By Jen­nifer Kupper

In-house Coun­sel & Com­pli­ance Offi­cer for iaCONSULTING
a UBA Part­ner Firm

HealthInsuranceIn the ear­li­er days of the Patient Pro­tec­tion and Afford­able Care Act (ACA), a com­mon ques­tion among employ­ers and ben­e­fit advi­sors was whether there would still be a need for COBRA, the Fed­er­al Con­sol­i­dat­ed Omnibus Bud­get Rec­on­cil­i­a­tion Act of 1985. Many peo­ple spec­u­lat­ed that COBRA would be a thing of the past. This was a log­i­cal step for those in the insur­ance indus­try. When an employ­ee was faced with the option of pay­ing full cost for con­tin­ued employ­er cov­er­age or pos­si­bly qual­i­fy­ing for heav­i­ly sub­si­dized care on the Mar­ket­place, it seemed to be a “no brain­er.” Six years after the pas­sage of the ACA, which was signed into law on March 23, 2010, and three years after the ini­tial launch of the Mar­ket­place in Octo­ber 2013, COBRA is still a law with which to be reck­oned. In a series of arti­cles, I will address COBRA in gen­er­al and also delve into oth­er relat­ed issues, such as mini-COBRA, COBRA and account-based plans, and the inter­ac­tion of COBRA and Medicare.

First, let us begin with the legal frame­work and gen­er­al rule of COBRA, note the excep­tions, and per­form the basic analy­sis to see which employ­ers and group health plans are sub­ject to COBRA.

What is COBRA?

COBRA is a fed­er­al law which amend­ed the Employ­ee Retire­ment Income Secu­ri­ty Act (ERISA), the Inter­nal Rev­enue Code (Code), and the Pub­lic Health Ser­vice Act (PHSA). The pro­vi­sions found in ERISA and the Code apply to pri­vate-sec­tor employ­ers spon­sor­ing group health plans; the PHSA pro­vi­sions apply to group health plans spon­sored by state and local gov­ern­ments. COBRA reg­u­la­tions have been issued by the Inter­nal Rev­enue Ser­vice (IRS) and the Depart­ment of Labor (DOL).

The gen­er­al rule is that COBRA applies to group health plans spon­sored by employ­ers with 20 or more employ­ees on more than 50 per­cent of its typ­i­cal busi­ness days in the pre­vi­ous cal­en­dar year. This rule must be bro­ken into its ele­ments, apply­ing the excep­tions, and deter­min­ing whether an employ­er is sub­ject to COBRA. After that deter­mi­na­tion is made, it must be deter­mined what plans must be avail­able for con­tin­u­ing cov­er­age and what indi­vid­u­als are enti­tled to an elec­tion of coverage.

Who is an employer?

Most employ­ers are sub­ject to COBRA. An “employ­er” is a “per­son for whom ser­vices are per­formed.” Employ­ers include those with com­mon own­er­ship or part of a con­trolled group pur­suant to Code sec­tions 414(b), ©, (m), or (o). Suc­ces­sors of employ­ers, whether by merg­er, acqui­si­tion, con­sol­i­da­tion, or reor­ga­ni­za­tion, are also employ­ers. Many times, COBRA issues, and ben­e­fits issues in gen­er­al, are over­looked when com­pa­nies are merged or acquired.

What group health plans are sub­ject to COBRA? Does not being cov­ered by COBRA relieve employ­ers of the oblig­a­tion to offer con­tin­u­a­tion coverage?

The gen­er­al rule is that group health plans are sub­ject to COBRA. A group health plan is any arrange­ment that pro­vides med­ical care, with­in the mean­ing of Code sec­tion 213 and is main­tained by an employ­er or employ­ee organization.

The first require­ment is that the arrange­ment must pro­vide med­ical care. This includes med­ical, den­tal, vision, and pre­scrip­tion ben­e­fits. It does not include life, dis­abil­i­ty, or long-term care insur­ance or amounts con­tributed by an employ­er to a med­ical or health sav­ings account (Archer MSA or HSA).

The sec­ond prong is that the arrange­ment must be main­tained or estab­lished by the employ­er. This includes mul­ti­em­ploy­er plans, an employ­ee ben­e­fit plan that is main­tained pur­suant to one or more col­lec­tive bar­gain­ing agree­ments and to which more than one employ­er is required to con­tribute. More than just insur­ance plans are sub­ject to COBRA. The arrange­ment may be pro­vid­ed through insur­ance, by a health main­te­nance orga­ni­za­tion (HMO), out of the employer’s assets, or through any oth­er means.

Exam­ples of group health plans sub­ject to COBRA include:

  • Plans pro­vid­ed by an HMO
  • Self-insured med­ical reim­burse­ment plans
  • Health reim­burse­ment arrange­ments (HRAs)
  • Health flex­i­ble spend­ing accounts (health FSAs)
  • Well­ness pro­grams to the extent they pro­vide med­ical care
  • Treat­ment pro­grams or health clinics
  • Employ­ee assis­tance pro­grams (EAPs)

How­ev­er, there are sev­er­al group health plan excep­tions to COBRA, and the plans except­ed by the gen­er­al rule may still be oblig­at­ed under anoth­er law to pro­vide some sort of con­tin­u­a­tion coverage.

Excep­tion #1. COBRA does not apply to plans spon­sored by the fed­er­al gov­ern­ment or the Indi­an trib­al gov­ern­ments, with­in the mean­ing of Code sec­tion 414(d). Although COBRA does not apply to fed­er­al gov­ern­men­tal plans, the PHSA, amend­ed by COBRA and over­seen by the Depart­ment of Health and Human Ser­vices (HHS), gen­er­al­ly requires that state or local gov­ern­ment group health plans to pro­vide par­al­lel con­tin­u­a­tion cov­er­age. Addi­tion­al­ly, the Fed­er­al Employ­ees Health Ben­e­fits Amend­ments Act of 1988 requires a sim­i­lar con­tin­u­a­tion of cov­er­age for fed­er­al employ­ees and their fam­i­ly mem­bers cov­ered under the Fed­er­al Employ­ees Health Ben­e­fit Program.

Excep­tion # 2. COBRA does not apply to cer­tain plans spon­sored by church­es, or church-relat­ed orga­ni­za­tions, with­in the mean­ing of Code sec­tion 414(e).

Excep­tion #3. COBRA does not apply to small-employ­er plans. Gen­er­al­ly, 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 the pre­ced­ing cal­en­dar year.

For mul­ti­em­ploy­er plans, all con­tribut­ing employ­ers must have employed few­er than 20 employ­ees on at least 50 per­cent of its typ­i­cal busi­ness days dur­ing the pre­ced­ing cal­en­dar year. The deter­mi­na­tion of whether a mul­ti­em­ploy­er plan is a small-employ­er plan on any par­tic­u­lar date depends on the con­tribut­ing employ­ers on that date and the size work­force of those employ­ers dur­ing the pre­ced­ing cal­en­dar year. The reg­u­la­tions clarify:

“If a plan that is oth­er­wise sub­ject to COBRA ceas­es to be a small-employ­er plan because of the addi­tion dur­ing a cal­en­dar year of an employ­er that did not nor­mal­ly employ few­er than 20 employ­ees on a typ­i­cal busi­ness day dur­ing the pre­ced­ing cal­en­dar year, the plan ceas­es to be except­ed from COBRA imme­di­ate­ly upon the addi­tion of the new employ­er. In con­trast, if the plan ceas­es to be a small-employ­er plan by rea­son of an increase dur­ing a cal­en­dar year in the work­force of an employ­er con­tribut­ing to the plan, the plan ceas­es to be except­ed from COBRA on the Jan­u­ary 1 imme­di­ate­ly fol­low­ing the cal­en­dar year in which the employ­er’s work­force increased.”

Who are employ­ees and what employ­ees count toward the threshold?

All com­mon law employ­ees of the employ­er are tak­en into account when deter­min­ing if an employ­er is sub­ject to COBRA. There­fore, self-employed indi­vid­u­als, inde­pen­dent con­trac­tors and their employ­ees and inde­pen­dent con­trac­tors, and direc­tors of cor­po­ra­tions are not counted.

The thresh­old num­ber of employ­ees is 20, count­ing both full-time and part-time com­mon law employees.

Each part-time employ­ee counts as a frac­tion of a full-time 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.

Next Step: The who, when, and how long for COBRA coverage

Now that we know gen­er­al­ly who is sub­ject to COBRA from an employ­er stand­point and what group health plans must be offered, the next step is to deter­mine – from an individual’s stand­point – who is eli­gi­ble for COBRA cov­er­age, when that per­son is enti­tled to cov­er­age, and how long the con­tin­u­a­tion cov­er­age lasts.
For an in-depth look at qual­i­fy­ing events that trig­ger COBRA, the ACA impact on COBRA, mea­sure­ment and look-back issues, health FSA car­ry­overs, and report­ing on the cov­er­age offered, request UBA’s ACA Advi­sor, “COBRA and the Afford­able Care Act”.

Read more here …