The Consolidated Omnibus Budget Reconciliation Act, known as COBRA, requires employers to continue providing health insurance coverage for a certain amount of time after an employee leaves your company. This can be as long as 36 months, depending on the circumstances. The reason for separation of service must be considered a qualifying event, so there are specific events that do and don’t require you to continue coverage. For example, if an employee is caught stealing, they are not eligible for continued coverage.
COBRA coverage, however, is only available when health insurance coverage is lost due to specific qualifying events. For employees who have group health insurance through your company but leave employment, COBRA benefits apply. Companies with at least 20 employees are generally required to offer COBRA coverage to certain former employees, retirees, spouses, and dependents. COBRA applies to both private-sector companies as well as most state and local governments.
Of course, just because you are offering continued coverage through COBRA does not mean you will still be paying the premiums. The former employee will be responsible for paying all the costs. They will still get a reduced rate over obtaining individual insurance, and they won’t have a waiting period for any pre-existing conditions. However, the premiums cannot exceed 102 percent of the cost the plan incurs for similar individuals, plus 2 percent for administrative costs.
In the event one of your employees takes an FMLA (Family and Medical Leave Act) leave of absence, you are required to maintain group health plan coverage. FMLA leaves do not qualify as a COBRA qualifying event because there is no loss of coverage. If the employee fails to return following the approved FMLA period, then COBRA will apply beginning on the last day of the FMLA leave. If the employee notifies during the leave that he won’t be returning, COBRA begins on the date of notification.
COBRA coverage can be very complex. If you do not provide required COBRA coverage, you can face ERISA penalties, including both civil and criminal penalties. For this reason, many employers elect to provide COBRA coverage to all former employees to be safe. However, this can be very expensive, especially if you are self-insured. There are a number of resources available to help you understand the intricacies of COBRA coverage, including your group health insurance company.