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COBRA update.

COBRA Update

Continued health coverage lasts longer under new rules.

The landmark 1985 Consolidated Omnibus Budget Reconciliation Act (COBRA) significantly changed the employee benefit picture by requiring mandatory continuation of employer-sponsored group health coverage that otherwise would be termminated when an employee leaves. In effect since the start of this year are several changes benefits administrators should note. First, let's review the basics of COBRA.

COBRA gives former employees and their dependents the right to temporary continuation of health coverage at group rates. Through group health plans, hospitalization, physician, and other health services may be obtained at less cost than they could be purchased individually. The law was enacted because of congressional concern about many Americans who lack health insurance.

Private employers with 20 or more employees that offer a group health insurance plan must offer employees and their families continued coverage in certain cases, such as loss of job except because of gross misconduct, death of the covered employee, or divorce. Generally the coverage is to be provided for 18-36 months depending on the type of qualifying event.

The law does not require the employer to pay for this continuation insurance, and people who are covered may pay up to 102 percent of what normally would be the combined employer-employee cost. (This is still ordinarily less expensive than individual health coverage.) The legislation specifies rates, coverage, qualifying events, eligible individuals, notification requirements, and payment terms.

For COBRA purposes, a group health plan usually is defined as one that provides medical benefits for the employer's own employees and their dependents through insurance or other means such as a trust, health maintenance organization, self-funded plan, reimbursement, or combination. Life insurance is not a benefit that must be offered for purposes of health continuation coverage.

The penalty for failing to satisfy the continuation rules with respect to any qualified beneficiary is a nondeductible excise tax of $100 per day during the noncompliance period, with a maximum family tax of $200 per day. In addition, the Department of Labor can take civil action to enforce the continuation requirements. The Internal Revenue Code provides no remedy for individuals who are denied COBRA benefits, and they must pursue remedies such as lawsuits on their own.

The General Accounting Office recommended in a report released earlier this year that the Internal Revenue Service and Department of Labor take action to ensure that potential violators are reported to IRS. The report stated that in addition to information already provided by IRS and DOL, there should be a discussion of the tax consequences for noncompliance; a statement that IRS wants to be apprised of possible violations; and a description of the information IRS needs to pursue a case.

The 1989 Omnibus Budget Reconciliation Act contained several substantive technical changes to COBRA, effective Jan. 1, 1990. 1. A former employer may not unilaterally discontinue COBRA coverage if the new employer's plan contains any limitations or exclusions for pre-existing conditions. So long as the qualified beneficiary is willing to pay COBRA premiums as well as costs related to the new employer's plan, COBRA coverage could continue for the full 18- or 36-month period. 2. COBRA coverage is extended from 18 to 29 months for qualified beneficiaries who are disabled at the time of a termination or reduction in hours of employment. This change is intended to provide such beneficiaries with access to group health benefits until medicare disability benefits begin. During the additional 11 months, the beneficiary's cost may be increased from 102 to 150 percent of the applicable premium. 3. COBRA coverage must be extended to all covered employees--individuals who were provided group health plan coverage because of the performance of services. Covered employees can include leased employees and independent contractors. These rules do not require employers to offer coverage to leased employees and independent contractors; they merely require that any covered individuals have the opportunity to elect continuation. 4. There is a 45-day grace period for payment of the initial COBRA premium after the date of the COBRA election. And 5. Notice requirements for multi-employer plans are simplified.

Under bills S. 514 and H.R. 1161, introduced this year by Senator Barbara A. Mikulski (D-MD) and Representative Patricia Schroeder (D-CO), coverage would be extended for life if the covered employee dies and the surviving spouse is 50 or older. If there are dependent children in this situation, coverage is extended until they attain age 23. This legislation is known as the "Women's Health Equity Act"; the COBRA provisions are very controversial with limited chances of passage at this time.

George D. Webster is general counsel to ASAE and a partner in Webster, Chamberlain & Bean, a Washington, D.C., law firm.
COPYRIGHT 1991 American Society of Association Executives
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Article Details
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Title Annotation:Legal; Consolidated Omnibus Budget Reconciliation Act
Author:Webster, George D.
Publication:Association Management
Article Type:column
Date:Oct 1, 1991
Words:782
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