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Small employers with fewer than 20 employees do not have to provide COBRA coverage.
A termination of employment can qualify the former employee for COBRA coverage whether it was voluntary or involuntary, so long as the termination was not for gross misconduct. Retirement is a termination of employment.
The employer must notify the group health plan administrator within 30 days after the termination or other qualifying event. In turn, the plan administrator must notify any qualified COBRA beneficiary of their COBRA rights within 14 days of its notification by the employer.
A qualified beneficiary can elect COBRA coverage at any time with 60 days of termination, or later, as the qualified beneficiary has 60 days after being notified by the plan administrator to elect coverage. No premium payments are due until 45 days after the initial election. If the initial premium payment is not made, the plan administrator may terminate the COBRA coverage. Subsequent premiums are due on the first of each month with a 30-day grace period.
The premium is usually the same amount your employer (or you and your employer) paid for coverage under the group plan. In addition, there may be a 2 percent administrative fee.
COBRA rates may seem high, but since they are group rates, they are usually much cheaper than rates for an individual health insurance policy with the same benefits.
The Economic Stimulus Act, otherwise known as the American Recovery and Reinvestment Act of 2009 ("ARRA"), provides a special temporary premium reduction if there is an involuntary termination on or after Sept. 1, 2008, through Dec. 31. Under ARRA, an employee who is involuntarily terminated between Sept. 1, 2008, and Jan. 1, 1010, can elect to pay 35 percent of the cost for COBRA coverage for up to 9 months. The former employer is required to pay 65 percent of the cost but will be reimbursed because the employer is entitled to a credit against income tax withholding and payroll tax for the 65 percent. The benefit is phased out for taxpayers with adjusted gross incomes greater than $125,000 ($250,000 for married couples filing joint returns).
If you were enrolled in COBRA after Sept. 1, 2008, and before the Recovery Act's enactment on Feb. 17, you cannot get a refund of 65 percent of the premiums paid prior to the law's enactment. If you were eligible for the reduction but paid in full for periods of COBRA coverage beginning on or after Feb. 17, you are entitled to a refund or a credit against future payments. You are not eligible for the ARRA premium reduction if you are eligible for group health coverage from a new employer, your spouse's plan or Medicare.
If your company closed or went bankrupt and there is no health plan, then there is no COBRA coverage. If you receive a COBRA premium reduction, you will not be eligible to receive the Health Care Tax Credit during that same month.
If the involuntary termination was during the period from Sept. 1, 2008, through Feb. 16, and you did not elect COBRA when it was first offered or you are no longer enrolled (for example, if you could not continue to pay the premium), then you have a new, second election opportunity. You must be provided a notice of this second opportunity by April 18, and you have 60 days after the notice to elect COBRA. This means that if you didn't take the COBRA coverage initially because you couldn't afford it, or, having elected to receive it, couldn't pay the premiums, now you get a second change to opt in at the 35 percent premium level for up to nine months.
If the amount you earn for the year is more than $125,000 (or $250,000 for married couples filing a joint federal income tax return), you may have to repay all or part of the premium reduction through an increase in your income tax liability for the year. If you think that your income may exceed the limits, you should consider waiving your right to the premium reduction.
E-mail: Patti@spencerlawfirm.com
