Consolidated Omnibus Budget Reconciliation Act (1985)
10 July 2006Consolidated Omnibus Budget Reconciliation Act (1985),
29 U.S.C. §§1161-1168
Coverage and Prohibition: Passed as an amendment to the Employee Retirement Income Security Act (“ERISA”), the Internal Revenue Code (“IRC”), and the Public Health Service Act (“PHSA”), the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) requires employers with 20 or more employees that provide group health plans to offer continuation coverage to qualified beneficiaries who have lost health care coverage as a result of certain qualifying events. The term “group health plan” refers to any plan that provides medical care to the organization’s employees, former employees, or the families of employees or former employees (including dental plans, vision care plans, medical flexible spending accounts, and cafeteria plans that provide medical benefits). Qualified beneficiaries are individuals who, on the day before a qualifying event, are covered under a group health plan as a covered employee, spouse of a covered employee, or a dependent child of a covered employee (including children born to, or placed for adoption with, a covered employee during the period of COBRA continuation coverage).
Qualifying events that trigger a covered employer’s obligation to offer the continuation coverage under COBRA include: (1) the termination of employment (for reasons other than gross misconduct); (2) a reduction in hours so that the employee no longer qualifies for regular insurance coverage; (3) the covered employee’s death; (4) the divorce or legal separation of the covered employee from his spouse; (5) the covered employee’s enrollment in Medicare; (6) the cessation of coverage of a dependent child under the terms of the plan; or (7) the bankruptcy of the employer (this applies only to retirees). Once a qualifying event has occurred, the employer must notify the qualified beneficiaries of their right to continue health care coverage for between 18 and 36 months, depending on the type of qualifying event. Employers are not required to pay for the cost of the coverage; they only are required to offer the continuing coverage to the qualified beneficiaries.
Enforcement: Both the Department of Labor (“DOL”) and the Department of Treasury (“Treasury”) administer COBRA continuation coverage of private-sector health group health plans. The Department of Health and Human Services administers the law as it affects public-sector health plans. The DOL’s interpretive and regulatory responsibility is limited to the disclosure and notification requirements of COBRA while Treasury has issued COBRA regulations related to eligibility, coverage, and premiums. The DOL and Treasury, however, share jurisdiction for enforcement of these provisions.
Remedies: An employer that violates COBRA requirements may be subject to a nondeductible excise tax in the amount of $100 per day per violation during the “noncompliance period,” up to a maximum of $200 per day per family. The noncompliance period begins on the date the violation first occurs and continues until the violation is corrected. In addition to COBRA’s statutory penalties, ERISA gives plan participants and beneficiaries the right to sue for penalties of up to $110 per day against covered nongovernmental plan administrators who fail to give required COBRA notices. Further, ERISA makes plan fiduciaries personally liable for breach of their fiduciary duty which may include failure to follow COBRA rules.
Related Regulations:
Treasury: COBRA Continuation Coverage, 26 C.F.R. §54.4980B-1 to -10.
Department of Labor: COBRA Notices, 29 C.F.R. §§2590.606-1 to -4.
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