The Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") was passed to temper the increasing rate of uninsured Americans. As a result of economic recession in the early 1980's, many working Americans lost their jobs, and these job losses initiated loss of employer-sponsored health coverage for those workers and their families.
The continuation coverage requirement forces employers to offer insurance continuation to anyone who would otherwise lose coverage due to a qualifying event. A qualifying event is any one of the following that causes a loss of coverage:
Termination of employment or reduction of hours
Divorce or legal separation
Death of the covered employee
Covered employee becomes entitled to Medicare
Dependent ceases to be eligible as a dependent under the terms of the plan
Employer's filing of a bankruptcy proceeding (applies only to retirees)
In addition, employers must provide written notification to all covered employees and their dependents of their rights under COBRA. This notification of rights must be provided (1) upon inception of coverage, (2) in the summary plan description, and (3) upon the occurrence of a qualifying event.
COBRA is jointly enforced by the Internal Revenue Service, the U.S. Department of Labor and the Department of Health and Human Services. Penalties for COBRA violations include:
Excise tax penalties of $100 per day ($200 if more than one family member is affected) may be assessed for each day the employer fails to comply with COBRA
Statutory penalties of up to $110 per day under the Employee Retirement Income Security Act ("ERISA")
Civil lawsuits
Attorney's fees and interest
Is My Organization Required to Offer COBRA to Employees?
To be subject to COBRA, your organization must have employed 20 or more workers on at least half of your regular business days in the last calendar year, and you must currently provide a group health plan. Group health plans include the following benefits:
Medical insurance
Dental insurance
Vision insurance
Medical reimbursement flexible spending accounts
Employee Assistance Program (EAP) that provides more than referrals
