COBRA Procedures

The Compliance Office administers all COBRA compliance functions and communications on your behalf if related events are reported to us timely and accurately through the TCO/BPM System.  This section is provided to assist you in identifying situations which require reporting and comprises your COBRA Procedures Manual.  Please contact The Compliance Office if you have any questions concerning COBRA compliance issues.

COBRA is legislation primarily directed at employers. Thus employers, and not their insurers or The Compliance Office (TCO), are primarily liable for COBRA violations. Therefore it is critical for you to review this COBRA Procedures Manual regularly to ensure that your plan, your service providers and, or, insurers are handling COBRA properly.

TCO provides you with the tools necessary to remain compliant and performs the mandated compliance steps on your behalf.  If you provide TCO with the information necessary to keep you compliant and do so in a timely manner, TCO will indemnify you against any damages assessed to you due to TCO's failure to perform as promised.

The procedures detailed here and under the Important Tasks section of your custom administration home page not only instruct you on how to communicate necessary information to TCO but also teach you how to identify potential events, referred to as Qualifying Events (QEs), about which you must notify TCO.  While routine QEs, such as terminations of employment, are well known, there are many other QEs and Second QEs that this section also addresses.

If you do not find answers to your COBRA questions here please immediately contact the TCO Compliance Officer for assistance.

History of COBRA Laws and Regulations

Employers And Plans Covered By COBRA

Determining Number of Employees For COBRA Purposes

Defining A Group Health Plan

History of COBRA Laws and Regulations

"COBRA" was a component of the Consolidated Omnibus Budget Reconciliation Act of 1985 from which it gets its name. COBRA became law when it was signed by President Reagan on April 7, 1986

On June 15, 1987, the IRS issued Proposed Regulations under COBRA which filled in some of the gaps in the statute, interpreted the statutory provisions, and imposed additional administrative obligations on employers.  Certain changes to COBRA have been made through amendments contained in The Tax Reform Act of 1986 ("TRA"), the Technical and Miscellaneous Revenue Act of 1988 ("TAMRA"), the Revenue Reconciliation Act of 1989 ("REVRA"), the Omnibus Budget Reconciliation Act of 1990 ("OBRA"), the Small Business Job Protection Act of 1996 ("SBJPA"), and the Health Insurance Portability and Accountability Act of 1996 ("HIPAA").

The IRS issued a revised and updated set of Proposed Regulations on January 7, 1998.  On February 2, 1999, the IRS issued the Final Regulations based upon the Proposed Regulations interpreting the COBRA continuation coverage requirements published in June 1987 and January 1998. The Final Regulations reflect the statutory amendments to COBRA mentioned above and are effective as of January 1, 2000. A new set of Proposed Regulations addressing additional issues and to fill in the gaps reserved in the Final Regulations under COBRA were also published on February 2, 1999.

On January 10, 2001, the IRS issued the second set of Final regulations for COBRA. The 2001 Final Regulations supplement the 1999 Final Regulations while providing guidance on several new issues and make changes to issues addressed in the 1999 Final Regulations.

On May 28, 2003, the Department of Labor published proposed regulations providing new model notices and imposing new requirements on plan sponsors and administrators. These regulations were finalized May 26, 2004 and were applicable on or after the 1st day of the 1st plan year beginning on or after the date that is six months after May 26, 2004. In other words, the final rules are enforceable for the first plan year after November 26, 2004.

Employers And Plans Covered By COBRA

• Plans In Their First Calendar Year - In the first calendar year of an employer's existence, COBRA does not apply, because the employer did not have any employees in the preceding calendar year.
   
• Small Employer Plans - A small employer plan is a group health plan maintained by an employer that normally employed fewer than 20 employees on at least 50 percent of its "typical business days" during a particular calendar year. All full-time and part-time (counted fractionally) common law employees are counted. Employees of related companies are grouped together for purposes of this rule.
   
• Church Plans - A church plan is a plan that is established and maintained for its employees by a church or by a convention or association of churches which is a tax-exempt entity under Internal Revenue Code Sec. 501.
  
  A church plan does not include: (1) a plan which is established or maintained primarily for the benefit of employees of a church or convention or association of churches who are employed in connection with one or more unrelated trade or businesses, or (2) a plan that includes less than substantially all individuals who are employees of the church or convention or association of churches.
  
  Generally, church plans are not subject to COBRA continuation provisions. Employers who believe they have a church plan should review the facts and circumstances to determine whether the Plan Administrator is controlled or associated with a church and whether the plan is maintained for a group of employees which is substantially all church employees. Please note that the term "substantially all" is often interpreted to mean at least 85%.
   
• Governmental Plans - State or Local Government Plans are subject to the Public Health Service Act ("PHSA") which is a parallel continuation coverage program to COBRA. Federal Employees are subject to requirements which are similar, but not parallel to COBRA.

Determining Number of Employees For COBRA Purposes

All full-time employees count in the determination process.  Part-time employees are counted as a fraction of an employee, with the fraction equal to the number of hours that the part-time employee works for the employer divided by the number of hours that an employee must work for the employer in order to be considered a full time employee.⁽¹⁾

Those Not Counted:

• Self-employed individuals, including partners, LLC members and sole proprietors
• Independent contractors⁽²⁾
• Non-employee directors of a corporation

Foreign Members of Employers’ Controlled Groups

The Final Regulations provide that foreign members of an employer’s controlled group of corporations are taken into account when determining whether the employer qualifies for the small employer exemption.

Therefore, small U.S. employers who have foreign controlled group members must take the employees of those foreign controlled group members into account when determining if they are eligible for COBRA’s small employer exemption.

Multi-Employer Health Plans

The Final Regulations provide that, in the case of a multi-employer health plan (defined as a collectively bargained plan to which more than one employer is required to contribute), a small employer plan is a plan under which each of the contributing employers normally employed fewer than 20 employees on at least 50% of their typical business days during the preceding calendar year.

Important Notice: It is solely the employer's responsibility to determine if they are subject to COBRA.  All employers who think they may qualify for COBRA’s small employer exemption should:

• Review their facts against the Final Regulation's small employer exemption rules.
• If they qualify for the small employer exemption under these rules, cease any current COBRA compliance, after appropriate written notice to affected individuals.
• If they do not qualify for the small employer exemption under these rules, become familiar with the details of, and apply, the "fractional employee rule" of the new Proposed Regulations to see if the application of that rule permits them to qualify. If it does, cease any current COBRA compliance, after appropriate written notice to affected individual.
• If they qualify for the small employer exemption (either with or without utilizing the fractional employee rule), establish a monitoring process that will re-check their facts each year to determine whether they cease to qualify for the exemption at some point in the future.
• If they do not qualify for the small employer exemption, even after utilization of the fractional employee rule, establish a monitoring process that will re-check their facts each year to determine whether they qualify for the exemption at some point in the future.

What is A "Group Health Plan"

Under COBRA, a group health plan is any plan maintained or contributed to by an employer (or a union-sponsored plan) to provide health care to employees, former employees, or the families of such employees or former employees. This broad definition includes all types of arrangements for the provision of health care, such as:

• Traditional indemnity plans,
• HMOs and PPOs,
• Specialty plans such as dental, vision, and cancer plans,
• Employee assistance plans that provide coverage and not simply referrals,
• Certain on-site health care facilities,
• Health care Flexible Spending Accounts which meet certain requirements,
• Supplemental health plans for executives, and
• Some individual plans offered through an employer.

As stated above, all group health plans of employers, with certain exceptions, are affected by COBRA. This is true regardless of whether the group health plan is insured, self-funded, or funded through a trust. Also, this is true regardless of whether the plan's costs are paid by the employer, the employees, or a combination of both, and regardless of whether the plan is a single employer plan, a multiple employer plan, or a multiple employer welfare association (MEWA).

However, the following plans are not considered to be group health plans and therefore are not subject to COBRA:

• A plan which provides health-related coverage to an employee regardless of health status in order to promote good health, but is not designed to relieve a specific health problem or illness is not considered a group health plan.
• A plan or program which is just merely beneficial to the general health of the individual, such as a vacation plan.
• On-site facilities that provide first aid treatment are not subject to COBRA if they provide facilities for first aid during an employer’s working hours and are available only to current employees free of charge.
• A plan that is substantially a qualified long-term care services plan.
• Amounts contributed by the employer to a Health Savings Account (HSA). However, a high deductible health plan does not fail to be a group health plan subject to COBRA merely because it covers an HSA holder

Employers who are unsure if any of their health-related programs are COBRA-governed should consult with counsel.

COBRA Notices and Other Communications

The Initial HIPAA Notice

The Initial (or General) COBRA Notice

The COBRA Election (or Initial Qualifying Event) Notice

HIPAA Certificates of Creditable Coverage

COBRA rules require that an Initial COBRA Notice be furnished to each covered employee and covered spouse not later than:

• 90 days after the employee (and spouse, if any) first becomes covered under the plan, or
• The first date upon which the plan administrator must furnish an election notice to the employee, spouse, or dependent

This notice informs the recipient of the general outline of COBRA and specifically informs the recipient about certain of COBRA's detailed rules which could apply if the recipient loses group health coverage at some later date.

Most importantly, the Initial COBRA Notice’s description of these detailed rules includes a discussion of the recipient's obligations under COBRA, including informing the Plan Administrator of certain events and of address changes.

Not to be confused with a Qualifying Event (QE) Notice, which is sent when a covered individual has a QE, the Initial COBRA Notice informs the recipient of the general outline of COBRA and specifically informs the recipient about certain of COBRA's detailed rules which could apply if the recipient loses group health coverage at some later date.

Most importantly, the Initial COBRA Notice’s description of these detailed rules includes a discussion of the recipient's obligations under COBRA, including informing the Plan Administrator of certain events and of address changes.

For instance, in the Initial COBRA Notice, spouses are told that if they divorce and lose plan coverage, they can continue coverage under COBRA, but only if they notify the employer within 60 days of the divorce. A properly notified, divorced spouse who doesn't inform the employer of the divorce within 60 days may be denied COBRA coverage.

Conversely, the employer cannot hold the divorced spouse to this 60-day notice period if the employer didn't properly send the Initial COBRA Notice to the spouse.

Thus, employers need to be especially careful to send Initial COBRA Notices to all covered spouses when they first become covered by the plan, including those spouses added to an employee's group health plan coverage after the date that the employee is first covered by the plan.

The Initial Notice must contain the following information:

• The name of the plan
• Name, address and telephone number of a party or parties from whom additional COBRA information may be obtained
• A general description of the continuation coverage under the plan
• Identification of the classes of individuals who may become qualified beneficiaries (QB)
• Types of qualifying events
• The obligation of the employer/plan sponsor to notify the plan administrator of the occurrence of certain qualifying events
• Maximum period for which continuation coverage may be available
• The circumstances under which continuation coverage may be extended
• The plans requirements applicable to payment of premiums for COBRA
• An explanation of the plan’s requirements regarding the responsibility of a qualified beneficiary to notify the administrator of a divorce, legal separation, or a child ceasing to be a dependent under the terms of the plan and a description of the plan’s procedures for the QB providing such notice
• An explanation of the plan’s requirements regarding the responsibility of qualified beneficiaries who are receiving COBRA to provide notice to the plan administrator of a Social Security Administration determination that a QB is disabled, and a description of the plan’s procedures for providing such notice
• An explanation of the importance of keeping the plan administrator informed of current addresses of all participants
• A statement that the notice does not fully describe COBRA or other rights and that more complete information is available from the plan administrator and the Summary Plan Description (SPD) or Certificate of Insurance
   

This Manual reflects all changes and updates that are currently effective.

This page is dynamic in nature and is often affected by case law more than legislation. You will be notified of any changes to these pages by a special email alert.

^{(1) The number of hours that an employee must work for the employer in order to be considered a full time employee varies by state.  For example in Texas the number is 30 hours per week.}

^{(2) Independent Contractors do not count unless the plan allows for Independent Contractor participation in the plan.}