By Kylie Artz, Trüpp.
COBRA and State Continuation benefits coverage are aspects of the benefits offering that employers are often aware of, but don’t truly understand. Employers should be familiar with both options and aware of their responsibilities regarding continued coverage.
What is COBRA?
COBRA stands for Consolidated Omnibus Budget Reconciliation Act. Generally, companies with 20 or more employees are subject to COBRA, which provides individuals the option to temporarily continue their benefits coverage after experiencing a Qualifying Life Event such as separating from their company or losing eligibility for benefits. COBRA coverage can also extend to relevant dependents who would also lose their benefits coverage.
While a company may be required to offer COBRA coverage, the COBRA enrollee is responsible for payment of 100% of the premium. A company can choose to apply up to a 2% administrative charge where the enrollee then pays 102% of the premium cost.
What is State Continuation?
State Continuation coverage is similar to COBRA, but generally applies to companies with less than 20 employees who are not subject to the Federal program. Each state has slightly different rules surrounding State Continuation coverage. For example, in some states it can be used after COBRA benefits have been exhausted and in others an individual must be able to continue their coverage until Medicare eligibility age is reached.
For specifics on State Continuation in the states where you have employees working, it is recommended that you contact the state directly to ensure you understand who needs to be offered State Continuation coverage and what the specific noticing requirements are for that state.
Third-Party Administrators. For either COBRA or State Continuation coverage, a company can enlist the support of a Third-Party Administrator (TPA). The level of service of each TPA for COBRA/State Continuation varies drastically and can be as basic as just providing appropriate notices. On the other hand, some TPAs will handle everything including premium payments, enrollments with carriers, and tracking of eligibility, only requiring a company to provide relevant employee information. Most payroll companies, HRIS systems, and benefits administration portals offer some version of COBRA/State Continuation services. If you are interested in having a TPA for your COBRA or Continuation administration, those resources may be a good place to start.
What are the employer responsibilities for COBRA/State Continuation?
Verify if your company is subject to COBRA or State Continuation. You should also verify State Continuation requirements even if you are subject to COBRA due to the fact that different states have different rules.
Understand the required notices.
- Initial COBRA Rights Notice: Employees that enroll in certain benefits will need to be provided an Initial COBRA Rights Notice, letting them know that the plan they have elected to participate in is subject to COBRA rules and can be continued if they experience a Qualifying Life Event. The notice also explains that dependents may also be eligible for continuation of their benefits coverage under certain circumstances. This Initial COBRA Rights Notice must be provided to employees within 90 days of enrollment and included in the Summary Plan Description (SPD), which should be provided to employees each year at renewal.
- COBRA Eligibility Notice: As an employer, you are required to notify your employee and/or their dependents of their COBRA eligibility within 14 days of their benefits ending due to separation from the company or if they have experienced another qualifying event resulting in the loss of benefits coverage. There are several requirements of what information must be included in a COBRA Eligibility Notice, but, first and foremost, it must provide the total premium cost for each plan that the employee is eligible for. Check with individual states about the required timeline for notifying employees if subject to State Continuation.
Understand the timeline for eligibility and enrollments. An employee that is eligible for COBRA coverage must indicate if they are electing the COBRA coverage within the Plan’s COBRA election period, which cannot be shorter than 60 days. Check with individual states about the required timeline for election of State Continuation coverage.
If an individual elects COBRA continuation coverage, they will generally be able to continue that coverage for up to 18 months as long as premium payments are made. In certain scenarios, COBRA coverage can continue beyond 18 months. Duration of State Continuation coverage varies widely by state and in some states may be utilized after COBRA coverage has been exhausted.
Be Sure to offer COBRA/Continuation coverage to participating COBRA/Continuation employees at Open Enrollment. COBRA participants should be offered benefits at the time of your company’s Open Enrollment, even if they are no longer employed with your company. An employee can continue to enroll in the new plan each year until they meet the end of their COBRA eligibility.