Consolidated Omnibus Budget Reconciliation Act of 1985 - Provisions

Provisions

As originally enacted, Title X of the Act provided that a qualifying employer will not be permitted to take a tax deduction for its health insurance costs unless its health insurance plan allows employees of the employer and the employee's immediate family members who had been covered by a health care plan to maintain their coverage if a "qualifying event" causes them to lose coverage. However, the legislation was subsequently amended to instead impose an excise tax upon an employer whose health plan fails to satisfy the applicable rules. A qualifying employer is generally an employer with 20 or more full time equivalent employees.

Among the "qualifying events" listed in the statute are loss of benefits coverage due to (1) the death of the covered employee; (2) an employee loses eligibility for coverage due to voluntary or involuntary termination or a reduction in hours as a result of resignation, discharge (except for "gross misconduct"), layoff, strike or lockout, medical leave, or slowdown in business operations; (3) divorce or legal separation that terminates the ex-spouse's eligibility for benefits; or (4) a dependent child reaching the age at which he or she is no longer covered. COBRA imposes different notice requirements on participants and beneficiaries, depending on the particular qualifying event that triggers COBRA rights. See DOL.GOV's FAQs For Employers About COBRA Continuation Health Coverage

COBRA also allows for coverage for up to 18 months in most cases. If the individual is deemed disabled by the Social Security Administration, coverage may continue for up to 29 months. In the case of divorce from the former employee, the former spouse's coverage may continue for up to 36 months. In the case of death of the former employee, the widow's coverage may continue for up to 36 months.

COBRA does not apply, on the other hand, if employees lose their benefits coverage because the employer has terminated the plan altogether or if the employer has gone out of business. In cases where COBRA does not apply, some states have stepped in with state health insurance continuation laws, usually called "mini-COBRA" laws, which help employees continue their health insurance when federal COBRA does not apply.

COBRA does not, unlike other federal statutes such as the Family and Medical Leave Act (FMLA), require the employer to pay for the cost of providing continuation coverage. Instead it allows employees and their dependents to maintain coverage at their own expense by paying the full cost of the premium the employer and the employee previously paid, plus up to a 2% administrative charge (50% for the latter 11 months under the disability extension).

According to the U.S. Department of Labor:

...the coverage you are given must be identical to the coverage that is currently available under the plan to similarly situated active employees and their families (generally, this is the same coverage that you had immediately before the qualifying event). You will also be entitled, while receiving continuation coverage, to the same benefits, choices, and services that a similarly situated participant or beneficiary is currently receiving under the plan, such as the right during an open enrollment season to choose among available coverage options. You will also be subject to the same rules and limits that would apply to a similarly situated participant or beneficiary, such as co-payment requirements, deductibles, and coverage limits.

Employees and dependents can also opt for a lesser form of coverage, e.g., to choose continuation coverage under a plan that only covers the employee, but not his or her dependents, or that only provides medical and hospitalization coverage and does not pay for dental work, if those options are available to covered employees.

Employees and dependents lose coverage if they fail to make timely payments of these premiums. Employers are required to inform employees and dependents upon loss of coverage, in writing, by at least fifteen days before the coverage ceases.