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Know your COBRA Basics

Posted: Tuesday, January 25, 2011

by Kristy Kwan
MMC, Inc.

“COBRA” is often confused by our employees as being a type of insurance that employees can enroll in after their termination. In fact, “COBRA” is simply the name of the law that allows for the continuation of the insurance that the employee was enrolled on during their employment – the exact same plan, with the exact same benefits. COBRA only applies to group insurance, not individual insurance, and has very strict rules governing eligibility, enrollment, communication and payment. Many companies utilize a third party vendor just to oversee the administration process, as it can be quite burdensome.

Reviewing the Basics

Eligibility for the continuation of health benefits can be triggered in a variety of ways:

Loss of employment (voluntary or involuntary)
Change in employment status (reduction in hours worked)
Change in dependent’s age/status (dependent is no longer a full time student, or is over the allowed age limit for coverage)
Change in marital status (divorce)

If the eligible person is the employee, they have the opportunity to continue their group coverage for up to 18 months. They must enroll in the same plan they were enrolled in as an employee (i.e. they cannot choose a different plan because it is cheaper). They can only change plans at the renewal or Open Enrollment of the plan.

If the eligible person is a dependent (such as a spouse, ex-spouse or child), they have the opportunity to continue the coverage for up to 36 months.

Administration Guidelines

The basic guidelines for COBRA administration are as follows:

Eligible person has 60 days from the date of the COBRA letter to submit application/paperwork to enroll
Payment must be submitted within 45 days of enrollment election, or insurance will not be activated
Once enrolled, payments are due on the 1st of the month for that month
30 day grace period on payments, if payment is not received, coverage is terminated

Recent Developments

Over the past year, President Obama has signed the ARRA (American Reinvestment and Recovery Act) and amendments to the Act that have allowed employees (who were involuntarily terminated from their employment) to receive a subsidy for their COBRA premium. These changes to the COBRA law have required employers to send out communication to employees who have terminated and may be eligible for the subsidy.

Kristy Kwan, Benefit and Retirement Plan Administrator joined MMC, Inc. in 2005. She has 7 years of experience in the insurance industry and supervises the Benefit Representatives in the daily administration of our client’s healthcare and benefit plans. Prior to joining MMC, she worked with AXA Advisors, and brings with her the knowledge of both the brokerage and administrative side of benefits.

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