All about COBRA: 4 FAQs consumers need to know
When it comes to the loss of job-based health insurance, employees have two options: buy a plan through the marketplace or sign up for COBRA coverage.
With a volatile economy, workforce changes and personnel cutbacks due to COVID-19, this year has been exceptionally challenging for many businesses and their employees. The Bureau of Labor Statistics this year reported a record high unemployment rate of 14.7% — the highest numbers since the Great Recession.
With millions of Americans filing for unemployment, many fear the risk of losing quality health care benefits amidst a pandemic. When it comes to the loss of job-based health insurance, employees have two options: buy a plan through the marketplace or sign up for COBRA coverage.
Related: COVID-19 and the uninsured rate: What’s the deal?
When the Affordable Care Act went into effect in 2010, many saw a trend of furloughed or laid off employees favoring purchasing a health plan through the marketplace, as it is significantly more affordable compared to a COBRA continuation plan. But, for those employees wanting to keep the same benefits, COBRA may be the better option for them. Many healthcare benefits administrators, such as Sterling Administration, are seeing an enormous uptick in COBRA inquiries due to a rising unemployment rate.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that requires employers with 20 or more employees to offer their staff who lose their health benefits due to a qualifying event the ability to pay their premiums out of pocket. Companies with less than 20 employees are not subject to the rule.
Since the employer is not responsible for paying, it becomes the employee’s responsibility to identify health care benefits in the event they become laid off or terminated.
As open enrollment quickly approaches, many are seeking out more information on these continuation plans. Most importantly, they’re relying on their administrators to be highly responsive when it comes to significant changes to their benefit plans or compliance rules.
What employment changes could trigger COBRA coverage?
This year many employers have had to make difficult decisions when it comes to their businesses. Decisions such as reducing hours for employees, furloughs and terminations have been top of mind for many.
In the event that an employee faces job loss or significant reduction of hours, the participant and their beneficiaries may be eligible for COBRA enrollment. Generally, both full-time and part-time employees are eligible for this plan. Each state has varying rules for COBRA eligibility based on how long employees were enrolled in coverage before the qualifying event.
Qualifying events include termination of employment, reduction of hours, termination of employee beneficiary or dependent and/or divorce or legal separation.
How long can an employee be enrolled in a COBRA plan?
The duration of COBRA coverage depends on whether the plan impacts the employee or the qualifying beneficiaries and the type of qualifying event.
Employees are eligible for either 18 months or 29 months of coverage. Spouses and/or dependent child(ren) are eligible for 36 months.
Election Notices – 14-day requirement: Any termination of employment, absent carrier exception, requires employers to send COBRA election notices to affected employees within 14 days of termination or furlough.
What happens if a company shuts down?
For some businesses, recovering from a large financial loss due to the pandemic has been a difficult feat. According to a research study done the National Bureau of Economic Research, more than 100,000 small businesses in the country have permanently closed down.
In the event of a business completely shutting its doors, a COBRA plan is no longer available. The employee and/or qualifying beneficiaries can seek other coverage through the marketplace exchange, however.
How long after a qualifying event does an employee have to enroll?
After a qualifying event occurs, participants have 30 days to notify a COBRA administrator. Once the administrator is made aware of the event, they have 14 days to notify qualifying beneficiaries about their right to elect COBRA coverage.
In previous years, COBRA hasn’t played a big role in overall health insurance and benefits planning. But, with ongoing uncertainty, human resource teams and their benefits administrators should be prepared to talk about this rule and how it applies to their employees.
Jeff Strong is vice president of sales at Sterling Administration.
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