Introduction
AN EMPLOYER’S GUIDE TO GROUP HEALTH CONTINUATION COVERAGE UNDER COBRA
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Health coverage is one of the most important benets that employers can provide,
with advantages for employees, their families, employers, and society as a whole.
Employers that sponsor group health plans enable their employees and their
families to take care of their essential medical needs, ensuring that they can
devote their energies to productive work.
Most employer-sponsored group health plans must comply with the Employee
Retirement Income Security Act (ERISA), which sets standards to protect
employee benets. One of the protections contained in ERISA is the right to
COBRA continuation coverage, a temporary continuation of group health coverage
that would otherwise be lost due to certain life events.
This guide summarizes COBRA continuation coverage and explains the rules that apply to group health plans. It
is intended to help employers that sponsor group health plans comply with this important federal law.
What Is COBRA Continuation Coverage?
COBRA – the Consolidated Omnibus Budget Reconciliation Act -- requires group health plans to
offer continuation coverage to covered employees, former employees, spouses, former spouses, and
dependent children when group health coverage would otherwise be lost due to certain events. Those
events include:
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A covered employee’s death,
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A covered employee’s job loss or reduction in hours for reasons other than gross misconduct,
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A covered employee’s becoming entitled to Medicare,
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A covered employee’s divorce or legal separation, and
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A child’s loss of dependent status (and therefore coverage) under the plan.
COBRA sets rules for how and when plan sponsors must offer and provide continuation coverage,
how employees and their families may elect continuation coverage, and what circumstances justify
terminating continuation coverage.
Employers may require individuals to pay for COBRA continuation coverage. Premiums cannot exceed
the full cost of the coverage, plus a 2 percent administration charge.
Group Health Plans Subject to COBRA
COBRA generally applies to all private sector group health plans maintained by employers that had at
least 20 employees on more than 50 percent of its typical business days in the previous calendar year.
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 a full-time employee, with the fraction equal to the number of
hours worked divided by the hours an employee must work to be considered full time. For example, if
full-time employees at Company A work 40 hours per week, a part-time employee who works 20 hours
per week counts as half of a full-time employee, and a part-time worker who works 16 hours per week
counts as four-tenths of a full-time employee.
COBRA also applies to plans sponsored by state and local governments.
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The law does not apply, however, to
plans sponsored by the federal government or by churches and certain church-related organizations.
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The Department of Health and Human Services administers the COBRA provisions of the Public Health Service Act covering state and local government plans.