Employer FAQs
header image

What is COBRA?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 requires employers of 20 or more full-time equivalent employees to offer their employees the opportunity to continue their group healthcare coverage under the employer's plan, if the coverage would end due to employee termination, layoff, or certain other employment status changes (referred to as "qualifying events"). The continuation of coverage applies to surviving spouses, ex-spouses, and dependents of employees as well.

Which employers must comply with COBRA?

COBRA applies to employers that employ 20 or more employees on 50% of the business days during the preceding calendar year and that offer their employees health coverage. All full-time and part-time employees are considered as part of the 20 or more employees in a company, with part-time employees counting only as a fraction of a full-time employee. This fraction is equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.

What is the risk of non-compliance?

Even though the law impacts healthcare insurance, COBRA is an "employer law". This means that the employer has certain responsibilities under COBRA and is liable for COBRA failures. Non-compliance can result in financial penalties to the employer.

These penalties include a non-deductible excise tax penalty equal to $100 per day, per affected individual, per violation in addition to ERISA notice penalties of up to $110 per day from the date of compliance failure.

What are employers required to do to notify employees of their COBRA rights and coverage?

The initial COBRA notice is essential to COBRA compliance and must be provided in writing to covered employees and their spouses when they first become covered by a group health plan. The notice informs them of their rights and responsibilities under COBRA, if a qualifying event occurs.

The Department of Labor requires that the initial notice must be furnished within 90 days of the date individuals are covered under the plan or within 90 days of the date the plan becomes subject to COBRA's requirements, if this occurs later. Sterling will provide employers with a generic COBRA notification letter that the employer, in turn, provides to COBRA eligible employees.

What is a qualified beneficiary (QB)?

A "qualified beneficiary" can be:

  • An employee or former employee who has experienced a loss of group health plan coverage due to reduction of hours or termination. A spouse or ex-spouse of a covered employee.
  • A dependent child of a covered employee, including a child born to or adopted by a covered employee during the period of COBRA coverage.

What is a COBRA Qualifying Event?

For a covered employee, a "qualifying event" can be:

  • Voluntary or involuntary termination of employment (other than for gross misconduct).
  • Reduction in the number of hours of employment.

For a spouse or dependent child, a "qualifying event" can be:

  • Voluntary or involuntary termination of the covered employee who had health coverage through an employer (other than for gross misconduct).
  • Reduction in the number of hours worked by the covered employee.
  • Covered employee's death.
  • Divorce or legal separation from a covered employee.
  • Loss of dependent child status under the plan rules.
  • Entitlement to Medicare by a covered employee.