US Department of Labor FAQ's and Answers Regarding Health Coverage

Introduction to COBRA

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified individuals may be required to pay the entire premium for coverage up to 102 percent of the cost to the plan.

COBRA generally requires that group health plans sponsored by employers with 20 or more employees in the prior year offer employees and their families the opportunity for a temporary extension of health coverage (called continuation coverage) in certain instances where coverage under the plan would otherwise end.

COBRA outlines how employees and family members may elect continuation coverage. It also requires employers and plans to provide notice.

What is COBRA continuation health coverage?

Congress passed the landmark Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions in 1986.  The law amends the Employee Retirement Income Security Act, the Internal Revenue Code and the Public Health Service Act to provide continuation of group health coverage that otherwise might be terminated.

What does COBRA do?

COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates.  This coverage, however, is only available when coverage is lost due to certain specific events.  Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer pays a part of the premium for active employees while COBRA participants generally pay the entire premium themselves.  It is ordinarily less expensive, though, than individual health coverage.

Who is entitled to benefits under COBRA?

There are three elements to qualifying for COBRA benefits.  COBRA establishes specific criteria for plans, qualified beneficiaries, and qualifying events:

1. Plan Coverage - Group health plans for employers with 20 or more employees on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA.  Both full and part-time employees are counted to determine whether a plan is subject to COBRA.  Each part-time employee counts as a fraction of an employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.

2. Qualified Beneficiaries - A qualified beneficiary generally is an individual covered by a group health plan on the day before a qualifying event who is either an employee, the employee's spouse, or an employee's dependent child.  In certain cases, a retired employee, the retired employee's spouse, and the retired employee's dependent children may be qualified beneficiaries.  In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary.  Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.

3. Qualifying Events - Qualifying events are certain events that would cause an individual to lose health coverage.  The type of qualifying event will determine who the qualified beneficiaries are and the amount of time that a plan must offer the health coverage to them under COBRA.  A plan, at its discretion,  may provide longer periods of continuation coverage.

Qualifying Events for Employees:

• Voluntary or involuntary termination of employment for reasons other than gross misconduct
• Reduction in the number of hours of employment

Qualifying Events for Spouses:

• Voluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct
• Reduction in the hours worked by the covered employee
• Covered employee's becoming entitled to Medicare
• Divorce or legal separation of the covered employee
• Death of the covered employee

Qualifying Events for Dependent Children:

• Loss of dependent child status under the plan rules
• Voluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct
• Reduction in the hours worked by the covered employee
• Covered employee's becoming entitled to Medicare
• Divorce or legal separation of the covered employee
• Death of the covered employee

How does a person become eligible for COBRA continuation coverage?

To be eligible for COBRA coverage, you must have been enrolled in your employer's health plan when you worked and the health plan must continue to be in effect for active employees.  COBRA continuation coverage is available upon the occurrence of a qualifying event that would, except for the COBRA continuation coverage, cause an individual to lose his or her health care coverage.

What group health plans are subject to COBRA?

The law generally covers health plans maintained by private-sector employers with 20 or more employees, employee organizations, or state or local governments.

What process must individuals follow to elect COBRA continuation coverage?

Employers must notify plan administrators of a qualifying event within 30 days after an employee's death, termination, reduced hours of employment or entitlement to Medicare.

A qualified beneficiary must notify the plan administrator of a qualifying event within 60 days after divorce or legal separation or a child's ceasing to be covered as a dependent under plan rules.

Plan participants and beneficiaries generally must be sent an election notice not later than 14 days after the plan administrator receives notice that a qualifying event has occurred.  The individual then has 60 days to decide whether to elect COBRA continuation coverage.  The person has 45 days after electing coverage to pay the initial premium.

FAQ's for dislocated workers:

If I am recently unemployed, what happens to my health insurance?

While dislocated workers may lose health insurance from their former employer, they may have the right to continue health coverage under certain conditions. Health continuation rules enacted under COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985) apply to dislocated workers and their families as well as workers who change jobs or workers whose work hours have been reduced, thus causing them to lose eligibility for health insurance. This coverage is temporary, however, and the cost is borne by the employee.

To be eligible for COBRA coverage, you must have been enrolled in your employer's health plan when you worked and the health plan must continue to be in effect for active employees. In addition, you must take steps to enroll for COBRA continuation benefits.

Which employers are required to offer COBRA health insurance coverage for dislocated workers?

Employers with 20 or more employees are usually required to offer COBRA coverage and to notify their employees of the availability of such coverage. COBRA applies to private-sector employees and to most state and local government workers. In addition, many states have laws similar to smaller companies. You should check with your State Insurance Commissioners's Office to see if such coverage is available in your state.

What if the company closed or went bankrupt and there is no health plan?

If there is no longer a health plan, there is no COBRA coverage available. If, however, there is another plan offered by the company, you may be covered under that plan. Union members who are covered by a collective bargaining agreement that provides for a medical plan also may be entitled to continued coverage.

As a dislocated worker, How do I find out about COBRA health insurance coverage and how do I elect to take it?

Employers or health plan administrators must provide an initial general notice if you are entitled to COBRA benefits. You probably received the initial notice about COBRA coverage when you were hired.

When you are no longer eligible for health coverage, your employer has to provide you with a specific notice regarding your rights to COBRA continuation benefits. Here is the sequence of events: First, employers must notify their plan administrators within 30 days after an employee's termination or after a reduction in hours that causes an employee to lose health benefits.

Next, the 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.

Finally, you must respond to this notice and elect COBRA coverage by the 60th day after the written notice is sent or the day health care coverage ceased, whichever is later. Otherwise, you will lose all rights to COBRA benefits.

Spouses and dependent children covered under your health plan have an independent right to elect COBRA coverage upon your termination or reduction in hours. If, for instance, you have a family member with an illness at the time you are laid off, that person alone can elect coverage.

When does COBRA coverage begin?

Once you elect coverage and pay for it, COBRA coverage begins on the date that health care coverage ceased. It is, essentially, retroactive. In addition, the health care coverage you receive is the same as it is for active employees.

How long does COBRA coverage last?

Generally, individuals who qualify initially are covered for a maximum of 18 months, but coverage may end earlier under certain circumstances. Those circumstances include:

• Premiums are not paid on time
• Your former employer decides to discontinue a health plan altogether
• You obtain coverage with another employer's group health plan (There may be some exception if your new employer's health plan excludes or limits benefits for a preexisting condition—basically a medical condition present before you enrolled in the plan. Please see the discussion on HIPAA that follows.)
• You become entitled to Medicare benefits

Employers may offer longer periods of COBRA coverage but are only required to do so under special circumstances, such as disability (yours or a family member's), your death or divorce, or when your child ceases to meet the definition of a dependent child under the health plan.

Who can answer other COBRA questions?

COBRA administration is shared by three federal agencies. The Department of Labor (DOL) handles questions about notification rights under COBRA for private-sector employees. The Department of Health and Human Services (HHS) handles questions relating to state and local government workers. The Internal Revenue Service (IRS), Department of the Treasury, has other COBRA jurisdiction.

More details about COBRA coverage are included in the booklet Health Benefits under the Consolidated Omnibus Budget Reconciliation Act. Information on how to obtain a copy and telephone numbers for the DOL office nearest you are located at the back of this booklet. You may obtain telephone numbers for the nearest HHS and IRS offices by calling the Federal Information Center at: 1.800.688.9889.

HIPPA Introduction

The Health Insurance Portability and Accountability Act (HIPAA) provides rights and protections for participants and beneficiaries in group health plans. HIPAA includes protections for coverage under group health plans that limit exclusions for preexisting conditions; prohibit discrimination against employees and dependents based on their health status; and allow a special opportunity to enroll in a new plan to individuals in certain circumstances. HIPAA may also give you a right to purchase individual coverage if you have no group health plan coverage available, and have exhausted COBRA or other continuation coverage.

What is the Health Insurance Portability and Accountability Act of 1996 (HIPAA)?

HIPAA amended the Employee Retirement Income Security Act (ERISA), to provide new rights and protections for participants and beneficiaries in group health plans.  Understanding this amendment is important to your decisions about future health coverage.  HIPAA contains protections both for health coverage offered in connection with employment (group health plans) and for individual insurance policies sold by insurance companies (individual policies).

If you find a new job that offers health coverage, or if you are eligible for coverage under a family member's employment-based plan, HIPAA includes protections for coverage under group health plans that:

• Limit exclusions for preexisting conditions
• Prohibit discrimination against employees and dependents based on their health status
• Allow a special opportunity to enroll in a new plan to individuals in certain circumstances

If you choose to apply for an individual policy for yourself or your family, HIPAA includes protections for individual policies that:

• Guarantee access to individual policies for people who qualify
• Guarantee renewability of individual policies

What is creditable health insurance coverage?

Most health coverage is creditable coverage, such as coverage under a group health plan (including COBRA continuation coverage), HMO, individual health insurance policy, Medicaid or Medicare.

Creditable coverage does not include coverage consisting solely of excepted benefits, such as coverage solely for limited-scope dental or vision benefits.

Days in a waiting period during which you have no other coverage are not creditable coverage under the plan, nor are these days taken into account when determining a significant break in coverage (generally a break of 63 days or more).  This 63-day break period may be extended under state law if your coverage is insured through an insurance company or offered through an HMO.  Check with your State Insurance Commissioner's Office to see whether a longer break period applies to you.

How does crediting for prior coverage work under HIPAA?

Most plans use the standard method of crediting coverage.

Under the standard method, you receive credit for your previous coverage that occurred without a break in coverage of 63 days or more.  Any coverage occurring prior to a break in coverage of 63 days or more is not credited against a preexisting condition exclusion period.

To illustrate, suppose an individual had coverage for 2 years followed by a break in coverage of 70 days and then resumed coverage for 8 months.  That individual would only receive credit for 8 months of coverage; no credit would be given for the 2 years of coverage prior to the break in coverage of 70 days.

Is there another way that a group health plan or issuer can credit coverage under HIPAA?

Yes.  A plan or issuer may elect the alternative method for crediting coverage for all employees.

Under the alternative method of counting creditable coverage, the plan or issuer determines the amount of an individual's creditable coverage for any of the five specified categories of benefits.  Those categories are mental health, substance abuse treatment, prescription drugs, dental care and vision care.  The standard method is used to determine an individual's creditable coverage for benefits that are not within any of the five categories that a plan or issuer may use.  (The plan or issuer may use some or all of these categories.)

When using the alternative method, the plan or issuer looks to see is an individual has coverage within a category of benefits (regardless of the specific level of benefits provided within that category).

For example, if an individual who is a regular enrollee (not a late enrollee) has 12 months of creditable coverage, but coverage for only 6 of those months provided benefits for dental care, a preexisting condition exclusion period may be imposed with respect to that individual's dental care benefits for up to 6 months (irrespective of the level of dental care benefits).

If your employer's plan requests information from your former plan regarding any of the five categories of benefits under the alternative method, your former plan must provide the information regarding coverage under the categories of benefits.

Under HIPPA, can I receive credit for previous COBRA continuation health coverage?

Yes.  Under HIPAA any period of time that you are receiving COBRA continuation coverage is counted as previous health coverage as long as the coverage occurred without a break in coverage of 63 days or more.

For example, if you were covered continuously for 5 months by a previous health plan and then received 7 months of COBRA continuation coverage, you would be entitled to receive credit for 12 months of coverage by your new group health plan.