During the employee’s final days with the employer, the HR department should remind the employee of his or her rights to continued health insurance coverage under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA). COBRA generally requires that group health plans sponsored by employers with 20 or more employees offer employees and their families the opportunity to extend health coverage for 18 months after the employee loses the job. COBRA coverage is not automatic, and it is not free. Employers and employees must both comply with certain deadlines to activate the right to continued health insurance following an employee’s discharge or resignation. The employee is required to pay the premiums, which are generally much higher than the contribution the employee made while employed by the company because the employer is no longer contributing a portion of the cost.
There are generally five deadlines that must be followed to activate COBRA benefits: the 90-day rule, the 30-day rule, the 14-day rule, the 60-day rule, and the 45-day rule, which are summarized below.
The 90-Day Rule
Employers should inform employees about their COBRA benefits at least twice during the course of their employment – once when the health insurance coverage begins and once when it ends as a result of their termination or resignation. COBRA requires insurance plan administrators to give employees and their spouses an initial notice of their COBRA rights as soon as they become eligible to participate in the plan. Thus, the initial notice should be dispatched to employees and their spouses as soon as the employee is hired, or as soon thereafter as health insurance is provided. The absolute deadline for giving notice is 90 days after coverage begins. Notice should be given in writing by the plan administrator to the employee, but if the employer administers its own health insurance plan, then the employer itself must give written notice of COBRA rights to its employees.
The 30-Day Rule
Employers must notify their health insurance plan administrators within 30 days after an employee’s termination that causes an employee to lose health benefits. Under federal law, the voluntary or involuntary termination of employment, a reduction in hours, the death of an employee, and the employee’s eligibility for Medicare are all qualifying events that trigger the employer’s obligation to notify its insurance plan and to initiate the COBRA coverage continuation process.
The 14-Day Rule
The insurance plan administrator must provide notice to individual employees of their right to elect COBRA coverage within 14 days after the administrator has received notice from the employer of the employee’s discontinuation of employment. Notice can be provided in person or by first class mail.
The 60-Day Rule
Once an employee receives the notice of the right to elect COBRA coverage from the employer’s insurance plan administrator, the employee must elect COBRA coverage within 60 days. The 60-day rule requires an employee to file COBRA paperwork within 60 days after the date the plan coverage terminates or within 60 days after the date of the notice to the employee, whichever is later.
The 45-Day Rule
Within 45 days after electing COBRA coverage, the employee must pay the initial premium. The amount of the payment will depend on the premium rate and the period of coverage from the date of COBRA election retroactive to the date of the loss of coverage.(COBRA premiums were temporarily reduced under the American Recovery and Reinvestment Act of 2009 (ARRA). Eligible individuals were permitted to pay only 35 percent of their COBRA premiums and the remaining 65 percent was reimbursed to the insurance provider through tax credits. The premium reduction applied to periods of health coverage beginning on or after February 17, 2009, and continued for up to nine months for those eligible for COBRA during the period beginning September 1, 2008, and ending December 31, 2009, due to an involuntary termination of employment that occurred during that period). If premiums are not paid by the first day of the period of coverage, the plan has the option to cancel coverage until payment is received and then reinstate coverage retroactively to the beginning of the period of coverage.
Model Notice Forms
Many employers and insurance plan providers use standardized forms for giving employees initial notice of their COBRA rights and then advising them of their right to elect COBRA continuation coverage upon discontinuation of employment. The Employee Benefits Security Administration of the U.S. Department of Labor publishes two model notice forms for use by single-employer group health plans. The first of these forms is a general notice to employees of their COBRA rights, to be given to employees when coverage first commences. The second of these forms is a model election notice, to be delivered to employees under the 14-day rule, once the employer has notified its plan administrator of the employee’s resignation or termination from employment.