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What is COBRA coverage?

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COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act, is a U.S. federal law that requires certain employers to offer temporary health insurance to an employee and an employee’s dependents after the employee has experienced an event that no longer qualifies them for the company’s medical insurance package.

How does COBRA coverage work?

COBRA is a benefit that applies to most companies that have 20 or more employees and offer group health plans. This type of coverage typically means providing health insurance both for the employees and their dependents.

Companies subject to COBRA must provide their employees with a written notice about their rights when they enroll in the company’s health insurance plan. They will also need to provide a similar written notice if an employee experiences an event that qualifies them for COBRA.

Employees or their dependents are usually the ones that pay for this temporary medical coverage. These payments are made on a regular basis – either deducted from their paycheck or made directly to the insurance provider.

Usually, employees are COBRA eligible for about 18 months – depending on the state. The insurance cost will be higher for this coverage, though, since the employer is no longer contributing.

If employees or their dependents don’t make the required payments on time, they won’t be able to get access to COBRA. The same goes if they receive new coverage through a new job or their spouse’s job.

Which employees are eligible for COBRA?

In addition to being enrolled in a company’s group health plan, eligible employees and/or their dependents need to experience one of these qualifying events:

  • Termination of employment
  • Reduction in work hours
  • Divorce/legal separation
  • Death of the employee
  • Loss of dependent child status (i.e., once no longer considered a dependent child of the employee)
  • The employee becoming disabled or loses qualification for group health plan
  • The employee goes bankrupt or terminates the group health plan
  • Employee enrolls in plan under special enrollment periods (like the birth or adoption of a child) and loses eligibility of the plan after that period ends.

It’s enough for employees to have been enrolled in this health plan even a day before the qualifying event occurred.

What are companies’ responsibilities under COBRA requirements?

Under COBRA, companies must let their employees know about their health insurance rights should any of the qualifying events occur.

The information must be presented in a clear, written format. If a qualifying event should occur, another written notice needs to be given to the employee and their dependents. The notice needs to clearly explain the process of selecting COBRA coverage and the timeframe in which the action must be completed.

If companies don’t follow these rules, they can face fees and penalties.

What does COBRA mean for companies with a global workforce?

Non-U.S. companies with employees in the U.S. can also potentially be subject to COBRA.

Understanding the rules and compliance associated with global benefits such as COBRA is crucial for these companies to maintain a clean track record in the country, and not lose any money to fees and penalties that could have been avoided.

A global payroll solution with in-depth knowledge in the space as well as secure software will be able to offer tools that can help these companies stay on top of COBRA-linked requirements, like reporting and reconciliation services and support to help employees better understand their COBRA options.

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