What Is PL 99-272? Explaining COBRA Health Coverage

Public Law 99-272, formally known as the Consolidated Omnibus Budget Reconciliation Act of 1985, is a federal law. Commonly referred to as COBRA, this law established a framework for the temporary continuation of group health insurance. Its primary purpose is to allow certain employees and their families to maintain their health coverage after experiencing events that would typically cause them to lose it. The law was a response to the problem of workers and their families suddenly losing health coverage and facing potential financial hardship from medical costs.

Under COBRA, eligible individuals can elect to continue the same health benefits they had while employed, but they are responsible for paying the full premium. This continuation coverage is available only for a limited period as defined by the statute.

Employer and Plan Applicability

COBRA requirements apply to specific employers and health plans. The law covers private-sector employers that maintained 20 or more employees on more than 50 percent of their typical business days in the previous calendar year. State and local governments are also subject to COBRA’s provisions.

The method for counting employees includes both full-time and part-time staff. A part-time employee is counted as a fraction of a full-time employee, equivalent to the proportion of hours they work. For instance, an employee working 20 hours a week where a full-time schedule is 40 hours would be counted as half an employee for the purposes of meeting the 20-employee threshold.

The law extends to most types of group health plans that an employer might offer. This includes medical care plans, dental plans, vision plans, and prescription drug plans, as well as Health Reimbursement Arrangements (HRAs). Plans that are not considered group health plans, such as life insurance and disability insurance, are not subject to these continuation requirements.

Qualifying Events and Beneficiaries

The right to elect COBRA coverage is triggered by specific events and is available to a defined group of individuals known as qualified beneficiaries. A qualified beneficiary is any individual who was covered under the employer’s group health plan on the day before the event that caused the loss of coverage. This group can include the covered employee, their spouse, and any dependent children.

Each qualified beneficiary has an independent right to elect COBRA. This means that if a family was covered, the former employee, their spouse, and each dependent child can separately decide whether to continue their health benefits. For example, a former employee might decline coverage for themselves, but their spouse could elect it for themselves and a child. This individual election right provides flexibility for families to manage their health care needs.

Qualifying Events for Covered Employees

For a covered employee, there are two primary events that can trigger COBRA eligibility. The first is the termination of employment, which can be either voluntary or involuntary. The only exception is termination due to “gross misconduct.” While the law does not define this term, courts interpret it narrowly to mean conduct that is intentional or shows a deliberate indifference to the employer’s interests.

The second qualifying event for an employee is a reduction in their hours of employment. This occurs when an employee’s work hours are cut to a level that makes them no longer eligible for the employer’s group health plan.

Qualifying Events for Spouses and Dependent Children

Spouses and dependent children have a broader set of qualifying events that can make them eligible for COBRA. Many of these events are tied to the status of the covered employee, such as job termination, a reduction in hours, or the employee’s death. Other qualifying events include:

• Divorce or legal separation from the covered employee.
• The covered employee becoming entitled to Medicare, which causes the spouse or dependent to lose coverage.
• A dependent child ceasing to be a dependent under the terms of the health plan, such as by reaching a certain age.

A dependent child experiences a qualifying event when they cease to be a dependent under the plan’s terms. This loss of dependent status is a qualifying event that allows the child to elect COBRA coverage for themselves.

The COBRA Election Process

Once a qualifying event occurs, a specific and time-sensitive process begins. The responsibility for notifying the plan administrator depends on the qualifying event. For events like an employee’s termination, reduction in hours, death, or entitlement to Medicare, the employer must notify the plan administrator within 30 days of the event.

For other events, such as divorce, legal separation, or a child losing dependent status, the covered employee or qualified beneficiary must provide notice to the administrator, generally within 60 days. After the plan administrator receives notice of a qualifying event, they must provide an election notice to the qualified beneficiaries within 14 days. This document explains the right to continue coverage, the cost, and how to make an election, and it must be written to be understood by the average participant.

Upon receiving the election notice, qualified beneficiaries have an election period of at least 60 days to decide whether to accept COBRA coverage. The 60-day clock starts from the date the election notice is provided or the date coverage would otherwise be lost, whichever is later. A beneficiary makes a valid election by following the instructions in the notice.

COBRA Coverage and Premiums

The health coverage provided under COBRA must be identical to the coverage that is available to similarly situated active employees and their families. A beneficiary who elects COBRA receives the same benefits and choices that they had prior to the qualifying event. If the employer changes the health plan for its active employees, the same changes must also apply to the COBRA beneficiaries.

The cost of COBRA coverage is borne entirely by the beneficiary. Plans can charge up to 102% of the full cost of the plan. For individuals who qualify for the 11-month disability extension, plans can charge a higher premium of up to 150% of the cost of coverage for those additional months. Because many employers subsidize a large portion of health insurance premiums for active employees, the cost of COBRA can be significantly higher than what the individual was used to paying.

There are specific rules governing the payment of premiums. The initial premium payment must be made within 45 days after the date of the COBRA election. For subsequent months, payments are due on a monthly basis, and the law requires a grace period of 30 days after the due date. If a payment is not made by the end of the grace period, the plan can terminate the coverage.

The duration of COBRA coverage depends on the type of qualifying event. For qualifying events related to termination of employment or a reduction in hours, coverage lasts for a maximum of 18 months. For other events, such as the death of an employee, divorce, or a child losing dependent status, the maximum coverage period is 36 months.

An 11-month extension, for a total of 29 months, may be available for individuals who are determined to be disabled by the Social Security Administration at the time of the qualifying event or within the first 60 days of COBRA coverage. Coverage can be terminated before the maximum period ends for several reasons. These include:

• Failure to pay premiums in a timely manner.
• The employer ceasing to maintain any group health plan.
• A beneficiary obtaining coverage under another group health plan after electing COBRA.
• A beneficiary becoming entitled to Medicare after electing COBRA.