Consolidated Omnibus Budget Reconciliation Act of 1985
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The Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA, is a law passed by the U.S. Congress and signed by President Reagan that, among other things, mandates an insurance program giving some employees the ability to continue health insurance coverage after leaving employment. COBRA includes amendments to the Employee Retirement Income Security Act of 1974 (ERISA). The law deals with a great variety of subjects, such as tobacco price supports, railroads, private pension plans, disability insurance, and the postal service, but it is perhaps best known for Title X, which amends the Internal Revenue Code to deny income tax deductions to employers for contributions to a group health plan unless such plan meets certain continuing coverage requirements. The violation for failing to meet those criteria was subsequently changed to an excise tax.
Although this statute became law on April 7, 1986, its official name is the Consolidated Omnibus Budget Reconciliation Act of 1985 (Pub.L. 99-272, 100 Stat. 82). Because of the discrepancy between the official name of the Act and the year in which it was enacted,[1] some government publications refer to the Act as the Consolidated Omnibus Budget Reconciliation Act of 1986. The Act is often referred to simply as "COBRA".
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[edit] Purpose
As originally enacted, Title X of the Act provided that a qualifying employer will not be permitted to take a tax deduction for its health insurance costs unless its health insurance plan allows employees of the employer and the employee's immediate family members who had been covered by a health care plan to maintain their coverage if a "qualifying event" causes them to lose coverage. However, the legislation was subsequently amended to instead impose an excise tax upon an employer whose health plan fails to satisfy the applicable rules. A qualifying employer is generally an employer with 20 or more full time equivalent employees.[2]
Among the "qualifying events" listed in the statute are loss of benefits coverage due to (1) the death of the covered employee; (2) an employee loses eligibility for coverage due to involuntary termination or a reduction in hours as a result of resignation, discharge (except for "gross misconduct"), layoff, strike or lockout, medical leave, or slowdown in business operations; (3) divorce or legal separation that terminates the ex-spouse's eligibility for benefits; or (4) a dependent child reaching the age at which he or she is no longer covered. COBRA imposes different notice requirements on participants and beneficiaries, depending on the particular qualifying event that triggers COBRA rights.
COBRA also allows for coverage for up to 18 months in most cases. If the individual is deemed disabled by the Social Security Administration, coverage may continue for up to 29 months. In the case of divorce, coverage may continue for up to 36 months.
COBRA does not apply, on the other hand, if employees lose their benefits coverage because the employer has terminated the plan altogether or if the employer has gone out of business.
COBRA does not, unlike other federal statutes such as the Family and Medical Leave Act (FMLA), require the employer to pay for the cost of providing continuation coverage. Instead it allows employees and their dependents to maintain coverage at their own expense by paying the full cost of the premium the employer previously paid, plus up to a 2% administrative charge (50% for the latter 11 months under the disability extension).
Employees and dependents can also opt for a lesser form of coverage, e.g., to choose continuation coverage under a plan that only covers the employee, but not his or her dependents, or that only provides medical and hospitalization coverage and does not pay for dental work, if those options are available to covered employees.
Employees and dependents lose coverage if they fail to make timely payments of these premiums. Employers are required to inform employees and dependents upon loss of coverage, in writing, by at least fifteen days before the coverage ceases.
[edit] California (Cal-COBRA and Federal COBRA)
Lost your job and need information on keeping your coverage? COBRA may be right for you, but you should also check out other options, they may be more affordable even with the new COBRA subsidy.
AB 23 has adopted the federal subsidy from the American Recovery and Reinvestment Act of 2009 and applied it to those Californian residents who are employed by businesses of 19 employees or less. This gives those laid off in small business an opportunity to receive a 65% reduction in their COBRA costs.
California's Office of the Patient Advocate created a COBRA financial assistance tool for you to find out if you might qualify for the new federal COBRA or Cal-COBRA (mini-cobra in other states) subsidy.
[edit] Subsidy
Only 10% of Americans eligible for COBRA insurance in 2006 used it, many because they were unable to afford to pay the full premium after their job loss.[3] While some employers may voluntarily help subsidize or fully cover the cost of COBRA insurance as part of a termination or exit package, it is more common for the ex-employee to cover the entire cost. [4]
The American Recovery and Reinvestment Act of 2009 as signed by the President includes a 65% subsidy to employers for COBRA-enabled insurance for up to 9 months [5] after an involuntary termination. An employer is eligible for this subsidy if
- the termination of employment was involuntary,
- the terminated employee has no other group sponsored health insurance option, and
- the terminated employee is otherwise eligible to enroll in COBRA.
If the employee has an adjusted gross income in 2009 over $125,000 if filing as single ($250,000 if filing jointly), then the subsidy will be recaptured in a phased manner from the employee through the tax system.
Termination of employment must have occurred between September 1, 2008 and December 31, 2009. Specific provisions and responsibilities may differ in the state specific mini-COBRA plans for employer with fewer than 20 employees throughout half of the previous calendar year. Those employees who are eligible for the ultimate benefits of this subsidy are referred to as Assistance Eligible Individuals (or AEIs).
Employers subject to Federal COBRA are required to:
1) Notify terminated employees of their potential rights under ARRA by sending a series of notices [5]
2) Provide a method for qualified AEIs to enroll
3) Pay the full amount of the premiums and seek reimbursement of the 65% subsidy by filing the Amended Form 941
This Act was signed into law by President Barack Obama on February 17, 2009.
Much of the Act is still undefined or unclear, and as such other requirements, restrictions and definitions may be forthcoming from the governmental agencies involved in its progression.
[edit] Notes
- ^ Discrepancies between the date in the official title of a U.S. budget Act and the date on which the Act was signed into law occur with some frequency. See, for example, the Deficit Reduction Act of 2005, signed into law in February 2006.
- ^ ERISA cites "(more) than 20 employees on a typical business day during the preceding calendar year".
- ^ Bill Aims To Subsidize Health Care For Laid-Off
- ^ http://www.healthharbor.com/COBRACostReduction.html
- ^ a b DOL Information
[edit] References
- Employee Brochure, Department of Labor (pdf)
- Other Resources, Department of Labor
- General information from the Centers for Medicare and Medicaid Services (CMS)
[edit] External links
- US Department of Labor website COBRA FAQ.
- Library of Congress THOMAS summary of the Act.
- COBRA Information Resource Guide
- COBRA Continuation Specialists
- COBRA and Cal-COBRA Financial Assistance
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