other things, mandates an insurance program giving some employees the ability to continue health insurance coverage after leaving employment. COBRA includes amendments to the Employee Retirement Income Security Act of 1974 (ERISA). The law deals with a great variety of subjects, such as tobacco price supports, railroads, private pension plans, disability insurance, and the postal service, but it is perhaps best known for Title X, which amends the Internal Revenue Code to deny income tax deductions to employees for contributions to a group health plan unless such plan meets certain continuing coverage requirements.

Although this statute became law on April 7, 1986, its official name is the Consolidated Omnibus Budget Reconciliation Act of 1985 (Pub.L. 99-272, 100 Stat. 82). Because of the discrepancy between the official name of the Act and the year in which it was enacted, some government publications refer to the Act as the Consolidated Omnibus Budget Reconciliation Act of 1986. The Act is often referred to simply as "COBRA".

Title X of the Act provides that a qualifying employer will not be permitted to take a tax deduction for its health insurance costs unless its health insurance plan allows employees of the employer and the employee's immediate family members who had been covered by a health care plan to maintain their coverage if a "qualifying event" causes them to lose coverage. A qualifying employer is generally an employer with 20 or more full time equivalent employees.

Among the "qualifying events" listed in the statute are loss of benefits coverage due to:

• The death of the covered employee.
• An employee loses eligibility for coverage due to termination or a reduction in hours as a result of resignation, discharge, layoff, strike or lockout, medical leave, or slowdown in business operations.
• Divorce or legal separation that terminates the ex-spouse's eligibility for benefits.
• A dependent child reaching the age at which he or she is no longer covered.

COBRA imposes different notice requirements on participants and beneficiaries, depending on the particular qualifying event that triggers COBRA rights.

COBRA also allows for coverage for up to 18 months in most cases. If the individual is deemed disabled by the Social Security Administration, coverage may continue for up to 29 months. In the case of divorce, coverage may continue for up to 36 months.

COBRA does not apply, on the other hand, if employees lose their benefits coverage because the employer has terminated the plan altogether or if the employer has gone out of business.

COBRA does not, unlike other federal statutes such as the Family and Medical Leave Act (FMLA), require the employer to pay for the cost of providing continuation coverage. Instead it allows employees and their dependents to maintain coverage at their own expense by paying the full cost of the premium the employer previously paid, plus up to a 2% administrative charge (50% for the latter 11 months under the disability extension).

Employees and dependents can also opt for a lesser form of coverage, e.g., to choose continuation coverage under a plan that only covers the employee, but not his or her dependents, or that only provides medical and hospitalization coverage and does not pay for dental work, if those options are available to covered employees.

Employees and dependents lose coverage if they fail to make timely payments of these premiums. Employers are required to inform employees and dependents upon loss of coverage, in writing, by at least fifteen days before the coverage ceases.

See, for more information: US Department of Labor website COBRA FAQ and COBRA Information Resource Guide