Consolidated Omnibus Budget Reconciliation Act (COBRA)

• The new regulations specifically address how COBRA applies to employers and employees when a company is involved in a merger or acquisition. The two companies involved in the transaction are allowed to determine who is responsible for the seller's COBRA liability by contract. If no other arrangements are made, the buyer will assume liability for COBRA coverage if it also assumes the acquisition's health care plan. If the seller terminates all of its health care plans prior to the date of the sale, however, the buyer may avoid COBRA liability.
• The new guidelines prevent employers from terminating a qualified employee's COBRA benefits because of other health care coverage the employee had before electing COBRA. However, the employer can terminate COBRA coverage early if the employee fails to pay premiums on time or becomes covered under another group health care plan or Medicare, or if the employer terminates all of its group health care plans.
• The IRS rules give employers more flexibility in determining how many health care plans they offer under COBRA. Previously, each separate benefit plan (i.e., dental, eye care, or prescription drug benefits) had to be offered separately to employees eligible for COBRA. Under the new guidelines, employers can combine all of their health care benefits into one group plan and offer employees an all-or-nothing package of benefits under COBRA. This provision was expected to greatly simplify COBRA administration for employers.
• The 1999 guidelines limit the application of COBRA to employees covered by flexible spending accounts (FSA) for health care. For employees who maintain an FSA, employers only have to offer COBRA coverage during the year of the qualifying event. In addition, employers are not required to offer COBRA coverage if the amount an employee could receive under the FSA exceeds the amount they would pay for COBRA coverage for the same time period.
• The new regulations eliminate the requirement that employers offer "core coverage" as a separate option for COBRA-eligible employees. Previously, employers who provided an extensive health care benefit package were required to allow employees to elect to continue only the major medical portion, or core coverage, under COBRA, and opt out of additional coverage, like prescription drugs or dental care. Now employees may be required to elect to receive either all the coverage in a plan or no coverage at all. Although this provision may raise the expense for employees, it is also expected to simplify COBRA administration for employers.
• The revised guidelines also clarify an employer's responsibility under the law when an employee who wants COBRA coverage moves to a new geographic area outside the normal boundaries of the group health care plan. If the company's group health care plan is region-specific, the employer is only required to provide COBRA coverage if there are other employees covered in the new geographic region. Employers are not required to make alternative coverage available if none exists in that region.
• Finally, the new rules clarify the small employer exception to COBRA. Under normal circumstances, COBRA does not apply to companies with fewer than twenty employees. But it does apply in cases where a company with fewer than twenty employees pools its health care benefits in a multiple-employer plan under which another company has greater than twenty employees. The new regulations also state that employers cannot terminate COBRA coverage for existing beneficiaries because the number of employees later drops below twenty.

2004 NOTIFICATION RULES CHANGES

The most recent changes to the implementation of COBRA took place on May 26, 2004, with the issuance by the U.S. Department of Labor of its revised rule implementing notification requirements under the law. The information was published in the Federal Register of that date, as "29 CFR Part 2590, Health Care Continuation Coverage; Final Rule." DOL introduced this rule change on May 28, 2003 in order to update notification requirements. The main change introduced by this regulation was to extended by 30 days (from 60 to 90) the time available for an employer to notify an employee of his or her COBRA rights after the employee was enrolled in a group health program.

Overall, compliance with COBRA and the various state laws governing health insurance continuation can be tricky and expensive. Although the revised COBRA regulations clarify some matters, they also add new rules for employers to be aware of and follow. "To ensure compliance with the new regulations, employers should review their COBRA procedures, COBRA notices, and group health plans and summary plan descriptions, including health FSA plan documents," Mark Bogart wrote in The CPA Journal. "Employers should also consider implementing new options permitted under the new rules that could help alleviate some of the complexities in COBRA administration." The U.S. Department of Labor and the U.S. Public Health Service offer free information on how the laws affect businesses.

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