What Employees Need to Know

The Baseline: Employee Rights Under COBRA, Generally

The Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) requires employers with 20 or more employees who offer health benefits to provide continued coverage to “qualified beneficiaries” for up to 18 months after a “qualifying event;” however, the employee must pay the entire premium. A “qualified beneficiary” is an individual covered by a group health plan on the day before the qualifying event who is either the employee, the employee’s spouse, or the employee’s dependent child.

Where the individual seeking COBRA continuation coverage is the employee herself, a “qualifying event” is (1) voluntary or involuntary termination of employment for reasons other than gross misconduct; or (2) reduction in the number of hours worked.

Where the individual seeking COBRA continuation coverage is the employee?s spouse, a ?qualifying event? is (1) voluntary or involuntary termination of the covered employee?s employment for any reason other than gross misconduct; (2) reduction in the number of hours worked by the covered employee; (3) the covered employee becoming entitled to Medicare; (4) divorce or legal separation of the covered employee; or (5) death of the covered employee.

Where the individual seeking COBRA continuation coverage is the employee’s dependent child, a “qualifying event” is (1) loss of dependent child status under the plan (that is, the child ages out of coverage under the employer’s plan) (2) voluntary or involuntary termination of the covered employee’s employment for any reason other than gross misconduct; (3) reduction in the number of hours worked by the covered employee; (4) the covered employee becoming entitled to Medicare; (5) divorce or legal separation of the covered employee; or (6) death of the covered employee.

Modifications to the Baseline: The COBRA Premium Subsidy

As explained above, under the baseline, employees and other qualified beneficiaries who elect to exercise health continuation coverage under COBRA must still pay the entire premium. However, the American Recovery and Reinvestment Act of 2009 (ARRA), as amended, provides for premium reductions under certain circumstances. And, on March 2, 2010, President Obama signed into law legislation that extended those premium reductions.

Under current law, employees who have timely elected COBRA continuation coverage and who have experienced the “qualifying event” of an involuntary termination that occurred from September 1, 2008 through May 31, 2010, may pay only 35% of their COBRA premiums if their period of health coverage began on or after February 17, 2009. The remaining 65% of the COBRA premium is paid by the employer, who then receives reimbursement from the federal government via a tax credit. The premium subsidy can last up to a period of 15 months.

Individuals who are eligible for other group health coverage, such as a spouse’s health plan or a new employer’s health plan, and individuals who are eligible for Medicare are not eligible for this COBRA premium reduction. Individuals whose periods of coverage began prior to February 17, 2009, are not eligible for the premium reduction. Furthermore, the premium reduction phases out if the terminated employee’s 2010 modified adjusted gross income exceeds $125,000 (or $250,000 for joint returns); and the premium reduction remains entirely unavailable if the terminated employee’s 2010 modified adjusted gross income exceeds $145,000 (or $290,000 for joint returns).