COBRA Human Resourcess Fact Sheet

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The purpose of this Memo is to give a short summary of the provisions of COBRA as relates to continued company-sponsored healthcare insurance after termination. For more questions or a detailed analysis, the employee should speak with your Human Resources Department.

At the outset, it is noted COBRA only applies to companies that have 20 or more employees.
COBRA allows an employee, typically after termination, to continue their group health coverage that had previously been provided by his or her employer. Specifically, it allows that continuation if there is termination or reduction in hours of employment, except for separation due to gross misconduct. Less common examples are when the employee becomes enrolled in Medicare, suffers divorce or legal separation, an employee spouse dies, or there is a loss of a dependent child status. But in the vast majority of cases, it applies to termination.

It is a misconception with human resources that the employer, out-of-pocket, must continue paying these premiums for the continued coverage. This is not the case. It is the employee who continues making the payments—extended coverage is simply made available to them at their cost. It is insurance and not company mandated. By Federal law, insurance companies must include this as a benefit under their plan provisions. The employer’s duties are relegated more to informing the employee of these rights and reporting certain events to the insurance company who will then provide the continuation.

Hence, as stated above, the employer does not continue making the premiums on the policy, but instead the employee pays for same. For termination or reduction in hours of employment, the insurance company must allow 18 months of continuation.
However, even though the employer does not directly pay for the continuation, in does indirectly. The greater number of employees in the past electing continuation and making claims under the policy, the greater the company’s premiums at annual renewal. This is especially the case because persons who typically elect COBRA continuation, are the ones that have more chronic conditions.

And remember employees typically pay larger monthly premiums for continuation because they are no longer receiving contributions from the employer. They are then paying 100% of the premium. For example, assume an employee during employment pays $250 per month–the employee paying only 30% and the employer 70%. During the continuation period, the employee would then pay $850 per month.

There was a COBRA premium reduction plan at the federal level based upon the American Recovery and Reinvestment Act of 2009 for the period September 1, 2008 through February 28, 2010, but that entitlement period has expired.

But companies do have some mandatory duties. For example, within the first 90 days of coverage under the health plan, the company must inform the employee of their COBRA rights and describe the provisions of the law.

And, employers have a responsibility to notify the health plan administrator of an employee’s death, termination of employment, reduction in hours, and other triggering events. After this happens, the plan administrator of the policy in turn contacts the employee and informs them of their various rights of continuation. After such notification, the employee that has 60 days to elect continued coverage.

The employee is typically required to pay the entire premium for coverage up to 102% (100% for the premium and 2% for an administrative fee) of the cost of the plan. Failure to make those payments will result in loss of coverage.

National Lien Law can act as your virtual Human Resources Consulting Firm–either replace your existing HR Department or augment it with our ongoing human resources consulting services. And, we are equipped to prepare any documents required (for example, termination notices, warnings, employment agreements/confidentiality/noncompete, employee handbooks, write-ups, responses to claims, wage and hour disputes, legal memos to management, response to attorney demands, legal investigations, help with arbitrations or language used in your emails and communications with employees). Services can be on a retainer basis, hourly or flat fee. Our human resources consultants have law degrees and 20+ years’ experience in human resources consulting. Or, simply give us a call for a free initial consultation. (800) 995-9434. Info.NationalLienLaw@gmail.com.

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