Continuation Coverage Requirements Applicable to
Group Health Plans
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final rule.
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SUMMARY: The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)
added health care continuation requirements that apply to group health plans.
Coverage required to be provided under those requirements is referred to as
COBRA continuation coverage. Proposed regulations interpreting the COBRA
continuation coverage requirements were published in the Federal Register of
June 15, 1987 and of January 7, 1998. This document contains final regulations
based on these two sets of proposed regulations. The final regulations also
reflect statutory amendments to the COBRA continuation coverage requirements
since COBRA was enacted. A new set of proposed regulations addressing additional
issues under the COBRA continuation coverage provisions is being published
elsewhere in this issue of the Federal Register. The regulations will generally
affect sponsors of and participants in group health plans, and they provide plan
sponsors and plan administrators with guidance necessary to comply with the law.
DATES: Effective Date: These regulations are effective February 3, 1999.
Applicability Dates: Sections 54.4980B-1 through 54.4980B-8 apply to group
health plans with respect to qualifying events occurring in plan years beginning
on or after January 1, 2000. See the Effective Date portion of this preamble and
Q&A-2 of Sec. 54.4980B-1.
FOR FURTHER INFORMATION CONTACT: Yurlinda Mathis, 202-622-4695. This is not a
toll-free number.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in these final regulations have been
reviewed and approved by the Office of Management and Budget in accordance with
the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) under control number
1545-1581. Responses to these collections of information are mandatory in some
cases and required in order to obtain a benefit in other cases. Group health
plans are required to provide certain individuals a notice of their COBRA
continuation coverage rights when certain qualifying events occur and are
required to inform health care providers who contact the plan to confirm the
coverage of certain individuals of the individuals' complete rights to coverage.
To obtain COBRA continuation coverage or extended coverage, certain individuals
are required to notify the plan administrator of certain events or that they are
electing COBRA continuation coverage, and plans are required to notify certain
individuals of insignificant underpayments if the plan wishes to require the
individuals to pay the deficiency. This information will be used to advise
employers and plan administrators of their obligation to offer COBRA
continuation coverage, or an extended period of such coverage; to advise
qualified beneficiaries of their right to elect COBRA continuation coverage and
of insignificant errors in payment; and to inform health care providers of
individuals' rights to COBRA continuation coverage.
An agency may not conduct or sponsor, and a person is not required to respond
to, a collection of information unless the collection of information displays a
valid control number.
The estimated average annual burden per respondent varies from 30 seconds to 330
hours, depending on individual circumstances, with an estimated average of 14
minutes.
Comments concerning the accuracy of this burden estimate and suggestions for
reducing this burden should be sent to the Internal Revenue Service, Attn: IRS
Reports Clearance Officer, OP:FS:FP, Washington, DC 20224, and to the Office of
Management and Budget, Attn: Desk Officer for the Department of the Treasury,
Office of Information and Regulatory Affairs, Washington, DC 20503.
Books or records relating to these collections of information must be retained
as long as their contents may become material in the administration of any
internal revenue law. Generally, tax returns and tax return information are
confidential, as required by 26 U.S.C. 6103.
Background
On June 15, 1987, proposed regulations (EE-143-86) relating to continuation
coverage requirements applicable to group health plans were published in the
Federal Register (52 FR 22716). A public hearing was held on November 4, 1987.
Written comments were also received. A supplemental set of proposed regulations
(REG-209485-86) was published in the Federal Register of January 7, 1998 (63 FR
708). No public hearing was requested or held after the publication of the
supplemental proposed regulations; written comments were received. After
consideration of these comments, after review of the reported court decisions
under the parallel COBRA continuation coverage provisions of the Employee
Retirement Income Security Act of 1974 (ERISA) and the Public Health Service
Act, and based on the experience of the IRS in administering the COBRA
continuation coverage requirements, a portion of the regulations proposed by
EE-143-86 and REG-209485-86 is adopted as revised by this Treasury decision. The
revisions are summarized in the explanation below. Also being published
elsewhere in this issue of the Federal Register is a new set of proposed
regulations, which addresses additional issues.
Explanation of Provisions
Overview
The regulations are intended to provide clear, administrable rules regarding
COBRA continuation coverage. The regulations give comprehensive guidance on many
questions under COBRA, with a view to enhancing the certainty and reliance
available to all parties-- including employees, qualified beneficiaries,
employers, employee organizations, and group health plans--in determining their
COBRA rights and obligations. The guidance is designed to further the protective
purposes of COBRA without undue administrative burdens or costs on employers,
employee organizations, or group health plans.
For example, the regulations:
<bullet> Prevent group health plans from terminating COBRA continuation coverage
on the basis of other coverage that a qualified beneficiary had prior to
electing COBRA continuation coverage, in accordance with the Supreme Court's
[[Page 5161]] decision in Geissal v. Moore Medical Corp.
<bullet> Give employers and employee organizations significant flexibility in
determining, for purposes of COBRA, the number of group health plans they
maintain. This will reduce burdens on employers and employee organizations by
permitting them to structure their group health plans in an efficient and
cost-effective manner and to satisfy their COBRA obligations based upon that
structure.
<bullet> Provide baseline rules for determining the COBRA liabilities of buyers
and sellers of corporate stock and corporate assets and permit buyers and
sellers to reallocate and carry out those liabilities by agreement. This will
significantly enhance employers' ability to negotiate and to plan appropriately
for the treatment of qualified beneficiaries in connection with mergers and
acquisitions, while protecting the rights of qualified beneficiaries affected by
the transactions.
<bullet> Limit the application of COBRA for most health flexible spending
arrangements. This will ensure that COBRA continuation coverage under health
flexible spending arrangements is available in appropriate cases without
requiring continuation coverage where that would not serve the statutory
purposes.
<bullet> Eliminate the requirement that group health plans offer qualified
beneficiaries the option to elect only core (health) coverage under a group
health plan that otherwise provides both core and noncore (vision and dental)
coverage.
<bullet> Give employers, in determining whether the small-employer plan
exception applies, the option of counting by pay period rather than by every
business day, and provide, for that exception, for the consistent treatment of
part-time employees through the use of full- time equivalents.
The COBRA continuation coverage requirements enacted on April 7, 1986 have been
amended by the Omnibus Budget Reconciliation Act of 1986 (OBRA 1986), the Tax
Reform Act of 1986 (TRA 1986), the Technical and Miscellaneous Revenue Act of
1988 (TAMRA), the Omnibus Budget Reconciliation Act of 1989 (OBRA 1989), the
Omnibus Budget Reconciliation Act of 1990 (OBRA 1990), the Small Business Job
Protection Act of 1996 (SBJPA), and the Health Insurance Portability and
Accountability Act of 1996 (HIPAA).\1\ These amendments made numerous
clarifications and modifications to the COBRA continuation coverage
requirements, moved the requirements from section 162(k) to section 4980B, added
various other features, such as the disability extension to the required period
of coverage, and significantly altered the sanctions imposed on employers and
plans for failing to comply with the requirements. The specific changes made by
these amendments are discussed below in connection with the provisions of the
regulations that relate to them.
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\1\ The COBRA continuation coverage requirements have also been affected by an
amendment made to the definition of group health plan by the Omnibus Budget
Reconciliation Act of 1993 (OBRA 1993). OBRA 1993 amended the definition of
group health plan in section 5000(b)(1), which the COBRA continuation coverage
provisions of the International Revenue Code incorporate by reference.
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The legislative history of COBRA provides that the Department of the Treasury
has the authority to interpret the coverage and tax sanction provisions of COBRA
and that the Department of Labor has the authority to interpret the reporting
and disclosure provisions. Accordingly, these regulations apply in interpreting
the coverage provisions of COBRA in Title I of ERISA, as well as those in the
Internal Revenue Code. With minor exceptions, the final regulations and the new
proposed regulations being published today do not address the notice provisions
of the COBRA continuation coverage requirements.
Organization
The final regulations being published today follow the structure of the 1987
proposed regulations, with related questions-and-answers grouped into topics.
Each topic is now in a separate section, and sections have been added to the new
proposed regulations being published today for (1) business reorganizations and
employer withdrawals from multiemployer plans and (2) the interaction of the
Family and Medical Leave Act of 1993 (FMLA) and COBRA. The substance of the 1998
proposed regulations has been integrated into the questions- and-answers of the
1987 proposed regulations. The ordering of some of the questions-and-answers has
changed, and all of the questions-and- answers relating to the original
statutory effective date have been deleted. In addition, in a few cases, the
content of two separate questions-and-answers in the 1987 proposed regulations
has been combined into a single question-and-answer; in other cases the content
of a single question-and-answer has been expanded to two or more
questions-and-answers. These changes have resulted in the renumbering of the
questions-and-answers. The new proposed regulations being published today are
designed to fill gaps designated in the final regulations as reserved.
Effective Date
The 1987 proposed regulations provide that they will be effective upon
publication as final regulations. Some commenters suggested that the final
regulations should have a delayed effective date. The final regulations follow
this suggestion; they apply with respect to qualifying events occurring in plan
years beginning on or after January 1, 2000. For any period before the effective
date of the final regulations, the plan and the employer must operate in good
faith compliance with a reasonable interpretation of the requirements in section
4980B. For the period before the effective date of the final regulations, the
IRS will consider compliance with the proposed regulations in Sec. 1.162-26 (the
1987 proposed regulations) and Sec. 54.4980B-1 (the 1998 proposed regulations)
to constitute good faith compliance with a reasonable interpretation of the
statutory requirements for the topics that those proposed regulations address,
except to the extent inconsistent with a statutory amendment adopted after the
dates the proposed regulations were issued, during the period the amendment is
effective, or with a decision of the United States Supreme Court released after
the proposed regulations were issued, during the period after the decision is
released. For any period beginning on or after the effective date of the final
regulations with respect to topics not addressed in the final regulations, such
as how to calculate the applicable premium, the plan and the employer must
operate in good faith compliance with a reasonable interpretation of the
requirements in section 4980B.
Compliance with the new proposed regulations will constitute good faith
compliance with a reasonable interpretation of the statutory requirements
addressed in the new proposed regulations until the new proposed regulations are
finalized. In addition, actions inconsistent with the terms of the new proposed
regulations will not necessarily constitute a lack of good faith compliance with
a reasonable interpretation of the statutory requirements addressed in the new
proposed regulations; whether there has been good faith compliance with a
reasonable interpretation of the statutory requirements will depend on all the
facts and circumstances of each case.
The IRS will not assess the excise tax with respect to a plan that operates in
good faith compliance with a reasonable interpretation of the statutory
requirements, as described in the preceding two paragraphs. Note, however, that
in the case of lawsuits brought by qualified beneficiaries to enforce their
COBRA continuation coverage rights under ERISA or the Public Health Service Act,
the courts generally have not applied any good faith compliance standard.
Plans That Must Comply
The final regulations provide rules regarding which group health plans are
subject to COBRA. These rules are generally similar to those set forth in the
1987 proposed regulations. However, the rules for determining, for purposes of
the COBRA continuation coverage requirements, the number of group health plans
maintained by an employer have been deleted, and the new proposed regulations
set forth substantially different rules, which provide that employers and
employee organizations generally have broad discretion to determine the number
of group health plans that they maintain. Other significant changes to the 1987
proposed regulations on this point (some of which are set forth in the 1998
proposed regulations) include exceptions for long-term care services and medical
savings accounts and new rules regarding the small-employer plan exception.
As in the 1987 proposed regulations, the final regulations provide that, in
general, all group health plans are subject to the COBRA continuation coverage
requirements. However, small-employer plans (discussed below), church plans
(within the meaning of section 414(e)), and governmental plans (within the
meaning of section 414(d)) are not subject to COBRA. (The final regulations
refer to these as plans excepted from COBRA.) Plans excepted from COBRA are
generally not subject to the COBRA continuation coverage requirements or the
COBRA excise tax, although group health plans maintained by state or local
governments are subject to parallel continuation coverage requirements in the
Public Health Service Act (which is administered by the Department of Health and
Human Services). Also, the Federal Employees Health Benefit Program is subject
to generally similar, although not parallel, temporary continuation of coverage
provisions under the Federal Employees Health Benefits Amendments Act of 1988.
The final regulations define group health plan in a manner generally similar to
that in the 1987 proposed regulations. However, certain changes in terminology
have been made to reflect the statutory cross-reference to section 5000(b)(1)
set forth in section 4980B(g)(2) (such as the use of the term health care and
the definition of employee). Additionally, the final regulations, in accordance
with section 4980B(g)(2), provide that a plan is not a group health plan if
substantially all the coverage provided under the plan is for qualified
long-term care services (as defined in section 7702B(c)). The final regulations
allow plans to use any reasonable method in determining whether a plan satisfies
this exception. The final regulations also provide, in accordance with section
106(b)(5), that amounts contributed by an employer to a medical savings account
(as defined in section 220(d)) are not considered part of a group health plan
for purposes of COBRA (although a high-deductible health plan will not fail to
be a group health plan simply because it covers a holder of a medical savings
account).
Under the final regulations, a group health plan is a plan maintained by an
employer or employee organization to provide health care to individuals who have
an employment-related connection to the employer or employee organization or to
the families of such individuals. In accordance with section 5000(b)(1), these
individuals include employees, former employees, the employer, and others
associated or formerly associated with the employer or employee organization in
a business relationship. The final regulations generally refer to all
individuals covered under a plan by virtue of the performance of services or by
virtue of membership in an employee organization as employees. (As discussed
below, the term employee has a narrower meaning for purposes of the
small-employer plan exception.) The final regulations use the term employer to
refer to a person for whom an individual performs services. Pursuant to section
414(t), the term employer also includes, with respect to such a person, any
member of a group described in section 414(b), (c), (m), or (o) that includes
the person (a controlled group) as well as any successor of the person or of a
member of the controlled group.
Under the final regulations, as under the 1987 proposed regulations, a plan
generally is considered to provide health care whether it does so directly or
through insurance, reimbursement, or other means and whether it does so through
an on-site facility or a cafeteria or other flexible benefit arrangement.
Insurance includes group insurance policies and one or more individual policies
under an arrangement maintained by the employer or employee organization to
provide health care to two or more employees. Under the final regulations, as
under the 1987 proposed regulations, in the case of a cafeteria plan or other
flexible benefit arrangement, the COBRA continuation coverage requirements apply
only to the health care benefits under the cafeteria plan or other flexible
benefit arrangement that an employee has actually chosen to receive.
Many commenters on the 1987 proposed regulations requested clarification of the
application of COBRA to health care benefits provided under flexible spending
arrangements (health FSAs). Some commentators argued that health FSAs should not
be subject to COBRA. Health FSAs satisfy the definition of group health plan in
section 5000(b)(1) and, accordingly, are generally subject to the COBRA
continuation coverage requirements. However, COBRA is intended to ensure that a
qualified beneficiary has guaranteed access to coverage under a group health
plan and that the cost of that coverage is no greater than 102 percent of the
applicable premium. The IRS and Treasury believe that the purposes of COBRA are
not furthered by requiring an employer to offer COBRA for a plan year if the
amount that the employer could require to be paid for the COBRA coverage for the
plan year would exceed the maximum benefit that the qualified beneficiary could
receive under the FSA for that plan year and if the qualified beneficiary could
not avoid a breCOBRA_Insurance in coverage, for purposes of the HIPAA portability
provisions,\2\ by electing COBRA coverage under the FSA. Accordingly, the new
proposed regulations contain a rule limiting the application of the COBRA
continuation coverage requirements in the case of health FSAs.
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\2\ Under HIPAA, a qualified beneficiary who maintains coverage after
termination of employment under a group health plan that is subject to HIPAA can
avoid a breCOBRA_Insurance in coverage and thereby avoid becoming subject to a preexisting
condition exclusion upon later becoming covered by another group health plan.
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Under this rule, if the health FSA satisfies two conditions, the health FSA need
not mCOBRA_Insurancee COBRA continuation coverage available to a qualified beneficiary for
any plan year after the plan year in which the qualifying event occurs. The
first condition that the health FSA must satisfy for this exception to apply is
that the health FSA is not subject to the HIPAA portability provisions in
sections 9801 though 9833 because the benefits provided under the health FSA are
excepted benefits. (See sections 9831 and 9832.) \3\ The second condition is
that, in the plan year in which the qualifying event of a qualified beneficiary
occurs, the maximum amount that the health FSA could require to be paid for a
full plan year of COBRA continuation coverage equals or exceeds the maximum
benefit available under the health FSA for the year. It is contemplated that
this second condition will be satisfied in most cases.
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\3\ The IRS and Treasury, together with the U.S. Department of Labor and the
U.S. Department of Health and Human Services, have issued a notice (62 FR 67688)
holding that a health FSA is exempt from HIPAA because the benefits provided
under it are excepted benefits under sections 9831 and 9832 if the employer also
provides another group health plan, the benefits under the other plan are not
limited to excepted benefits, and the maximum reimbursement under the health FSA
is not greater than two times the employee's salary reduction election (or if
greater, the employee's salary reduction election plus five hundred dollars.)
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Moreover, if a third condition is satisfied, the health FSA need not mCOBRA_Insurancee COBRA
continuation coverage available with respect to a qualified beneficiary at all.
This third condition is satisfied if, as of the date of the qualifying event,
the maximum benefit available to the qualified beneficiary under the health FSA
for the remainder of the plan year is not more than the maximum amount that the
plan could require as payment for the remainder of that year to maintain
coverage under the health FSA.
A plan is maintained by an employer or employee organization even if the
employer or employee organization does not directly or indirectly contribute to
it if coverage under the plan would not be available to an individual at the
same cost if the individual did not have an employment-related connection to the
employer or employee organization. The final regulations, for purposes of the
definition of a group health plan, use the term health care instead of the term
medical care (which was used in the 1987 proposed regulations). This change
reflects the change in the definition of group health plan made by OBRA 1989.
However, the final regulations provide that health care has the same meaning as
the term medical care under section 213(d). Like the 1987 proposed regulations,
the final regulations set forth a summary of items that do and do not constitute
health care.
The final regulations, generally following the 1987 proposed regulations, set
forth rules for determining whether a group health plan is a small-employer
plan. In general, a group health plan other than a multiemployer plan is a
small-employer plan if it is maintained for a calendar year by an employer that
normally employed fewer than 20 employees during the preceding calendar year,
and a group health plan that is a multiemployer plan is a small-employer plan if
each of the employers contributing to the plan for a calendar year normally
employed fewer than 20 employees during the preceding calendar year. Whether the
plan is a multiemployer plan or not, the term employer includes all members of a
controlled group. An example in the final regulations clarifies that the
controlled group includes foreign members, and thus a U.S. subsidiary with fewer
than 20 employees is subject to COBRA if the controlled group has 20 or more
employees world-wide. The final regulations set forth additional rules for the
application of the small-employer plan exception to multiemployer plans, and the
new proposed regulations contain the same definition of multiemployer plan that
is in section 414(f).
Under the final regulations, an employer is considered to have normally employed
fewer than 20 employees during a particular calendar year if it had fewer than
20 employees on at least 50 percent of its typical business days during that
year. This rule differs from the rule in the 1987 proposed regulations in two
ways. First, the 1987 proposed regulations use the term working days, whereas
the final regulations use the statutory term typical business days.
The second difference relates to the term employee. Under the 1987 proposed
regulations, self-employed individuals and independent contractors are counted
as employees for purposes of the small-employer plan exception if they are
covered under a plan of the employer. Commenters argued that only common law
employees should be counted for this purpose. Unlike the definition of covered
employee (amended by OBRA 1989 to mCOBRA_Insurancee clear that individuals who are not common
law employees but who are covered under the group health plan of an employer or
employee organization by virtue of the performance of services are still
considered covered employees) and the definition of group health plan (amended
by OBRA 1993 to mCOBRA_Insurancee clear that a health plan covering individuals who are not
common law employees of the employer or employee organization, and who are not
family members of common law employees, is still a group health plan) the
reference to employees for purposes of the small-employer plan exception have
not been amended to include individuals who are not common law employees.
Consequently, under the final regulations, only common law employees are tCOBRA_Insuranceen
into account for purposes of the small-employer plan exception; self-employed
individuals, independent contractors, and directors are not counted.
Although a small-employer plan is generally excepted from COBRA, a plan that is
not a small-employer plan for a period remains subject to COBRA for qualifying
events that occurred during that period, even if it subsequently becomes a
small-employer plan.
In determining whether a plan is eligible for the small-employer plan exception,
part-time employees, as well as full-time employees, must be tCOBRA_Insuranceen into account.
Several commenters on the 1987 proposed regulations requested clarification of
how to count part-time employees for the small-employer plan exception, and the
new proposed regulations provide guidance on this issue. Under the new proposed
regulations, instead of each part-time employee counting as a full employee,
each part-time employee counts as a fraction of an employee, with the fraction
equal to the number of hours that the part-time employee works for the employer
divided by the number of hours that an employee must work in order to be
considered a full-time employee. The number of hours that must be worked to be
considered a full-time employee is determined in a manner consistent with the
employer's general employment practices, although for this purpose not more than
eight hours a day or 40 hours a week may be used. An employer may count
employees for each typical business day or may count employees for a pay period
and attribute the total number of employees for that pay period to each typical
business day that falls within the pay period. The employer must use the same
method for all employees and for the entire year for which the small-employer
plan determination is made.
In determining whether a multiemployer plan satisfies the requirements for the
small-employer plan exception, the 1987 proposed regulations provide a special
rule permitting the multiemployer plan to be considered a small-employer plan
for a year if any contributing employer that grew to be too large to qualify for
the exception during the preceding year ceases to contribute to the plan by
February 1 of the current year. Questions have been raised about the need for
and the authority for this special rule, and one commenter pointed out the
uncertainty of how to deal with a qualified beneficiary experiencing a
qualifying event under such a plan in January of the current year if the
qualified beneficiary needed confirmation of coverage for urgent services before
it was clear that the too-large employer would cease contributing to the
multiemployer plan by February 1. Based on these concerns, the final regulations
eliminate this special rule for multiemployer plans.
The new proposed regulations provide guidance, for purposes of the COBRA
continuation coverage requirements, on how to determine the number of group
health plans that an employer or employee organization maintains. Under these
rules, the employer or employee organization is generally permitted to establish
the separate identity and number of group health plans under which it provides
health care benefits to employees. Thus, if an employer or employee organization
provides a variety of health care benefits to employees, it generally may
aggregate the benefits into a single group health plan or disaggregate benefits
into separate group health plans. The status of health care benefits as part of
a single group health plan or as separate plans is determined by reference to
the instruments governing those arrangements. If it is not clear from the
instruments governing an arrangement or arrangements to provide health care
benefits whether the benefits are provided under one plan or more than one plan,
or if there are no instruments governing the arrangement or arrangements, all
such health care benefits (other than those for qualified long-term care
services) provided by a single entity (determined without regard to the
controlled group) constitute a single group health plan.
Under the new proposed regulations, a multiemployer plan and a plan other than a
multiemployer plan are always separate plans. In addition, any treatment of
health care benefits as constituting separate group health plans will be
disregarded if a principal purpose of the treatment is to evade any requirement
of law. Of course, an employer's flexibility to treat benefits as part of
separate plans may be limited by the operation of other laws, such as the
prohibition in section 9802 on conditioning eligibility to enroll in a group
health plan on the basis of any health factor of an individual.
The final regulations modify the rules set forth in the 1987 proposed
regulations for determining the plan year of a group health plan under COBRA.
These modifications are made to be consistent with the rules in the temporary
regulations under HIPAA. The definition of plan year is important in applying,
for example, the effective date provisions under the final regulations and the
rules for health FSAs under the new proposed regulations. Under the final
regulations, the plan year is the year designated as such in the plan documents.
If the plan documents do not designate a plan year (or if there are no plan
documents), the plan year is the deductible/limit year used by the plan. If the
plan does not impose deductibles or limits on an annual basis, the plan year is
the policy year. If the plan does not impose deductibles or limits on an annual
basis and the plan is not insured (or the insurance policy is not renewed
annually), the plan year is the taxable year of the employer. In any other case,
the plan year is the calendar year.
The final regulations reflect the statutory provisions that provide for the
imposition of an excise tax in the event of a failure by a group health plan to
comply with the COBRA continuation coverage requirements of section 4980B(f). In
the case of a multiemployer plan, the excise tax is imposed on the plan; \4\ in
the case of any other plan, the excise tax is imposed on the employer
maintaining the plan. In certain circumstances, the excise tax can be imposed on
other persons involved with the provision of benefits under the plan, such as an
insurer providing benefits under the plan or a third party administrator
administering claims under the plan. Separate, non-tax remedies may be available
in the case of a plan that fails to comply with the COBRA continuation coverage
requirements in ERISA.
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\4\ In this regard, the U.S. Department of labor has advised the IRS and
Treasury that to the extent a plan fiduciary subjects a plan to liability for
the COBRA excise tax on account of her or his imprudent actions, the plan
fiduciary may be held personally liable under Title I of ERISA for the amount of
the tax.
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Qualified Beneficiaries
The rules in the final regulations for determining who is a qualified
beneficiary generally follow those set forth in the 1987 proposed regulations,
as well as those set forth in the 1998 proposed regulations regarding the status
of newborn and adopted children as qualified beneficiaries. However, certain
provisions have been added to the final regulations to reflect the special
statutory rules that apply in the case of bankruptcy of the employer as a
qualifying event. Modifications have also been made to reflect the decision of
the Supreme Court in Geissal v. Moore Medical Corp., 118 S. Ct. 1869 (1998),
which held that an individual covered under another group health plan at the
time she or he elects COBRA continuation coverage cannot be denied COBRA
continuation coverage on the basis of that other coverage.
Under the final regulations, a qualified beneficiary is, in general: (1) any
individual who, on the day before a qualifying event, is covered under a group
health plan either as a covered employee, the spouse of a covered employee, or
the dependent child of a covered employee; or (2) any child born to or placed
for adoption with a covered employee during a period of COBRA continuation
coverage. (The final regulations retain the definitions of the terms placement
for adoption and being placed for adoption that were in the 1998 proposed
regulations.) For a qualifying event that is the bankruptcy of the employer, any
covered employee who retired on or before the date of any substantial
elimination of group health plan coverage is a qualified beneficiary; the
spouse, surviving spouse, or dependent child of the retired covered employee is
also a qualified beneficiary if the spouse, surviving spouse, or dependent child
was a beneficiary under the plan on the day before the bankruptcy qualifying
event. The final regulations add a provision clarifying that if an individual is
denied coverage under a group health plan in violation of applicable law
(including HIPAA) and experiences an event that would be a qualifying event if
the coverage had not been wrongfully denied, the individual is considered a
qualified beneficiary.
A covered employee can be a qualified beneficiary only in connection with a
qualifying event that is the termination (or reduction of hours) of the covered
employee's employment or the employer's bankruptcy. As under the 1987 proposed
regulations, the final regulations provide that a covered employee is not a
qualified beneficiary if her or his status as a covered employee is attributable
to certain periods in which she or he was a nonresident alien (in which case the
covered employee's spouse and dependent children are also not qualified
beneficiaries). Although a child born to or placed for adoption with a covered
employee during a period of COBRA continuation coverage is a qualified
beneficiary, a child born to or placed for adoption with a qualified beneficiary
other than the covered employee after a qualifying event, or a person who
becomes the spouse of a qualified beneficiary (regardless of whether the
qualified beneficiary is the covered employee) after a qualifying event is not a
qualified beneficiary. The final regulations retain the rule of the 1987
proposed regulations under which an individual is not a qualified beneficiary
if, on the day before the qualifying event, the individual is covered under the
group health plan solely because of another individual's election of COBRA
continuation coverage. However, consistent with Geissal, the final regulations
eliminate the rule in the 1987 proposed regulations that an individual is not a
qualified beneficiary if, on the day before the qualifying event, the individual
was entitled to Medicare benefits.
An individual ceases to be a qualified beneficiary if she or he does not elect
COBRA continuation coverage by the end of the election period (discussed below).
The final regulations clarify that an individual who elects COBRA continuation
coverage ceases to be a qualified beneficiary once the plan's obligation to
provide COBRA continuation coverage has ended.
The term covered employee is defined in the final regulations in a manner
substantially the same as in the 1987 proposed regulations. Although some
commenters on the 1987 proposed regulations objected to the inclusion in this
definition of individuals other than common law employees, the statutory
definition was amended by OBRA 1989 to include such individuals.
Under the final regulations, a covered employee generally includes any
individual who is or has been provided coverage under a group health plan (other
than one excepted from COBRA as of the date of what would otherwise be a
qualifying event) because of her or his present or past performance of services
for the employer maintaining the group health plan (or by reason of membership
in the employee organization maintaining the plan). Thus, retirees and former
employees covered by a group health plan are covered employees if the coverage
is provided in whole or in part because of the previous employment. Any
individual who performs services for the employer maintaining the plan or who is
a member of the employee organization maintaining the plan may be a covered
employee. Thus, common law employees, self-employed individuals, independent
contractors, and corporate directors can be covered employees. Generally, mere
eligibility for coverage--as opposed to actual coverage--does not mCOBRA_Insurancee an
individual a covered employee. However, if an individual who otherwise would be
a covered employee is denied coverage under a group health plan in violation of
applicable law (including HIPAA), the individual is considered a covered
employee.
Qualifying Events
The rules regarding qualifying events under the final regulations generally are
the same as those in the 1987 proposed regulations. Under the final regulations,
a qualifying event is any of a set of specified events that occurs while a group
health plan is subject to COBRA and that causes a covered employee (or the
spouse or dependent child of the covered employee) to lose coverage under the
plan. These specified events are: the death of a covered employee; the
termination (other than by reason of gross misconduct), or reduction of hours,
of a covered employee's employment; the divorce or legal separation of a covered
employee from the covered employee's spouse; a covered employee's becoming
entitled to Medicare benefits under Title XVIII of the Social Security Act; a
dependent child's ceasing to be a dependent child of the covered employee under
the plan; and a proceeding in bankruptcy under Title 11 of the United States
Code with respect to an employer from whose employment a covered employee
retired at any time. The addition of employer bankruptcy as a qualifying event
reflects the amendments made to COBRA by OBRA 1986.
The reasons for which an employee has a termination of employment or a reduction
of hours of employment generally are not relevant in determining whether the
termination or reduction of hours is a qualifying event. Thus, a voluntary
termination, a strike, a lockout, a layoff, or an involuntary discharge each may
constitute a qualifying event. However, if an employee is discharged for gross
misconduct, the termination of employment does not constitute a qualifying
event. The final regulations clarify that a reduction of hours of a covered
employee's employment includes any decrease in the number of hours that a
covered employee works or is required to work that does not constitute a
termination of employment. Thus, if a covered employee tCOBRA_Insurancees a leave of absence,
is laid off, or otherwise performs no hours of work during a period, the covered
employee has experienced a reduction in hours that, if the other applicable
requirements are satisfied, constitutes a qualifying event. (But see Notice
94-103 (1994-2 C.B. 569) and the new proposed regulations, described below, for
special rules regarding FMLA leave.) A covered employee's loss of coverage by
reason of a failure to work the minimum number of hours required for coverage
constitutes a reduction of hours of employment. Under the final regulations, to
lose coverage means to cease to be covered under the same terms and conditions
as in effect immediately before the event. The final regulations clarify that a
loss of coverage includes an increase in an employee premium or contribution
resulting from one of the events described above. The loss of coverage need not
be concurrent with the event; it is enough that the loss of coverage occur at
any time before the end of the maximum coverage period (described below). For
employer bankruptcies, the term to lose coverage also includes a substantial
elimination of coverage that occurs within 12 months before or after the date on
which the bankruptcy proceeding begins.
Under the final regulations, as under the 1987 proposed regulations, reductions
or eliminations in coverage in anticipation of an event are disregarded in
determining whether the event results in a loss of coverage. Although several
commenters objected to this rule, the final regulations retain the provision in
order to protect qualified beneficiaries from being deprived of their COBRA
rights because an employer or employee organization transposes a loss or
reduction of coverage to a time before the qualifying event. This rule also
applies in cases where a covered employee discontinues the coverage of a spouse
in anticipation of a divorce or legal separation. In such a case, upon receiving
notice of the divorce or legal separation, a plan is required to mCOBRA_Insurancee COBRA
continuation coverage available, effective on the date of the divorce or legal
separation (but not for any period before the date of the divorce or legal
separation).
Under the final regulations, as under the 1987 proposed regulations, an event
must occur while the group health plan is subject to COBRA in order to
constitute a qualifying event. A plan that is excepted from COBRA (for example,
by reason of the small-employer plan exception) and that later becomes subject
to COBRA is not required to provide COBRA continuation coverage to individuals
who experienced what would otherwise be a qualifying event during the period
when the plan was not subject to COBRA.
Finally, in the case of a child born to or placed for adoption with a covered
employee during a period of COBRA continuation coverage, the qualifying event
that gives rise to that period of COBRA continuation coverage is the qualifying
event applicable to that child. Thus, if a second qualifying event has occurred
before such a child is born (for example, if the covered employee dies), the
second qualifying event also applies to the newborn child.
COBRA Continuation Coverage
The 1987 proposed regulations generally refer to the coverage that a qualified
beneficiary is entitled to as the coverage that was in effect on the day before
the qualifying event. While that is generally true, the final regulations have
been revised to incorporate the statutory standard that a qualified beneficiary
is entitled to the coverage made available to similarly situated beneficiaries
with respect to whom a qualifying event has not occurred. The final regulations
generally use as a shorthand for this statutory language the phrase ``similarly
situated nonCOBRA beneficiaries'' instead of the phrase ``similarly situated
active employees'' used in the 1987 proposed regulations. In certain contexts in
the final regulations, though, the phrase ``similarly situated active
employees'' is still used because in those contexts--such as the right to mCOBRA_Insurancee
an independent election for COBRA continuation coverage--qualified beneficiaries
who are spouses and dependent children of covered employees are entitled to the
rights that employees have (and in those contexts, spouses and dependent
children who are not qualified beneficiaries typically do not have the rights
that employees have).
The 1987 proposed regulations address in a separate question-and- answer the
type of coverage that must be made available to qualified beneficiaries if a
change is made in the coverage provided to similarly situated nonCOBRA
beneficiaries. The final regulations include this rule in the
question-and-answer that defines COBRA continuation coverage. In doing so, the
final regulations delete several specific requirements in the 1987 proposed
regulations. For example, if coverage for the similarly situated nonCOBRA
beneficiaries is changed or eliminated, the 1987 proposed regulations require
that qualified beneficiaries be permitted to elect coverage under any remaining
plan made available to the similarly situated active employees. Many commenters
objected that in the case of a mere change in benefits, the requirement to give
qualified beneficiaries an election among other plans would give them greater
rights than those active employees might have. The final regulations follow the
suggestion of the commenters in providing that the general principle--that
qualified beneficiaries have the same rights as similarly situated nonCOBRA
beneficiaries--applies in this situation. The same principle also applies in
determining whether credit for deductibles must be carried over from a
discontinued plan to a new plan. Nevertheless, if an employer or employee
organization providing more than one plan to a group of similarly situated
nonCOBRA beneficiaries eliminates benefits under one plan without giving the
similarly situated nonCOBRA beneficiaries the right to enroll in another plan,
that option would still have to be made available to qualified beneficiaries if
the employer continued to maintain a group health plan because of the employer's
obligation to continue to mCOBRA_Insurancee COBRA continuation coverage available.
The 1987 proposed regulations include detailed rules requiring that qualified
beneficiaries generally be offered the option of electing only core coverage or
both core and noncore coverage. These rules were based on a reference in the
conference report to the Tax Reform Act of 1986. Many commenters expressed the
opinion that the reference in the conference report is an insufficient basis for
including this concept in the regulations when nothing in the statute itself
suggests a distinction between core and noncore coverage. Commenters also
contended that the core/noncore distinction would create undue administrative
complexity and promote adverse selection. After careful consideration, the IRS
and Treasury have decided not to include in either the final or the new proposed
regulations any such requirement to offer for core coverage separately. However,
comments are invited on whether such a requirement should be adopted.
The 1987 proposed regulations establish standards for determining the
deductibles and limits that apply to COBRA continuation coverage in a period in
which an individual or a group of family members has coverage that is not COBRA
continuation coverage and then elects COBRA continuation coverage. (Of course,
during a period in which an individual or group of family members had only COBRA
continuation coverage, the rules for deductibles and limits would apply to them
in the same manner as they would to similarly situated nonCOBRA beneficiaries.)
Some commenters objected to the provisions of the 1987 proposed regulations for
computing deductibles or limits on a family basis in the case of a qualifying
event (such as divorce) that splits a family into two (or more) units. The 1987
proposed regulations would require that each resulting family unit be credited
with all the expenses incurred by the entire family before the qualifying event.
The final regulations revise this rule. Under the final regulations, in
computing deductibles and limits for the family unit receiving COBRA coverage,
the plan is required to tCOBRA_Insurancee into account only those expenses incurred before
the qualifying event by family members who are part of the resulting family unit
after the qualifying event.
The 1987 proposed regulations provide that qualified beneficiaries moving
outside the area served by a region-specific plan must be given the right to
obtain other coverage from the employer maintaining the region-specific plan.
The rule conditions the right to other coverage on the employer having employees
in the area to which the qualified beneficiary is moving. This proposed rule
unduly limits the application of the rule in the case of an employer or employee
organization that could provide other coverage to the qualified beneficiary
without having to establish a new plan or enter into a new group insurance
contract even though the employer did not have employees or the employee
organization did not have members in the area that the qualified beneficiary was
moving to. This might be the case, for example, if the employer or employee
organization maintained a self- insured plan or maintained an insured plan
through an insurance company licensed to provide that same product in the area
that the qualified beneficiary was moving to. The final regulations eliminate
the condition that an employer have employees in the area to which the qualified
beneficiary is moving and instead require that coverage be made available to the
qualified beneficiary if the employer or employee organization would be able to
provide coverage to the qualified beneficiary under one of its existing plans.
Generally the coverage that must be made available is that made available to the
similarly situated nonCOBRA beneficiaries. If, however, the coverage made
available to the similarly situated nonCOBRA beneficiaries cannot be made
available in the area that the qualified beneficiary is moving to, then the
coverage that must be made available is coverage provided to other employees.
The 1987 proposed regulations require, in the case of a plan providing open
enrollment rights, that open enrollment rights be extended to qualified
beneficiaries if an employer maintains two or more plans. Thus, that rule, by
its terms, does not require that open enrollment rights be given if an employer
maintains a single plan and allows active employees during open enrollment to
switch between categories of coverage such as single and family or among
categories such as employee-only, employee-plus- one-dependent, or
employee-plus-two-or-more-dependents. The final regulations eliminate the
condition that an employer or employee organization maintain two or more plans
for a qualified beneficiary to have open enrollment rights. Thus, open
enrollment rights must be extended to qualified beneficiaries in any case in
which they are extended to similarly situated active employees. (Note that the
open enrollment right of employees to enroll when not previously enrolled would
not have to be extended to individuals who previously did not elect to receive
COBRA continuation coverage because an individual ceases to be a qualified
beneficiary if COBRA continuation coverage is not elected.)
The 1987 proposed regulations require that qualified beneficiaries be given the
same right to add new family members that similarly situated active employees
have. Many commenters objected to this rule, arguing that it requires more than
a mere continuation of coverage. However, COBRA continuation coverage is more
than just a continuation of the coverage a qualified beneficiary had before the
qualifying event; it includes the same procedural rights to expand or change
coverage that similarly situated active employees have. Moreover, the policy
behind the 1987 proposed regulations is reflected in the HIPAA amendment to
COBRA creating special qualified beneficiary status for certain newborn and
adopted children as well as in the HIPAA special enrollment rights in section
9801(f) for new spouses and for newborn and adopted children. Accordingly, the
final regulations provide guidance on the application of the HIPAA special
enrollment rights to qualified beneficiaries and retain the rule in the 1987
proposed regulations regarding the right of qualified beneficiaries to add new
family members (even though not eligible for the HIPAA special enrollment
rights) to the same extent that active employees are permitted to add new family
members.
Electing COBRA Continuation Coverage
The final regulations set forth rules regarding elections of COBRA continuation
coverage by qualified beneficiaries. In general, a group health plan is required
to offer a qualified beneficiary the opportunity to elect COBRA continuation
coverage at any time during the election period. The election period begins not
later than the date the qualified beneficiary would lose coverage by reason of a
qualifying event and ends not earlier than 60 days after the later of that date
or 60 days after the date on which the qualified beneficiary is provided notice
of her or his right to elect COBRA continuation coverage. For purposes of
determining whether a qualified beneficiary's election of COBRA continuation
coverage is timely, the election is deemed to be made on the date it is sent to
the employer or plan administrator. The final regulations clarify that a
qualified beneficiary need not herself or himself elect COBRA continuation
coverage; that election can be made on behalf of the qualified beneficiary by a
third party (including a third party that is not a qualified beneficiary).
Generally, the employer or plan administrator must determine when a qualifying
event has occurred, and a qualified beneficiary is not required to give notice
of the event. However, a covered employee or qualified beneficiary is required
to notify the plan administrator of a qualifying event that is a divorce or
legal separation of the covered employee or a dependent child's ceasing to be a
dependent child under the plan terms. The 1987 proposed regulations prescribe
that the notification should be given to the employer or other plan
administrator. The final regulations simply require that the notice be provided
to the plan administrator.
The notice must be provided within 60 days after the date of the qualifying
event or the date on which the qualified beneficiary would lose coverage because
of the qualifying event, whichever is later. If the notice is not provided, the
group health plan is not required to mCOBRA_Insurancee COBRA continuation coverage available
to the qualified beneficiary.\5\ In the case of the covered employee's divorce
or legal separation, a single notice sent by or on behalf of the covered
employee or any one of the qualified beneficiaries (that is, the spouse or a
dependent child) satisfies the notice requirement for all those who become
qualified beneficiaries as a result of the divorce or legal separation.
---------------------------------------------------------------------------
\5\ The U.S. Department of Labor has advised the IRS and Treasury that, if a
covered employee or qualified beneficiary has not been adequately informed of
the obligation to provide notice in the case of a qualifying event that is the
divorce or legal separation of the covered employee or that is a dependent
child's ceasing to be covered under the generally applicable requirements of the
plan, the covered employee's or qualified beneficiary's failure to provide
timely notice to the plan administrator will not affect the plan's obligation to
mCOBRA_Insurancee continuation coverage available upon receiving notice of such event.
---------------------------------------------------------------------------
The group health plan must mCOBRA_Insurancee COBRA continuation coverage available for the
entire election period if the qualified beneficiary elects coverage prior to the
end of the period (except in the case of a revoked waiver, as discussed below).
An employer or employee organization maintaining a group health plan using an
indemnity or reimbursement arrangement can satisfy this requirement by
continuing the qualified beneficiary's coverage during the election period or by
discontinuing the coverage until the qualified beneficiary elects COBRA and then
retroactively reinstating the qualified beneficiary's coverage. Under the final
regulations, as under the 1987 proposed regulations, the date of the qualifying
event (and thus, the beginning of the maximum coverage period) is not delayed
merely because a plan provides coverage during the election period. Claims
incurred by the qualified beneficiary during the election period do not have to
be paid until COBRA continuation coverage is elected and any payment required
for coverage is made.
For a group health plan providing health services--including a health
maintenance organization or a walk-in clinic--a qualified beneficiary who has
not elected and paid for COBRA continuation coverage can be required to choose
either to elect and to pay for coverage or to pay a reasonable and customary
charge for plan services (but only if the qualified beneficiary will be
reimbursed for that charge within 30 days after she or he elects COBRA
continuation coverage and mCOBRA_Insurancees any payment for coverage). Alternatively, the
plan can treat the qualified beneficiary's use of the plan's health services as
a constructive election of COBRA continuation coverage and, if it so notifies
the qualified beneficiary prior to the use of services, can require payment for
COBRA continuation coverage.
The final regulations adopt the position in Communications Workers of America v.
NYNEX Corp., 898 F.2d 887 (2d Cir. 1989), regarding the responses that a group
health plan must mCOBRA_Insurancee with respect to the rights of a qualified beneficiary
during that qualified beneficiary's election period. Specifically, the final
regulations require that the plan mCOBRA_Insurancee a complete response to any inquiry from a
health care provider regarding the qualified beneficiary's right to coverage
under the plan during the election period. Thus, if the qualified beneficiary
has not yet elected COBRA continuation coverage but remains covered under the
plan during the election period (subject to retroactive cancellation if no
election is made), the plan must so inform the health care provider. Conversely,
if the qualified beneficiary is not covered during the election period prior to
her or his election, the plan must inform the health care provider that the
qualified beneficiary does not have current coverage but will have retroactive
coverage if COBRA continuation coverage is elected. (The final regulations also
include similar requirements with respect to inquiries made by health care
providers during the 30- and 45-day grace periods for paying for COBRA
continuation coverage.)
A qualified beneficiary who waives COBRA continuation coverage during the
election period can revoke the waiver before the end of the election period, but
the group health plan is not then required to provide coverage as of any date
prior to the revocation. Although several commenters objected to the rule in the
1987 proposed regulations allowing the revocation during the election period of
any previous waiver, the final regulations retain this rule. If the rule
permitted irrevocable waivers, plans might induce qualified beneficiaries to
execute waivers hastily before becoming fully informed of their rights and
having the opportunity to carefully consider whether to elect COBRA. As with the
election of COBRA continuation coverage, a waiver or a revocation of a waiver is
deemed to be made on the date sent. The employer or employee organization
maintaining the group health plan is not permitted to withhold money, benefits,
or anything else to which the qualified beneficiary is entitled under any law or
agreement in order to induce a qualified beneficiary to mCOBRA_Insurancee payment for COBRA
continuation coverage or to surrender any rights under COBRA. Any waiver of
COBRA continuation coverage rights obtained through such means will be invalid.
However, the general rules for coverage during the election period apply in the
case of waivers and revocations of waivers. Thus, in the case of an indemnity
arrangement, the plan can deny coverage for claims until payment for the
coverage has been made (as can also be done with those health maintenance
organizations or walk-in clinics that adopt this method for complying with the
COBRA continuation coverage requirements during the election period).
A group health plan must offer each qualified beneficiary the opportunity to
mCOBRA_Insurancee an independent election to receive COBRA continuation coverage and, during
an open enrollment period, to choose among any options available to similarly
situated active employees. This requirement also applies to any child born to or
placed for adoption with a covered employee during a period of COBRA
continuation coverage. (An election for a minor child may be made by the child's
parent or legal guardian.) If a covered employee or the spouse of a covered
employee elects COBRA continuation coverage and the election does not specify
whether the election is for self-only coverage, the election is deemed to
include an election of COBRA continuation coverage on behalf of other qualified
beneficiaries with respect to that qualifying event.
Duration of COBRA Continuation Coverage
The 1987 proposed regulations incorporate the statutory bases for terminating
COBRA continuation coverage except the rule (added by OBRA 1989 and amended by
HIPAA) that COBRA coverage can be terminated in the month that is more than 30
days after a final determination that a qualified beneficiary is no longer
disabled. The new proposed regulations add this statutory basis for terminating
COBRA coverage, with two clarifications. First, the new proposed regulations
clarify that a determination that a qualified beneficiary is no longer disabled
allows termination of COBRA continuation coverage for all qualified
beneficiaries who were entitled to the disability extension by reason of the
disability of the qualified beneficiary who has been determined to no longer be
disabled. Second, the new proposed regulations clarify that such a determination
does not allow termination of the COBRA continuation coverage of a qualified
beneficiary before the end of the maximum coverage period that would apply
without regard to the disability extension.
Section 4980B(f)(2)(B)(iv) provides that a qualified beneficiary's right to
COBRA continuation coverage may be terminated when the qualified beneficiary
``first becomes,'' after the date of the COBRA election, covered under another
group health plan (subject to certain additional conditions) or entitled to
Medicare benefits. The final regulations add two new questions-and-answers that
provide guidance on this provision.
The 1987 proposed regulations substitute ``is'' for the statutory phrase ``first
becomes.'' The effect of this substitution was to permit an employer to cut off
a qualified beneficiary's right to COBRA continuation coverage based upon other
group health plan coverage that the qualified beneficiary first became covered
under before she or he elected COBRA coverage. In the case of entitlement to
Medicare benefits, the 1987 proposed regulations not only shift the statutory
``becomes'' to ``is,'' they also exclude from the definition of qualified
beneficiary anyone who is entitled to Medicare benefits on the day before the
qualifying event. After careful consideration, the IRS and Treasury concluded
that the better interpretation of the statute is that other group health plan
coverage that a qualified beneficiary has before the COBRA election is not a
basis for cutting off the qualified beneficiary's right to COBRA continuation
coverage. (The same rule applies for entitlement to Medicare benefits.)
Based upon the recommendation of the IRS, the Solicitor General filed
an amicus brief before the Supreme Court urging this position, which was
unanimously adopted by the Supreme Court in Geissal v. Moore Medical Corp., 118
S. Ct. 1869 (1998). The final regulations adopt the position urged by the IRS
and Treasury and adopted by the Court in Geissal. They provide that an employer
may cut off the right to COBRA continuation coverage based upon other group
health plan coverage or entitlement to Medicare benefits only if the qualified
beneficiary first becomes covered under the other group health plan coverage or
entitled to the Medicare benefits after the date of the COBRA election.
The statutory rule allowing a plan to discontinue COBRA continuation coverage on
account of coverage under another group health plan was amended by OBRA 1989 to
prohibit the discontinuance if the qualified beneficiary's other coverage was
subject to a preexisting condition exclusion. This amendment was further
modified by HIPAA to allow discontinuance of COBRA continuation coverage if the
preexisting condition exclusion does not apply or is satisfied by reason of the
limitations on preexisting condition exclusions in section 9801. The final
regulations reflect this amendment and clarify that coverage under another group
health plan includes coverage under a governmental plan.
Many commenters asked whether mere eligibility for Medicare justifies a
discontinuance of COBRA continuation coverage. In addition, many inquiries have
been received that ask whether the qualified beneficiary must be entitled to
both Part A and B of Medicare. The final regulations clarify that entitlement to
Medicare benefits means being enrolled in Medicare and does not mean merely
being eligible to enroll in Medicare. The final regulations also clarify that
being entitled to either Part A or B is sufficient for the plan to discontinue
COBRA continuation coverage (assuming that the entitlement to Medicare benefits
first arises after COBRA continuation coverage has been elected).
The 1987 proposed regulations allow a plan to discontinue providing COBRA
continuation coverage to a qualified beneficiary for cause on the same basis
that the plan could terminate for cause the coverage of a similarly situated
active employee (except for payments that would be untimely if made by a
nonCOBRA beneficiary but that are made within the grace periods provided by
COBRA). The final regulations provide that, for example, if a plan terminates
the coverage of similarly situated active employees for the submission of a
fraudulent claim, then the COBRA continuation coverage of a qualified
beneficiary can also be terminated for the submission of a fraudulent claim.
The 1987 proposed regulations reflect the statutory rules that were then in
effect for the maximum period that a plan is required to mCOBRA_Insurancee COBRA continuation
coverage available. Since then the statute has been amended to add the
disability extension, to permit plans to extend the notice period if the maximum
coverage period is also extended (referred to as the optional extension of the
required periods), and to add a special rule in the case of Medicare entitlement
preceding a qualifying event that is the termination or reduction of hours of
employment. The new proposed regulations reflect these statutory changes. The
maximum coverage period for a qualifying event that is the bankruptcy of the
employer has also been added to the new proposed regulations.
The 1998 proposed regulations set forth the requirements for a disability
extension to apply to a qualified beneficiary. Those requirements have been
incorporated into the final regulations, with one clarification. One of the
conditions for a disability extension to apply is that the qualified beneficiary
be disabled during the first 60 days of COBRA continuation coverage. In the case
of a qualified beneficiary who is born to or placed for adoption with a covered
employee during a period of COBRA continuation coverage, the final regulations
clarify that the 60-day period is measured from the date of the child's birth or
placement for adoption.
The 1987 proposed regulations set forth standards for expanding the maximum
coverage period in the case of multiple qualifying events. Since 1987, the
statutory rules for multiple qualifying events have been affected by the
addition of the disability extension and the optional extension of required
periods. The final regulations reflect the statutory changes.
In addition, the final regulations clarify that a termination of employment
following a qualifying event that is a reduction of hours of employment does not
expand the maximum coverage period. Accord, Burgess v. Adams Tool & Engineering,
Inc., 908 F. Supp. 473 (W.D. Mich. 1995); contra, Gibbs v. Anchorage School
District, 1995 U.S. LEXIS 6290 (D. Ark. 1995). The underlying pattern in the
statute is generally to require 18 months (or 29 months, in the case of a
disability extension) of coverage for qualifying events that are the termination
or reduction of hours of a covered employee's employment and 36 months for other
qualifying events. The statutory provision for expansion of the 18- month period
to 36 months upon the occurrence of a second qualifying event generally follows
this pattern by allowing a qualified beneficiary who would have been entitled to
36 months of coverage if the second qualifying event had occurred first to get a
total of 36 months of COBRA continuation coverage. The statute lists six
categories of qualifying events, and termination of employment and reduction of
hours of employment are in the same category (just as divorce and legal
separation are in the same category of qualifying event). Treating a reduction
of hours of employment and a termination of employment as variations of a single
qualifying event rather than as two distinct qualifying events is consistent
with the overall design of the statute.
The 1987 proposed regulations address situations in which, following a
qualifying event, an employer provides alternative coverage, rather than COBRA
continuation coverage, to a former employee and her or his spouse and dependent
children. The 1987 proposed regulations provide that if the alternative coverage
does not satisfy the requirements for COBRA continuation coverage, each
qualified beneficiary must be given the opportunity to elect COBRA continuation
coverage instead of the alternative coverage. If, however, the alternative
coverage would satisfy the requirements for COBRA continuation coverage, the
1987 proposed regulations provide that, at the time of the original qualifying
event, the employee, spouse, and dependent children need not be provided with
the opportunity to elect COBRA continuation coverage. The final regulations
generally retain these rules but also clarify that if the employer increases the
employee share of premiums upon the occurrence of a qualifying event, the
qualified beneficiaries must be offered the opportunity to elect COBRA
continuation coverage.
The 1987 proposed regulations further provide that, if the alternative coverage
does not satisfy the requirements for COBRA continuation coverage and if, after
the original qualifying event, a qualifying event occurs that would cause a
spouse or dependent child to lose the alternative coverage, the spouse or child
must be offered COBRA continuation coverage. However, if the alternative
coverage satisfies the requirements for COBRA continuation coverage, and if
another qualifying event that causes the spouse or dependent child to lose the
alternative coverage occurs more than 18 months after the original qualifying
event, the 1987 proposed regulations provide that the spouse or dependent child
need not be offered COBRA continuation coverage. The final regulations modify
the 1987 proposed regulations and provide that if an event such as the death of
or divorce from the covered employee would end the right of a spouse or
dependent child to receive the alternative coverage (whether during or after the
first 18 months of COBRA continuation coverage), then that event is a qualifying
event, regardless of whether the alternative coverage would satisfy the
requirements for COBRA continuation coverage.
The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA)
gives certain members of the military reserves the right to up to 18 months of
continuation coverage when they are called to active duty. Many people have
asked if the USERRA and COBRA periods of continuation coverage run concurrently
or consecutively. The final regulations clarify that USERRA coverage is
alternative coverage. Thus, the periods run concurrently.
The 1987 proposed regulations include the statutory rule requiring that a
conversion option otherwise made available under the plan be made available
within 180 days before the end of the maximum coverage period. The final
regulations adopt this rule without change.
Paying for COBRA Continuation Coverage
The 1987 proposed regulations identify the qualified beneficiary as the person
that can be required to pay the applicable premium. Many plans and employers
have asked whether they must accept payment on behalf of a qualified beneficiary
from third parties, such as a hospital or a new employer. Nothing in the statute
requires the qualified beneficiary to pay the amount required by the plan; the
statute merely permits the plan to require that payment be made. In order to
mCOBRA_Insurancee clear that any person may mCOBRA_Insurancee the required payment on behalf of a
qualified beneficiary, the final regulations modify the rule in the 1987
proposed regulations to refer to the payment requirement without identifying the
person who mCOBRA_Insurancees the payment.
The 1998 proposed regulations address the amount that a plan can require to be
paid for COBRA continuation coverage during the disability extension. This
amount is 150 percent of the applicable premium instead of the limit of 102
percent of the applicable premium that applies for coverage outside the
disability extension. The 1998 proposed regulations specifically reserve the
issue of the amount a plan could require to be paid in a case where only
nondisabled family members of the disabled individual receive COBRA continuation
coverage during the disability extension. The preamble to the 1998 proposed
regulations solicited comments on this issue. Commenters suggested that the 150
percent rate could be required if the disabled individual was part of the
coverage group but that the limit could be the 102 percent rate if only
nondisabled qualified beneficiaries were in the coverage group. The final
regulations adopt this suggestion.
The 1987 proposed regulations provide that the amount required to be paid for a
qualified beneficiary's COBRA continuation coverage must be fixed in advance for
each 12-month determination period. Many commenters suggested exceptions that
could be made to this general rule. Section 4980B(f)(4)(C) explicitly requires
that the determination of the applicable premium be made for a period of 12
months and that the determination be made before the beginning. Therefore, the
final regulations do not permit an increase in the applicable premium during the
12-month determination period. However, the final regulations do revise the
general rule from the 1987 proposed regulations to recognize the difference
between the applicable premium (which may not be increased during a 12-month
determination period and which is the basis for calculating the maximum amount
that the plan can require to be paid for COBRA continuation coverage) and the
maximum amount that the plan can require to be paid for COBRA continuation
coverage. Thus, the final regulations permit a plan to increase the amount it
requires to be paid for COBRA continuation coverage during a determination
period to tCOBRA_Insurancee into account the permitted increases during the disability
extension, to explicitly permit a plan that is requiring payment of less than
the maximum permissible amount to increase the amount required to be paid during
the 12-month determination period, and to permit an increase if a qualified
beneficiary changes to more expensive coverage (but also to require a reduction
if the qualified beneficiary changes to less expensive coverage).
The 1987 proposed regulations set forth the statutory requirement that qualified
beneficiaries be allowed to pay for COBRA coverage in monthly installments. The
1987 proposed regulations add that plans may allow payment to be made at other
intervals, and specifically mention quarterly or semiannual payment as examples.
The final regulations adopt the rule in the 1987 proposed regulations, but the
final regulations add weekly payment as an example to mCOBRA_Insurancee clear that shorter
than monthly installments are also permitted.
The 1987 proposed regulations provide that the first payment for COBRA
continuation coverage does not apply prospectively only. In order to mCOBRA_Insurancee clear
that a plan is not precluded from allowing a qualified beneficiary to apply the
first payment prospectively only, the final regulations provide that qualified
beneficiaries need not be given the option of having the first payment for COBRA
continuation coverage apply prospectively only.
The 1987 proposed regulations address the issue of timely payment for COBRA
continuation coverage, including an interpretation of the statutory grace
periods of 45 days for the initial payment and 30 days for all other payments.
Commenters pointed out that the application of the statutory grace period rules
could produce an anomalous result in some situations, such as allowing a plan to
require payment for the third month of COBRA continuation coverage earlier than
the plan could require payment for the first two months. OBRA 1989 amended the
45-day grace period rule to prevent this, and the final regulations conform to
the OBRA 1989 change. The final regulations also clarify that payment is
considered made on the date it is sent.
The final regulations also add a requirement (similar to the one described above
for the election period) relating to the response that a plan must give when a
health care provider, such as a physician, a hospital, or a pharmacy, contacts
the plan to confirm coverage of a qualified beneficiary with respect to whom the
required payment has not been made for the current period (but for whom any
applicable grace period has not expired). In such a case, the plan is required
to inform the health care provider of all of the details of the qualified
beneficiary's right to coverage during the applicable grace periods.
Many individuals have inquired about a plan's right to discontinue their COBRA
continuation coverage because the amount of the payment made was short by an
amount that is not significant. Sometimes the error has been clearly one of
transposed digits on a check tendered for payment; in other instances, payment
has been short by such a small amount that it would be unreasonable to attribute
the shortfall to anything other than mistCOBRA_Insurancee. The final regulations establish a
mechanism for the treatment of payments that are short by an insignificant
amount. Either the plan must treat the payment as satisfying the plan's payment
requirement or it must notify the qualified beneficiary of the amount of the
deficiency and grant the qualified beneficiary a reasonable period of time for
the deficiency to be paid. The final regulations provide that, as a safe harbor,
a period of 30 days is deemed to be a reasonable period for this purpose.
Business Reorganizations
The 1987 proposed regulations provide little direct guidance on the allocation
of responsibility for COBRA continuation coverage in the event of corporate
transactions, such as a sale of stock of a subsidiary or a sale of substantial
assets. Commenters on the 1987 proposed regulations requested further guidance
on corporate transactions, pointing out that the existing degree of uncertainty
tends to drive up the costs and risks of a transaction to both buyers and
sellers. The IRS and Treasury share this view and believe also that greater
certainty helps to protect the rights of qualified beneficiaries in these
transactions. The IRS has been contacted by many qualified beneficiaries whose
COBRA continuation coverage has been dropped or denied in the context of a
corporate transaction. In many cases, these qualified beneficiaries have been
told by each of the buyer and the seller that the other party is the one
responsible for providing them with COBRA continuation coverage. The preamble to
the 1998 proposed regulations requested comments on a possible approach to
allocating responsibility for COBRA continuation coverage in corporate
transactions. Commenters suggested that, in a stock sale, as in an asset sale,
it would be consistent with standard commercial practice to provide that the
seller retains liability for all existing qualified beneficiaries, including
those formerly associated with the subsidiary being sold. The IRS and Treasury
have studied the comments and given consideration to several alternatives with a
view to establishing rules that will minimize the administrative burden and
transaction costs for the parties to transactions while protecting the rights of
qualified beneficiaries and maintaining consistency with the statute.
Accordingly, the new proposed regulations mCOBRA_Insurancee clear that the parties to a
transaction are free to allocate the responsibility for providing COBRA
continuation coverage by contract, even if the contract imposes responsibility
on a different party than would the new proposed regulations. So long as the
party to whom the contract allocates responsibility performs its obligations,
the other party will have no responsibility for providing COBRA continuation
coverage. If, however, the party allocated responsibility under the contract
defaults on its obligation, and if, under the new proposed regulations, the
other party would have the obligation to provide COBRA continuation coverage in
the absence of a contractual provision, then the other party would retain that
obligation. This approach would avoid prejudicing the rights of qualified
beneficiaries to COBRA continuation coverage based upon the provisions of a
contract to which they were not a party and under which the employer with the
underlying obligation under the regulations to provide COBRA continuation
coverage could otherwise contract away that obligation to a party that fails to
perform. Moreover, the party with the underlying responsibility under the
regulations can insist on appropriate security and, of course, could pursue
contractual remedies against the defaulting party.
The new proposed regulations provide, for both sales of stock and sales of
substantial assets, such as a division or plant or substantially all the assets
of a trade or business, that the seller retains the obligation to mCOBRA_Insurancee COBRA
continuation coverage available to existing qualified beneficiaries. In
addition, in situations in which the seller ceases to provide any group health
plan to any employee in connection with the sale whether such a cessation is in
connection with the sale is determined on the basis of the facts and
circumstances of each case and thus is not responsible for providing COBRA
continuation coverage, the new proposed regulations provide that the buyer is
responsible for providing COBRA continuation coverage to existing qualified
beneficiaries. This secondary liability for the buyer applies in all stock sales
and in all sales of substantial assets in which the buyer continues the business
operations associated with the assets without interruption or substantial
change.
A particular type of asset sale raises issues for which the new proposed
regulations do not provide any special rules. (Thus, the general rules in the
new proposed regulations for business reorganizations would apply to this type
of transaction.) This type of asset sale is one in which, after purchasing a
business as a going concern, the buyer continues to employ the employees of that
business and continues to provide those employees exactly the same health
coverage that they had before the sale (either by providing coverage through the
same insurance contract or by establishing a plan that mirrors the one that
provided benefits before the sale). The application of the rules in the new
proposed regulations to this type of asset sale would require the seller to mCOBRA_Insurancee
COBRA continuation coverage available to the employees continuing in employment
with the buyer (and to other family members who are qualified beneficiaries).
Ordinarily, the continuing employees (or their family members) would be very
unlikely to elect COBRA continuation coverage from the seller when they can
receive the same coverage (usually at much lower cost) as active employees of
the buyer.
Consideration is being given to whether, under appropriate circumstances, such
an asset sale would be considered not to result in a loss of coverage for those
employees who continue in employment with the buyer after the sale. A
countervailing concern, however, relates to those qualified beneficiaries who
might have a reason to elect COBRA continuation coverage from the seller. An
example of such a qualified beneficiary would be an employee who continues in
employment with the buyer, whose family is likely to have medical expenses that
exceed the cost of COBRA coverage, and who has significant questions about the
solvency of the buyer or other concerns about how long the buyer might continue
to provide the same health coverage.
Under one possible approach, a loss of coverage would be considered not to have
occurred so long as the purchasing employer in an asset sale continued to
maintain the same group health plan coverage that the seller maintained before
the sale without charging the employees any greater percentage of the total cost
of coverage than the seller had charged before the sale. For this purpose, the
coverage would be considered unchanged if there was no obligation to provide a
summary of material modifications within 60 days after the change due to a
material reduction in covered services or benefits under the rules that apply
under Title I of ERISA. If these conditions were satisfied for the maximum
coverage period that would otherwise apply to the seller's termination of
employment of the continuing employees (generally 18 months from the date of the
sale), then those terminations of employment would never be considered
qualifying events. If the conditions were not satisfied for the full maximum
coverage period, then on the date when they ceased to be satisfied the seller
would be obligated to mCOBRA_Insurancee COBRA continuation coverage available for the balance
of the maximum coverage period.
Comments are invited on the utility of such a rule, either in situations in
which the seller retains an ownership interest in the buyer after the sale (for
example, a sale of assets from a 100-percent owned subsidiary to a 75-percent
owned subsidiary) or, more generally, in situations in which the seller and the
buyer are unrelated. Suggestions are also solicited for other rules that would
protect qualified beneficiaries while providing relief to employers in these
situations.
Although the new proposed regulations address how COBRA obligations are affected
by a sale of stock (and a sale of substantial assets), the new proposed
regulations do not address how the obligation to mCOBRA_Insurancee COBRA continuation
coverage available is affected by the transfer of an ownership interest in a
noncorporate entity that causes the noncorporate entity to cease to be a member
of a group of trades or businesses under common control (whether or not it
becomes a member of a different group of trades or business under common
control). Comments are invited on this issue.
Employer Withdrawals From Multiemployer Plans
The new proposed regulations also address COBRA obligations in connection with
an employer's cessation of contributions to a multiemployer group health plan.
The new proposed regulations provide that the multiemployer plan generally
continues to have the obligation to mCOBRA_Insurancee COBRA continuation coverage available
to qualified beneficiaries associated with that employer. (There generally would
not be any obligation to mCOBRA_Insurancee COBRA continuation coverage available to
continuing employees in this situation because a cessation of contributions is
not a qualifying event.) However, once the employer provides group health
coverage to a significant number of employees who were formerly covered under
the multiemployer plan, or starts contributing to another multiemployer plan on
their behalf, the employer's plan (or the new multiemployer plan) would have the
obligation to mCOBRA_Insurancee COBRA continuation coverage available to the existing
qualified beneficiaries. This rule is contrary to the holding in In re Appletree
Markets, Inc., 19 F.3d 969 (5th Cir. 1994), which held that the multiemployer
plan continued to have the COBRA obligations with respect to existing qualified
beneficiaries after the withdrawing employer established a plan for the same
class of employees previously covered under the multiemployer plan.
Interaction of FMLA and COBRA
The new proposed regulations set forth rules regarding the interaction of the
COBRA continuation coverage requirements with the provisions of the Family and
Medical Leave Act of 1993 (FMLA). The rules under the new proposed regulations
are substantially the same as those set forth in Notice 94-103. The last two
questions-and-answers in that notice have not been included in the new proposed
regulations because they relate to general subject matter that is addressed
elsewhere in the regulations.
Under the new proposed regulations, the tCOBRA_Insuranceing of FMLA leave by a covered
employee is not itself a qualifying event. Instead, a qualifying event occurs
when an employee who is covered under a group health plan immediately prior to
FMLA leave (or who becomes covered under a group health plan during FMLA leave)
does not return to work with the employer at the end of FMLA leave and would,
but for COBRA continuation coverage, lose coverage under the group health plan.
(As under the general rules of COBRA, this would also constitute a qualifying
event with respect to the spouse or any dependent child of the employee.) The
qualifying event is deemed to occur on the last day of the employee's FMLA
leave, and the maximum coverage period generally begins on that day. (The new
proposed regulations provide a special rule for cases where coverage is not lost
until a later date and the plan provides for the optional extension of the
required periods.) In the case of such a qualifying event, the employer cannot
condition the employee's rights to COBRA continuation coverage on the employee's
reimbursement of any premiums paid by the employer to maintain the employee's
group health plan coverage during the period of FMLA leave.
Any lapse of coverage under the group health plan during the period of FMLA
leave and any state or local law requiring that group health plan coverage be
provided for a period longer than that required by the FMLA are disregarded in
determining whether the employee has a qualifying event on the last day of that
leave. However, the employee's loss of coverage at the end of FMLA leave will
not constitute a qualifying event if, prior to the employee's return from FMLA
leave, the employer has eliminated group health plan coverage for the class of
employees to which the employee would have belonged if she or he had not tCOBRA_Insuranceen
FMLA leave.
Special Analyses.
It has been determined that this Treasury decision is not a significant
regulatory action as defined in Executive Order 12866. Therefore, a regulatory
assessment is not required. It is hereby certified that the collections of
information in these regulations will not have a significant economic impact on
a substantial number of small entities. This certification is based upon the
fact that employers with fewer than 20 employees are not subject to the
requirements set forth in the final regulations and, thus, the very smallest
employers are not affected by the collection of information requirements.
Moreover, even for small entities with 20 or more employees who maintain group
health plans and who, thus, are subject to the requirements of COBRA, the
collections of information will not impose a substantial economic impact. The
only collections of information imposed on small entities by the regulations are
(1) to notify qualified beneficiaries of their right to elect COBRA continuation
coverage upon the occurrence of a qualifying event and (2) to notify certain
qualified beneficiaries that mCOBRA_Insurancee insignificant payment errors of those errors.
With respect to this first notice requirement, it is estimated that, on average,
in a given year, qualifying events will occur with respect to approximately 10
percent of all covered employees. Thus, an employer with 100 employees would be
required to send 10 notices to qualified beneficiaries each year. The average
cost of sending such a notice is estimated to be $.50. Thus, the total estimated
cost for 10 notices is $5.00, which is the estimated annual average burden on an
employer with 100 employees. With respect to the second notice requirement, it
is estimated that, on average, at any time, the number of qualified
beneficiaries is approximately equal to two percent of an employer's workforce.
Of that number, approximately 1 in 10 will mCOBRA_Insurancee an insignificant error in
payment each year that requires the employer to send such a notice. For example,
an employer with 100 employees will have an average of two qualified
beneficiaries at any time. Thus, the employer will receive an insignificant
underpayment about once every five years. Even if the employer chose to send out
a notice each time such an insignificant underpayment occurred, this would
amount to only one notice every five years. The average cost of sending such a
notice is estimated to be $5.00, resulting in an average annual burden of $1.00
for an employer with 100 employees. Thus, the total annual cost of these two
notice requirements for an employer with 100 employees is $6.00, which is not a
significant economic impact. Therefore, a Regulatory Flexibility Analysis under
the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. It has also
been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regulations. Pursuant to section 7805(f) of
the Internal Revenue Code, the 1998 notice of proposed rulemCOBRA_Insuranceing preceding
these final regulations was submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small business.
Drafting information. The principal author of these regulations is Russ
Weinheimer, Office of the Associate Chief Counsel (Employee Benefits and Exempt
Organizations), IRS. However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects
26 CFR Part 54
Excise taxes, Health care, Health insurance, Pensions, Reporting and
recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 54 and 602 are amended as follows:
PART 54--PENSION EXCISE TAXES
Paragraph 1. The authority citation for part 54 is amended by adding the
following entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 54.4980B-1 also issued under 26 U.S.C. 4980B.
Section 54.4980B-2 also issued under 26 U.S.C. 4980B.
Section 54.4980B-3 also issued under 26 U.S.C. 4980B.
Section 54.4980B-4 also issued under 26 U.S.C. 4980B.
Section 54.4980B-5 also issued under 26 U.S.C. 4980B.
Section 54.4980B-6 also issued under 26 U.S.C. 4980B.
Section 54.4980B-7 also issued under 26 U.S.C. 4980B.
Section 54.4980B-8 also issued under 26 U.S.C. 4980B. * * *
Par. 2. Sections 54.4980B-0, 54.4980B-1, 54.4980B-2, 54.4980B-3, 54.4980B-4,
54.4980B-5, 54.4980B-6, 54.4980B-7, and 54.4980B-8 are added to read as follows:
Sec. 54.4980B-0 Table of contents.
This section contains first a list of the section headings and then a list of
the questions in each section in Secs. 54.4980B-1 through 54.4980B-8.
List of Sections
Sec. 54.4980B-1 COBRA in general.
Sec. 54.4980B-2 Plans that must comply.
Sec. 54.4980B-3 Qualified beneficiaries.
Sec. 54.4980B-4 Qualifying events.
Sec. 54.4980B-5 COBRA continuation coverage.
Sec. 54.4980B-6 Electing COBRA continuation coverage.
Sec. 54.4980B-7 Duration of COBRA continuation coverage.
Sec. 54.4980B-8 Paying for COBRA continuation coverage.
List of Questions
Sec. 54.4980B-1 COBRA in general.
Q-1: What are the health care continuation coverage requirements contained in
section 4980B of the Internal Revenue Code and in ERISA?
Q-2: What is the effective date of Secs. 54.4980B-1 through 54.4980B-8?
Sec. 54.4980B-2 Plans that must comply.
Q-1: For purposes of section 4980B, what is a group health plan?
Q-2: For purposes of section 4980B, what is the employer?
Q-3: [Reserved]
Q-4: What group health plans are subject to COBRA?
Q-5: What is a small-employer plan?
Q-6: [Reserved]
Q-7: What is the plan year?
Q-8: How do the COBRA continuation coverage requirements apply to cafeteria
plans and other flexible benefit arrangements?
Q-9: What is the effect of a group health plan's failure to comply with the
requirements of section 4980B(f)?
Q-10: Who is liable for the excise tax if a group health plan fails to comply
with the requirements of section 4980B(f)?
Sec. 54.4980B-3 Qualified beneficiaries.
Q-1: Who is a qualified beneficiary?
Q-2: Who is an employee and who is a covered employee?
Q-3: Who are the similarly situated nonCOBRA beneficiaries?
Sec. 54.4980B-4 Qualifying events.
Q-1: What is a qualifying event?
Q-2: Are the facts surrounding a termination of employment (such as whether it
was voluntary or involuntary) relevant in determining whether the termination of
employment is a qualifying event?
Sec. 54.4980B-5 COBRA continuation coverage.
Q-1: What is COBRA continuation coverage?
Q-2: What deductibles apply if COBRA continuation coverage is elected?
Q-3: How do a plan's limits apply to COBRA continuation coverage?
Q-4: Can a qualified beneficiary who elects COBRA continuation coverage ever
change from the coverage received by that individual immediately before the
qualifying event?
Q-5: Aside from open enrollment periods, can a qualified beneficiary who has
elected COBRA continuation coverage choose to cover individuals (such as newborn
children, adopted children, or new spouses) who join the qualified beneficiary's
family on or after the date of the qualifying event?
4.4980B-6 Electing COBRA continuation coverage.
Q-1: What is the election period and how long must it last?
Q-2: Is a covered employee or qualified beneficiary responsible for informing
the plan administrator of the occurrence of a qualifying event?
Q-3: During the election period and before the qualified beneficiary has made an
election, must coverage be provided?
Q-4: Is a waiver before the end of the election period effective to end a
qualified beneficiary's election rights?
Q-5: Can an employer or employee organization withhold money or other benefits
owed to a qualified beneficiary until the qualified beneficiary either waives
COBRA continuation coverage, elects and pays for such coverage, or allows the
election period to expire?
Q-6: Can each qualified beneficiary mCOBRA_Insurancee an independent election under COBRA?
54.4980B-7 Duration of COBRA continuation coverage.
Q-1: How long must COBRA continuation coverage be made available to a qualified
beneficiary?
Q-2: When may a plan terminate a qualified beneficiary's COBRA continuation
coverage due to coverage under another group health plan?
Q-3: When may a plan terminate a qualified beneficiary's COBRA continuation
coverage due to the qualified beneficiary's entitlement to Medicare benefits?
Q-4: [Reserved]
Q-5: How does a qualified beneficiary become entitled to a disability extension?
Q-6: Under what circumstances can the maximum coverage period be expanded?
Q-7: If health coverage is provided to a qualified beneficiary after a
qualifying event without regard to COBRA continuation coverage (for example, as
a result of state or local law, the Uniformed Services Employment and
Reemployment Rights Act of 1994 (38 U.S.C. 4315), industry practice, a
collective bargaining agreement, severance agreement, or plan procedure), will
such alternative coverage extend the maximum coverage period?
Q-8: Must a qualified beneficiary be given the right to enroll in a conversion
health plan at the end of the maximum coverage period for COBRA continuation
coverage?
54.4980B-8 Paying for COBRA continuation coverage.
Q-1: Can a group health plan require payment for COBRA continuation coverage?
Q-2: When is the applicable premium determined and when can a group health plan
increase the amount it requires to be paid for COBRA continuation coverage?
Q-3: Must a plan allow payment for COBRA continuation coverage to be made in
monthly installments?
Q-4: Is a plan required to allow a qualified beneficiary to choose to have the
first payment for COBRA continuation coverage applied prospectively only?
Q-5: What is timely payment for COBRA continuation coverage?
Sec. 54.4980B-1 COBRA in general.
The COBRA continuation coverage requirements are described in general in the
following questions-and-answers:
Q-1: What are the health care continuation coverage requirements contained in
section 4980B of the Internal Revenue Code and in ERISA?
A-1: (a) Section 4980B provides generally that a group health plan must offer
each qualified beneficiary who would otherwise lose coverage under the plan as a
result of a qualifying event an opportunity to elect, within the election
period, continuation coverage under the plan. The continuation coverage
requirements were added to section 162 by the Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA), Public Law 99-272 (100
Stat. 222), and moved to section 4980B by the Technical and Miscellaneous
Revenue Act of 1988, Public Law 100-647 (102 Stat. 3342). Continuation coverage
required under section 4980B is referred to in Secs. 54.4980B-1 through
54.4980B-8 as COBRA continuation coverage.
(b) COBRA also added parallel continuation coverage requirements to Part 6 of
Subtitle B of Title I of the Employee Retirement Income Security Act of 1974 (ERISA)
(29 U.S.C. 1161-1168), which is administered by the U.S. Department of Labor. If
a plan does not comply with the COBRA continuation coverage requirements, the
Internal Revenue Code imposes an excise tax on the employer maintaining the plan
(or on the plan itself), whereas ERISA gives certain parties--including
qualified beneficiaries who are participants or beneficiaries within the meaning
of Title I of ERISA, as well as the Department of Labor-- the right to file a
lawsuit to redress the noncompliance. The rules in Secs. 54.4980B-1 through
54.4980B-8 apply for purposes of section 4980B and generally also for purposes
of the COBRA continuation coverage requirements in Title I of ERISA. However,
certain provisions of the COBRA continuation coverage requirements (such as the
definitions of group health plan, employee, and employer) are not identical in
the Internal Revenue Code and Title I of ERISA. In those cases in which the
statutory language is not identical, the rules in Secs. 54.4980B-1 though
54.4980B-8 nonetheless apply to the COBRA continuation coverage requirements of
Title I of ERISA, except to the extent those rules are inconsistent with the
statutory language of Title I of ERISA.
(c) A group health plan that is subject to section 4980B (or the parallel
provisions under ERISA) is referred to as being subject to COBRA. (See Q&A-4 of
Sec. 54.4980B-2). A qualified beneficiary can be required to pay for COBRA
continuation coverage. The term qualified beneficiary is defined in Q&A-1 of
Sec. 54.4980B-3. The term qualifying event is defined in Q&A-1 of Sec.
54.4980B-4. COBRA continuation coverage is described in Sec. 54.4980B-5. The
election procedures are described in Sec. 54.4980B-6. Duration of COBRA
continuation coverage is addressed in Sec. 54.4980B-7, and payment for COBRA
continuation coverage is addressed in Sec. 54.4980B-8. Unless the context
indicates otherwise, any reference in Secs. 54.4980B-1 through 54.4980B-8 to
COBRA refers to section 4980B (as amended) and to the parallel provisions of
ERISA.
Q-2: What is the effective date of Secs. 54.4980B-1 through 54.4980B-8?
A-2: Sections 54.4980B-1 through 54.4980B-8 apply with respect to qualifying
events occurring in plan years beginning on or after January 1, 2000. For
purposes of section 4980B, with respect to qualifying events that occur in plan
years beginning before that date, and with respect to qualifying events that
occur in plan years beginning on or after that date for topics relating to the
COBRA continuation coverage requirements of section 4980B that are not addressed
in Secs. 54.4980B- 1 through 54.4980B-8 (such as methods for calculating the
applicable premium), plans and employers must operate in good faith compliance
with a reasonable interpretation of the statutory requirements in section 4980B.
Sec. 54.4980B-2 Plans that must comply.
The following questions-and-answers apply in determining which plans must comply
with the COBRA continuation coverage requirements:
Q-1: For purposes of section 4980B, what is a group health plan?
A-1: (a) For purposes of section 4980B, a group health plan is a plan maintained
by an employer or employee organization to provide health care to individuals
who have an employment-related connection to the employer or employee
organization or to their families. Individuals who have an employment-related
connection to the employer or employee organization consist of employees, former
employees, the employer, and others associated or formerly associated with the
employer or employee organization in a business relationship (including members
of a union who are not currently employees). Health care is provided under a
plan whether provided directly or through insurance, reimbursement, or
otherwise, and whether or not provided through an on-site facility (except as
set forth in paragraph (d) of this Q&A-1), or through a cafeteria plan (as
defined in section 125) or other flexible benefit arrangement. For purposes of
this Q&A-1, insurance includes not only group insurance policies but also one or
more individual insurance policies in any arrangement that involves the
provision of health care to two or more employees. A plan maintained by an
employer or employee organization is any plan of, or contributed to (directly or
indirectly) by, an employer or employee organization. Thus, a group health plan
is maintained by an employer or employee organization even if the employer or
employee organization does not contribute to it if coverage under the plan would
not be available at the same cost to an individual but for the individual's
employment-related connection to the employer or employee organization. These
rules are further explained in paragraphs (b) through (d) of this Q&A-1. An
exception for qualified long-term care services is set forth in paragraph (e) of
this Q&A-1, and for medical savings accounts in paragraph (f) of this Q&A-1.
(b) For purposes of Secs. 54.4980B-1 through 54.4980B-8, health care has the
same meaning as medical care under section 213(d). Thus, health care generally
includes the diagnosis, cure, mitigation, treatment, or prevention of disease,
and any other undertCOBRA_Insuranceing for the purpose of affecting any structure or function
of the body. Health care also includes transportation primarily for and
essential to health care as described in the preceding sentence. However, health
care does not include anything that is merely beneficial to the general health
of an individual, such as a vacation. Thus, if an employer or employee
organization maintains a program that furthers general good health, but the
program does not relate to the relief or alleviation of health or medical
problems and is generally accessible to and used by employees without regard to
their physical condition or state of health, that program is not considered a
program that provides health care and so is not a group health plan. For
example, if an employer maintains a spa, swimming pool, gymnasium, or other
exercise/fitness program or facility that is normally accessible to and used by
employees for reasons other than relief of health or medical problems, such a
facility does not constitute a program that provides health care and thus is not
a group health plan. In contrast, if an employer maintains a drug or alcohol
treatment program or a health clinic, or any other facility or program that is
intended to relieve or alleviate a physical condition or health problem, the
facility or program is considered to be the provision of health care and so is
considered a group health plan.
(c) Whether a benefit provided to employees constitutes health care is not
affected by whether the benefit is excludable from income under section 132
(relating to certain fringe benefits). For example, if a department store
provides its employees discounted prices on all merchandise, including health
care items such as drugs or eyeglasses, the mere fact that the discounted prices
also apply to health care items will not cause the program to be a plan
providing health care, so long as the discount program would normally be
accessible to and used by employees without regard to health needs or physical
condition. If, however, the employer maintaining the discount program is a
health clinic, so that the program is used exclusively by employees with health
or medical needs, the program is considered to be a plan providing health care
and so is considered to be a group health plan.
(d) The provision of health care at a facility that is located on the premises
of an employer or employee organization does not constitute a group health plan
if--
(1) The health care consists primarily of first aid that is provided during the
employer's working hours for treatment of a health condition, illness, or injury
that occurs during those working hours;
(2) The health care is available only to current employees; and
(3) Employees are not charged for the use of the facility.
(e) A plan does not constitute a group health plan subject to COBRA if
substantially all of the coverage provided under the plan is for qualified
long-term care services (as defined in section 7702B(c)). For this purpose, a
plan is permitted to use any reasonable method in determining whether
substantially all of the coverage provided under the plan is for qualified
long-term care services.
(f) Under section 106(b)(5), amounts contributed by an employer to a medical
savings account (as defined in section 220(d)) are not considered part of a
group health plan subject to COBRA. Thus, a plan is not required to mCOBRA_Insurancee COBRA
continuation coverage available with respect to amounts contributed by an
employer to a medical savings account. A high deductible health plan does not
fail to be a group health plan subject to COBRA merely because it covers a
medical savings account holder.
Q-2: For purposes of section 4980B, what is the employer?
A-2: For purposes of section 4980B, employer refers to--
(a) A person for whom services are performed;
(b) Any other person that is a member of a group described in section 414(b),
(c), (m), or (o) that includes a person described in paragraph (a) of this
Q&A-2; and
(c) Any successor of a person described in paragraph (a) or (b) of this Q&A-2.
Q-3: [Reserved]
A-3: [Reserved]
Q-4: What group health plans are subject to COBRA?
A-4: (a) All group health plans are subject to COBRA except group health plans
described in paragraph (b) of this Q&A-4. Group health plans described in
paragraph (b) of this Q&A-4 are referred to in Secs. 54.4980B-1 through
54.4980B-8 as excepted from COBRA.
(b) The following group health plans are excepted from COBRA--
(1) Small-employer plans (see Q&A-5 of this section);
(2) Church plans (within the meaning of section 414(e)); and
(3) Governmental plans (within the meaning of section 414(d)).
(c) The COBRA continuation coverage requirements generally do not apply to group
health plans that are excepted from COBRA. However, a small-employer plan
otherwise excepted from COBRA is nonetheless subject to COBRA with respect to
qualified beneficiaries who experience a qualifying event during a period when
the plan is not a small- employer plan (see paragraph (g) of Q&A-5 of this
section).
(d) Although governmental plans are not subject to the COBRA continuation
coverage requirements, group health plans maintained by state or local
governments are generally subject to parallel continuation coverage requirements
that were added by section 10003 of COBRA to the Public Health Service Act (42
U.S.C. 300bb-1 through 300bb-8), which is administered by the U.S. Department of
Health and Human Services. Federal employees and their family members covered
under the Federal Employees Health Benefit Program are covered by generally
similar, but not parallel, temporary continuation of coverage provisions enacted
by the Federal Employees Health Benefits Amendments Act of 1988. See 5 U.S.C.
8905a.
Q-5: What is a small-employer plan?
A-5: (a) Except in the case of a multiemployer plan, a small- employer plan is a
group health plan maintained by an employer (within the meaning of Q&A-2 of this
section) that normally employed fewer than 20 employees (within the meaning of
paragraph (c) of this Q&A-5) during the preceding calendar year. In the case of
a multiemployer plan, a small-employer plan is a group health plan under which
each of the employers contributing to the plan for a calendar year normally
employed fewer than 20 employees during the preceding calendar year. The rules
of this paragraph (a) are illustrated in the following example:
Example. (i) Corporation S employs 12 employees, all of whom work and reside in
the United States. S maintains a group health plan for its employees and their
families. S is a wholly-owned subsidiary of P. In the previous calendar year,
the controlled group of corporations including P and S employed more than 19
employees, although the only employees in the United States of the controlled
group that includes P and S are the 12 employees of S.
(ii) Under Sec. 1.414(b)-1 of this chapter, foreign corporations are not
excluded from membership in a controlled group of corporations. Consequently,
the group health plan maintained by S is not a small-employer plan during the
current calendar year because the controlled group including S normally employed
at least 20 employees in the preceding calendar year.
(b) An employer is considered to have normally employed fewer than 20 employees
during a particular calendar year if, and only if, it had fewer than 20
employees on at least 50 percent of its typical business days during that year.
(c) All full-time and part-time common law employees of an employer are tCOBRA_Insuranceen
into account in determining whether an employer had fewer than 20 employees;
however, an individual who is not a common law employee of the employer is not
tCOBRA_Insuranceen into account. Thus, the following individuals are not counted as employees
for purposes of this Q&A-5 even though they are referred to as employees for all
other purposes of Secs. 54.4980B-1 through 54.4980B-8--
(1) Self-employed individuals (within the meaning of section 401(c)(1));
(2) Independent contractors (and their employees and independent contractors);
and
(3) Directors (in the case of a corporation).
(d) [Reserved]
(e) [Reserved]
(f) [Reserved]
(g) A small-employer plan is generally excepted from COBRA. If, however, a plan
that has been subject to COBRA (that is, was not a small-employer plan) becomes
a small-employer plan, the plan remains subject to COBRA for qualifying events
that occurred during the period when the plan was subject to COBRA. The rules of
this paragraph (g) are illustrated by the following examples:
Example 1. An employer maintains a group health plan. The employer employed 20
employees on more than 50 percent of its working days during 2001, and
consequently the plan is not excepted from COBRA during 2002. Employee E resigns
and does not work for the employer after January 31, 2002. Under the terms of
the plan, E is no longer eligible for coverage upon the effective date of the
resignation, that is, February 1, 2002. The employer does not hire a replacement
for E. E timely elects and pays for COBRA continuation coverage. The employer
employs 19 employees for the remainder of 2002, and consequently the plan is not
subject to COBRA in 2003. The plan must nevertheless continue to mCOBRA_Insurancee COBRA
continuation coverage available to E during 2003 until the obligation to mCOBRA_Insurancee
COBRA continuation coverage available ceases under the rules of Sec. 54.4980B-7.
The obligation could continue until August 1, 2003, the date that is 18 months
after the date of E's qualifying event, or longer if E is eligible for a
disability extension.
Example 2. The facts are the same as in Example 1. The employer continues to
employ 19 employees throughout 2003 and 2004 and consequently the plan continues
to be excepted from COBRA during 2004 and 2005. Spouse S is covered under the
plan because S is married to one of the employer's employees. On April 1, 2002,
S is divorced from that employee and ceases to be eligible for coverage under
the plan. The plan is subject to COBRA during 2002 because X normally employed
20 employees during 2001. S timely notifies the plan administrator of the
divorce and timely elects and pays for COBRA continuation coverage. Even though
the plan is generally excepted from COBRA during 2003, 2004, and 2005, it must
nevertheless continue to mCOBRA_Insurancee COBRA continuation coverage available to S during
those years until the obligation to mCOBRA_Insurancee COBRA continuation coverage available
ceases under the rules of Sec. 54.4980B-7. The obligation could continue until
April 1, 2005, the date that is 36 months after the date of S's qualifying
event.
Example 3. The facts are the same as in Example 2. C is a dependent child of one
of the employer's employees and is covered under the plan. A dependent child is
no longer eligible for coverage under the plan upon the attainment of age 23. C
attains age 23 on November 16, 2005. The plan is excepted from COBRA with
respect to C during 2005 because the employer normally employed fewer than 20
employees during 2004. Consequently, the plan is not obligated to mCOBRA_Insurancee COBRA
continuation coverage available to C (and would not be obligated to mCOBRA_Insurancee COBRA
continuation coverage available to C even if the plan later became subject to
COBRA again).
Q-6: [Reserved]
A-6: [Reserved]
Q-7: What is the plan year?
A-7: (a) The plan year is the year that is designated as the plan year in the
plan documents.
(b) If the plan documents do not designate a plan year (or if there are no plan
documents), then the plan year is determined in accordance with this paragraph
(b).
(1) The plan year is the deductible/limit year used under the plan.
(2) If the plan does not impose deductibles or limits on an annual basis, then
the plan year is the policy year.
(3) If the plan does not impose deductibles or limits on an annual basis, and
either the plan is not insured or the insurance policy is not renewed on an
annual basis, then the plan year is the employer's taxable year.
(4) In any other case, the plan year is the calendar year.
Q-8: How do the COBRA continuation coverage requirements apply to cafeteria
plans and other flexible benefit arrangements?
A-8: The provision of health care benefits does not fail to be a group health
plan merely because those benefits are offered under a cafeteria plan (as
defined in section 125) or under any other arrangement under which an employee
is offered a choice between health care benefits and other taxable or nontaxable
benefits. However, the COBRA continuation coverage requirements apply only to
the type and level of coverage under the cafeteria plan or other flexible
benefit arrangement that a qualified beneficiary is actually receiving on the
day before the qualifying event. The rules of this Q&A-8 are illustrated by the
following example:
Example: (i) Under the terms of a cafeteria plan, employees can choose among
life insurance coverage, membership in a health maintenance organization (HMO),
coverage for medical expenses under an indemnity arrangement, and cash
compensation. Of these available choices, the HMO and the indemnity arrangement
are the arrangements providing health care. The instruments governing the HMO
and indemnity arrangements indicate that they are separate group health plans.
These group health plans are subject to COBRA. The employer does not provide any
group health plan outside of the cafeteria plan. B and C are unmarried
employees. B has chosen the life insurance coverage, and C has chosen the
indemnity arrangement.
(ii) B does not have to be offered COBRA continuation coverage upon terminating
employment, nor is a subsequent open enrollment period for active employees
required to be made available to B. However, if C terminates employment and the
termination constitutes a qualifying event, C must be offered an opportunity to
elect COBRA continuation coverage under the indemnity arrangement. If C mCOBRA_Insurancees
such an election and an open enrollment period for active employees occurs while
C is still receiving the COBRA continuation coverage, C must be offered the
opportunity to switch from the indemnity arrangement to the HMO (but not to the
life insurance coverage because that does not constitute coverage provided under
a group health plan).
Q-9: What is the effect of a group health plan's failure to comply with the
requirements of section 4980B(f)?
A-9: Under section 4980B(a), if a group health plan subject to COBRA fails to
comply with section 4980B(f), an excise tax is imposed. Moreover, non-tax
remedies may be available if the plan fails to comply with the parallel
requirements in ERISA, which are administered by the Department of Labor.
Q-10: Who is liable for the excise tax if a group health plan fails to comply
with the requirements of section 4980B(f)?
A-10: (a) In general, the excise tax is imposed on the employer maintaining the
plan, except that in the case of a multiemployer plan the excise tax is imposed
on the plan.
(b) In certain circumstances, the excise tax is also imposed on a person
involved with the provision of benefits under the plan (other than in the
capacity of an employee), such as an insurer providing benefits under the plan
or a third party administrator administering claims under the plan. In general,
such a person will be liable for the excise tax if the person assumes, under a
legally enforceable written agreement, the responsibility for performing the act
to which the failure to comply with the COBRA continuation coverage requirements
relates. Such a person will be liable for the excise tax notwithstanding the
absence of a written agreement assuming responsibility for complying with COBRA
if the person provides coverage under the plan to a similarly situated nonCOBRA
beneficiary (see Q&A-3 of Sec. 54.4980B-3 for a definition of similarly situated
nonCOBRA beneficiaries) and the employer or plan administrator submits a written
request to the person to provide to a qualified beneficiary the same coverage
that the person provides to the similarly situated nonCOBRA beneficiary. If the
person providing coverage under the plan to a similarly situated nonCOBRA
beneficiary is the plan administrator and the qualifying event is a divorce or
legal separation or a dependent child's ceasing to be covered under the
generally applicable requirements of the plan, the plan administrator will also
be liable for the excise tax if the qualified beneficiary submits a written
request for coverage.
Sec. 54.4980B-3 Qualified beneficiaries.
The determination of who is a qualified beneficiary, an employee, or a covered
employee, and of who are the similarly situated nonCOBRA beneficiaries is
addressed in the following questions-and-answers: Q-1: Who is a qualified
beneficiary?
A-1: (a)(1) Except as set forth in paragraphs (c) through (f) of this Q&A-1, a
qualified beneficiary is--
(i) Any individual who, on the day before a qualifying event, is covered under a
group health plan by virtue of being on that day either a covered employee, the
spouse of a covered employee, or a dependent child of the covered employee; or
(ii) Any child who is born to or placed for adoption with a covered employee
during a period of COBRA continuation coverage.
(2) In the case of a qualifying event that is the bankruptcy of the employer, a
covered employee who had retired on or before the date of substantial
elimination of group health plan coverage is also a qualified beneficiary, as is
any spouse, surviving spouse, or dependent child of such a covered employee if,
on the day before the bankruptcy qualifying event, the spouse, surviving spouse,
or dependent child is a beneficiary under the plan.
(3) In general, an individual (other than a child who is born to or placed for
adoption with a covered employee during a period of COBRA continuation coverage)
who is not covered under a plan on the day before the qualifying event cannot be
a qualified beneficiary with respect to that qualifying event, and the reason
for the individual's lack of actual coverage (such as the individual's having
declined participation in the plan or failed to satisfy the plan's conditions
for participation) is not relevant for this purpose. However, if the individual
is denied or not offered coverage under a plan under circumstances in which the
denial or failure to offer constitutes a violation of applicable law (such as
the Americans with Disabilities Act, 42 U.S.C. 12101-12213, the special
enrollment rules of section 9801, or the requirements of section 9802
prohibiting discrimination in eligibility to enroll in a group health plan based
on health status), then, for purposes of Secs. 54.4980B-1 through 54.4980B-8,
the individual will be considered to have had the coverage that was wrongfully
denied or not offered.
(4) Paragraph (b) of this Q&A-1 describes how certain family members are not
qualified beneficiaries even if they become covered under the plan; paragraphs
(c), (d), and (e) of this Q&A-1 place limits on the general rules of this
paragraph (a) concerning who is a qualified beneficiary; paragraph (f) of this
Q&A-1 provides when an individual who has been a qualified beneficiary ceases to
be a qualified beneficiary; paragraph (g) of this Q&A-1 defines placed for
adoption; and paragraph (h) of this Q&A-1 contains examples.
(b) In contrast to a child who is born to or placed for adoption with a covered
employee during a period of COBRA continuation coverage, an individual who
marries any qualified beneficiary on or after the date of the qualifying event
and a newborn or adopted child (other than one born to or placed for adoption
with a covered employee) are not qualified beneficiaries by virtue of the
marriage, birth, or placement for adoption or by virtue of the individual's
status as the spouse or the child's status as a dependent of the qualified
beneficiary. These new family members do not themselves become qualified
beneficiaries even if they become covered under the plan. (For situations in
which a plan is required to mCOBRA_Insurancee coverage available to new family members of a
qualified beneficiary who is receiving COBRA continuation coverage, see Q&A-5 of
Sec. 54.4980B-5, paragraph (c) in Q&A-4 of Sec. 54.4980B-5, section 9801(f)(2),
and Sec. 54.9801-6T(b).)
(c) An individual is not a qualified beneficiary if, on the day before the
qualifying event referred to in paragraph (a) of this Q&A-1, the individual is
covered under the group health plan by reason of another individual's election
of COBRA continuation coverage and is not already a qualified beneficiary by
reason of a prior qualifying event.
(d) A covered employee can be a qualified beneficiary only in connection with a
qualifying event that is the termination, or reduction of hours, of the covered
employee's employment, or that is the bankruptcy of the employer.
(e) An individual is not a qualified beneficiary if the individual's status as a
covered employee is attributable to a period in which the individual was a
nonresident alien who received from the individual's employer no earned income
(within the meaning of section 911(d)(2)) that constituted income from sources
within the United States (within the meaning of section 861(a)(3)). If, pursuant
to the preceding sentence, an individual is not a qualified beneficiary, then a
spouse or dependent child of the individual is not considered a qualified
beneficiary by virtue of the relationship to the individual.
(f) A qualified beneficiary who does not elect COBRA continuation coverage in
connection with a qualifying event ceases to be a qualified beneficiary at the
end of the election period (see Q&A-1 of Sec. 54.4980B-6). Thus, for example, if
such a former qualified beneficiary is later added to a covered employee's
coverage (e.g., during an open enrollment period) and then another qualifying
event occurs with respect to the covered employee, the former qualified
beneficiary does not become a qualified beneficiary by reason of the second
qualifying event. If a covered employee who is a qualified beneficiary does not
elect COBRA continuation coverage during the election period, then any child
born to or placed for adoption with the covered employee on or after the date of
the qualifying event is not a qualified beneficiary. Once a plan's obligation to
mCOBRA_Insurancee COBRA continuation coverage available to an individual who has been a
qualified beneficiary ceases under the rules of Sec. 54.4980B-7, the individual
ceases to be a qualified beneficiary.
(g) For purposes of Secs. 54.4980B-1 through 54.4980B-8, placement for adoption
or being placed for adoption means the assumption and retention by the covered
employee of a legal obligation for total or partial support of a child in
anticipation of the adoption of the child. The child's placement for adoption
with the covered employee terminates upon the termination of the legal
obligation for total or partial support. A child who is immediately adopted by
the covered employee without a preceding placement for adoption is considered to
be placed for adoption on the date of the adoption.
(h) The rules of this Q&A-1 are illustrated by the following examples: Example
1.
(i) B is a single employee who voluntarily terminates employment and elects
COBRA continuation coverage under a group health plan. To comply with the
requirements of section 9801(f) and Sec. 54.9801-6T(b), the plan permits a
covered employee who marries to have her or his spouse covered under the plan.
One month after electing COBRA continuation coverage, B marries and chooses to
have B's spouse covered under the plan.
(ii) B's spouse is not a qualified beneficiary. Thus, if B dies during the
period of COBRA continuation coverage, the plan does not have to offer B's
surviving spouse an opportunity to elect COBRA continuation coverage.
Example 2.
(i) C is a married employee who terminates employment. C elects COBRA
continuation coverage for C but not C's spouse, and C's spouse declines to elect
such coverage. C's spouse thus ceases to be a qualified beneficiary. At the next
open enrollment period, C adds the spouse as a beneficiary under the plan.
(ii) The addition of the spouse during the open enrollment period does not mCOBRA_Insurancee
the spouse a qualified beneficiary. The plan thus will not have to offer the
spouse an opportunity to elect COBRA continuation coverage upon a later divorce
from or death of C.
Example 3.
(i) Under the terms of a group health plan, a covered employee's child, upon
attaining age 19, ceases to be a dependent eligible for coverage.
(ii) At that time, the child must be offered an opportunity to elect COBRA
continuation coverage. If the child elects COBRA continuation coverage, the
child marries during the period of the COBRA continuation coverage, and the
child's spouse becomes covered under the group health plan, the child's spouse
is not a qualified beneficiary.
Example 4.
(i) D is a single employee who, upon retirement, is given the opportunity to
elect COBRA continuation coverage but declines it in favor of an alternative
offer of 12 months of employer-paid retiree health benefits. At the end of the
election period, D ceases to be a qualified beneficiary and will not have to be
given another opportunity to elect COBRA continuation coverage (at the end of
those 12 months or at any other time). D marries E during the period of retiree
health coverage and, under the terms of that coverage, E becomes covered under
the plan.
(ii) If a divorce from or death of D will result in E's losing coverage, E will
be a qualified beneficiary because E's coverage under the plan on the day before
the qualifying event (that is, the divorce or death) will have been by reason of
D's acceptance of 12 months of employer-paid coverage after the prior qualifying
event (D's retirement) rather than by reason of an election of COBRA
continuation coverage.
Example 5.
(i) The facts are the same as in Example 4, except that, under the terms of the
plan, the divorce or death does not cause E to lose coverage so that E continues
to be covered for the balance of the original 12-month period.
(ii) E does not have to be allowed to elect COBRA continuation coverage because
the loss of coverage at the end of the 12-month period is not caused by the
divorce or death, and thus the divorce or death does not constitute a qualifying
event. See Q&A-1 of Sec. 54.4980B-4.
Q-2: Who is an employee and who is a covered employee?
A-2: (a)(1) For purposes of Secs. 54.4980B-1 through 54.4980B-8 (except for
purposes of Q&A-5 in Sec. 54.4980B-2, relating to the exception from COBRA for
plans maintained by an employer with fewer than 20 employees), an employee is
any individual who is eligible to be covered under a group health plan by virtue
of the performance of services for the employer maintaining the plan or by
virtue of membership in the employee organization maintaining the plan. Thus,
for purposes of Secs. 54.4980B-1 through 54.4980B-8 (except for purposes of
Q&A-5 in Sec. 54.4980B-2), the following individuals are employees if their
relationship to the employer maintaining the plan mCOBRA_Insurancees them eligible to be
covered under the plan--
(i) Self-employed individuals (within the meaning of section 401(c)(1));
(ii) Independent contractors (and their employees and independent contractors);
and
(iii) Directors (in the case of a corporation).
(2) Similarly, whenever reference is made in Secs. 54.4980B-1 through 54.4980B-8
(except in Q&A-5 of Sec. 54.4980B-2) to an employment relationship (such as by
referring to the termination of employment of an employee or to an employee's
being employed by an employer), the reference includes the relationship of those
individuals who are employees within the meaning of this paragraph (a). See
paragraph (c) in Q&A-5 of Sec. 54.4980B-2 for a narrower meaning of employee
solely for purposes of Q&A-5 of Sec. 54.4980B-2.
(b) For purposes of Secs. 54.4980B-1 through 54.4980B-8, a covered employee is
any individual who is (or was) provided coverage under a group health plan
(other than a plan that is excepted from COBRA on the date of the qualifying
event; see Q&A-4 of Sec. 54.4980B-2) by virtue of being or having been an
employee. For example, a retiree or former employee who is covered by a group
health plan is a covered employee if the coverage results in whole or in part
from her or his previous employment. An employee (or former employee) who is
merely eligible for coverage under a group health plan is generally not a
covered employee if the employee (or former employee) is not actually covered
under the plan. In general, the reason for the employee's (or former employee's)
lack of actual coverage (such as having declined participation in the plan or
having failed to satisfy the plan's conditions for participation) is not
relevant for this purpose. However, if the employee (or former employee) is
denied or not offered coverage under circumstances in which the denial or
failure to offer constitutes a violation of applicable law (such as the
Americans with Disabilities Act, 42 U.S.C. 12101 through 12213, the special
enrollment rules of section 9801, or the requirements of section 9802
prohibiting discrimination in eligibility to enroll in a group health plan based
on health status), then, for purposes of Secs. 54.4980B-1 through 54.4980B-8,
the employee (or former employee) will be considered to have had the coverage
that was wrongfully denied or not offered.
Q-3: Who are the similarly situated non-COBRA beneficiaries?
A-3: For purposes of Secs. 54.4980B-1 through 54.4980B-8, similarly situated
non-COBRA beneficiaries means the group of covered employees, spouses of covered
employees, or dependent children of covered employees receiving coverage under a
group health plan maintained by the employer or employee organization who are
receiving that coverage for a reason other than the rights provided under the
COBRA continuation coverage requirements and who, based on all of the facts and
circumstances, are most similarly situated to the situation of the qualified
beneficiary immediately before the qualifying event.
Sec. 54.4980B-4 Qualifying events.
The determination of what constitutes a qualifying event is addressed in the
following questions and answers:
Q-1: What is a qualifying event?
A-1: (a) A qualifying event is an event that satisfies paragraphs (b), (c), and
(d) of this Q&A-1. Paragraph (e) of this Q&A-1 further explains a reduction of
hours of employment, paragraph (f) of this Q&A- 1 describes the treatment of
children born to or placed for adoption with a covered employee during a period
of COBRA continuation coverage, and paragraph (g) of this Q&A-1 contains
examples.
(b) An event satisfies this paragraph (b) if the event is any of the following--
(1) The death of a covered employee;
(2) The termination (other than by reason of the employee's gross misconduct),
or reduction of hours, of a covered employee's employment;
(3) The divorce or legal separation of a covered employee from the employee's
spouse;
(4) A covered employee's becoming entitled to Medicare benefits under Title
XVIII of the Social Security Act (42 U.S.C. 1395-1395ggg);
(5) A dependent child's ceasing to be a dependent child of a covered employee
under the generally applicable requirements of the plan; or
(6) A proceeding in bankruptcy under Title 11 of the United States Code with
respect to an employer from whose employment a covered employee retired at any
time.
(c) An event satisfies this paragraph (c) if, under the terms of the group
health plan, the event causes the covered employee, or the spouse or a dependent
child of the covered employee, to lose coverage under the plan. For this
purpose, to lose coverage means to cease to be covered under the same terms and
conditions as in effect immediately before the qualifying event. Any increase in
the premium or contribution that must be paid by a covered employee (or the
spouse or dependent child of a covered employee) for coverage under a group
health plan that results from the occurrence of one of the events listed in
paragraph (b) of this Q&A-1 is a loss of coverage. In the case of an event that
is the bankruptcy of the employer, lose coverage also means any substantial
elimination of coverage under the plan, occurring within 12 months before or
after the date the bankruptcy proceeding commences, for a covered employee who
had retired on or before the date of the substantial elimination of group health
plan coverage or for any spouse, surviving spouse, or dependent child of such a
covered employee if, on the day before the bankruptcy qualifying event, the
spouse, surviving spouse, or dependent child is a beneficiary under the plan.
For purposes of this paragraph (c), a loss of coverage need not occur
immediately after the event, so long as the loss of coverage occurs before the
end of the maximum coverage period (see Q&A-1 and Q&A-6 of Sec. 54.4980B-7).
However, if neither the covered employee nor the spouse or a dependent child of
the covered employee loses coverage before the end of what would be the maximum
coverage period, the event does not satisfy this paragraph (c). If coverage is
reduced or eliminated in anticipation of an event (for example, an employer's
eliminating an employee's coverage in anticipation of the termination of the
employee's employment, or an employee's eliminating the coverage of the
employee's spouse in anticipation of a divorce or legal separation), the
reduction or elimination is disregarded in determining whether the event causes
a loss of coverage.
(d) An event satisfies this paragraph (d) if it occurs while the plan is subject
to COBRA. Thus, an event will not satisfy this paragraph (d) if it occurs while
the plan is excepted from COBRA (see Q&A-4 of Sec. 54.4980B-2). Even if the plan
later becomes subject to COBRA, it is not required to mCOBRA_Insurancee COBRA continuation
coverage available to anyone whose coverage ends as a result of an event during
a year in which the plan is excepted from COBRA. For example, if a group health
plan is excepted from COBRA as a small-employer plan during the year 2001 (see
Q&A-5 of Sec. 54.4980B-2) and an employee terminates employment on December 31,
2001, the termination is not a qualifying event and the plan is not required to
permit the employee to elect COBRA continuation coverage. This is the case even
if the plan ceases to be a small-employer plan as of January 1, 2002. Also, the
same result will follow even if the employee is given three months of coverage
beyond December 31 (that is, through March of 2002), because there will be no
qualifying event as of the termination of coverage in March. However, if the
employee's spouse is initially provided with the three-month coverage through
March 2002, but the spouse divorces the employee before the end of the three
months and loses coverage as a result of the divorce, the divorce will
constitute a qualifying event during 2002 and so entitle the spouse to elect
COBRA continuation coverage. See Q&A-7 of Sec. 54.4980B-7 regarding the maximum
coverage period in such a case.
(e) A reduction of hours of a covered employee's employment occurs whenever
there is a decrease in the hours that a covered employee is required to work or
actually works, but only if the decrease is not accompanied by an immediate
termination of employment. This is true regardless of whether the covered
employee continues to perform services following the reduction of hours of
employment. For example, an absence from work due to disability, a temporary
layoff, or any other reason is a reduction of hours of a covered employee's
employment if there is not an immediate termination of employment. If a group
health plan measures eligibility for the coverage of employees by the number of
hours worked in a given time period, such as the preceding month or quarter, and
an employee covered under the plan fails to work the minimum number of hours
during that time period, the failure to work the minimum number of required
hours is a reduction of hours of that covered employee's employment.
(f) The qualifying event of a qualified beneficiary who is a child born to or
placed for adoption with a covered employee during a period of COBRA
continuation coverage is the qualifying event giving rise to the period of COBRA
continuation coverage during which the child is born or placed for adoption. If
a second qualifying event has occurred before the child is born or placed for
adoption (such as the death of the covered employee), then the second qualifying
event also applies to the newborn or adopted child. See Q&A-6 of Sec.
54.4980B-7.
(g) The rules of this Q&A-1 are illustrated by the following examples, in each
of which the group health plan is subject to COBRA:
Example 1.
(i) An employee who is covered by a group health plan terminates employment
(other than by reason of the employee's gross misconduct) and, beginning with
the day after the last day of employment, is given 3 months of employer-paid
coverage under the same terms and conditions as before that date. At the end of
the three months, the coverage terminates.
(ii) The loss of coverage at the end of the three months results from the
termination of employment and, thus, the termination of employment is a
qualifying event.
Example 2. (i) An employee who is covered by a group health plan retires (which
is a termination of employment other than by reason of the employee's gross
misconduct) and, upon retirement, is required to pay an increased amount for the
same group health coverage that the employee had before retirement.
(ii) The increase in the premium or contribution required for coverage is a loss
of coverage under paragraph (c) of this Q&A-1 and, thus, the retirement is a
qualifying event.
Example 3.
(i) An employee and the employee's spouse are covered under an employer's group
health plan. The employee retires and is given identical coverage for life.
However, the plan provides that the spousal coverage will not be continued
beyond six months unless a higher premium for the spouse is paid to the plan.
(ii) The requirement for the spouse to pay a higher premium at the end of the
six months is a loss of coverage under paragraph (c) of this Q&A-1. Thus, the
retirement is a qualifying event and the spouse must be given an opportunity to
elect COBRA continuation coverage.
Example 4.
(i) F is a covered employee who is married to G, and both are covered under a
group health plan maintained by F's employer. F and G are divorced. Under the
terms of the plan, the divorce causes G to lose coverage. The divorce is a
qualifying event, and G elects COBRA continuation coverage, remarries during the
period of COBRA continuation coverage, and G's new spouse becomes covered under
the plan. (See Q&A-5 in Sec. 54.4980B-5, paragraph (c) in Q&A-4 of Sec.
54.4980B-5, section 9801(f)(2), and Sec. 54.9801-6T(b).) G dies. Under the terms
of the plan, the death causes G's new spouse to lose coverage under the plan.
(ii) G's death is not a qualifying event because G is not a covered employee.
Example 5.
(i) An employer maintains a group health plan for both active employees and
retired employees (and their families). The coverage for active employees and
retired employees is identical, and the employer does not require retirees to
pay more for coverage than active employees. The plan does not mCOBRA_Insurancee COBRA
continuation coverage available when an employee retires (and is not required to
because the retired employee has not lost coverage under the plan). The employer
amends the plan to eliminate coverage for retired employees effective January 1,
2002. On that date, several retired employees (and their spouses and dependent
children) have been covered under the plan since their retirement for less than
the maximum coverage period that would apply to them in connection with their
retirement.
(ii) The elimination of retiree coverage under these circumstances is a deferred
loss of coverage for those retirees (and their spouses and dependent children)
under paragraph (c) of this Q&A-1 and, thus, the retirement is a qualifying
event. The plan must mCOBRA_Insurancee COBRA continuation coverage available to them for the
balance of the maximum coverage period that applies to them in connection with
the retirement.
Q-2: Are the facts surrounding a termination of employment (such as whether it
was voluntary or involuntary) relevant in determining whether the termination of
employment is a qualifying event?
A-2: Apart from facts constituting gross misconduct, the facts surrounding the
termination or reduction of hours are irrelevant in determining whether a
qualifying event has occurred. Thus, it does not matter whether the employee
voluntarily terminated or was discharged. For example, a strike or a lockout is
a termination or reduction of hours that constitutes a qualifying event if the
strike or lockout results in a loss of coverage as described in paragraph (c) of
Q&A-1 of this section. Similarly, a layoff that results in such a loss of
coverage is a qualifying event.
Sec. 54.4980B-5 COBRA continuation coverage.
The following questions-and-answers address the requirements for coverage to
constitute COBRA continuation coverage:
Q-1: What is COBRA continuation coverage?
A-1: (a) If a qualifying event occurs, each qualified beneficiary (other than a
qualified beneficiary for whom the qualifying event will not result in any
immediate or deferred loss of coverage) must be offered an opportunity to elect
to receive the group health plan coverage that is provided to similarly situated
nonCOBRA beneficiaries (ordinarily, the same coverage that the qualified
beneficiary had on the day before the qualifying event). See Q&A-3 of Sec.
54.4980B-3 for the definition of similarly situated nonCOBRA beneficiaries. This
coverage is COBRA continuation coverage. If coverage under the plan is modified
for similarly situated nonCOBRA beneficiaries, then the coverage made available
to qualified beneficiaries is modified in the same way. If the continuation
coverage offered differs in any way from the coverage made available to
similarly situated nonCOBRA beneficiaries, the coverage offered does not
constitute COBRA continuation coverage and the group health plan is not in
compliance with COBRA unless other coverage that does constitute COBRA
continuation coverage is also offered. Any elimination or reduction of coverage
in anticipation of an event described in paragraph (b) of Q&A- 1 of Sec.
54.4980B-4 is disregarded for purposes of this Q&A-1 and for purposes of any
other reference in Secs. 54.4980B-1 through 54.4980B-8 to coverage in effect
immediately before (or on the day before) a qualifying event. COBRA continuation
coverage must not be conditioned upon, or discriminate on the basis of lack of,
evidence of insurability.
(b) In the case of a qualified beneficiary who is a child born to or placed for
adoption with a covered employee during a period of COBRA continuation coverage,
the child is generally entitled to elect immediately to have the same coverage
that dependent children of active employees receive under the benefit packages
under which the covered employee has coverage at the time of the birth or
placement for adoption. Such a child would be entitled to elect coverage
different from that elected by the covered employee during the next available
open enrollment period under the plan. See Q&A-4 of this section.
Q-2: What deductibles apply if COBRA continuation coverage is elected?
A-2: (a) Qualified beneficiaries electing COBRA continuation coverage generally
are subject to the same deductibles as similarly situated nonCOBRA
beneficiaries. If a qualified beneficiary's COBRA continuation coverage begins
before the end of a period prescribed for accumulating amounts toward
deductibles, the qualified beneficiary must retain credit for expenses incurred
toward those deductibles before the beginning of COBRA continuation coverage as
though the qualifying event had not occurred. The specific application of this
rule depends on the type of deductible, as set forth in paragraphs (b) through
(d) of this Q&A-2. Special rules are set forth in paragraph (e) of this Q&A-2,
and examples appear in paragraph (f) of this Q&A-2.
(b) If a deductible is computed separately for each individual receiving
coverage under the plan, each individual's remaining deductible amount (if any)
on the date COBRA continuation coverage begins is equal to that individual's
remaining deductible amount immediately before that date.
(c) If a deductible is computed on a family basis, the remaining deductible for
the family on the date that COBRA continuation coverage begins depends on the
members of the family electing COBRA continuation coverage. In computing the
family deductible that remains on the date COBRA continuation coverage begins,
only the expenses of those family members receiving COBRA continuation coverage
need be tCOBRA_Insuranceen into account. If the qualifying event results in there being more
than one family unit (for example, because of a divorce), the family deductible
may be computed separately for each resulting family unit based on the members
in each unit. These rules apply regardless of whether the plan provides that the
family deductible is an alternative to individual deductibles or an additional
requirement.
(d) Deductibles that are not described in paragraph (b) or (c) of this Q&A-2
must be treated in a manner consistent with the principles set forth in those
paragraphs.
(e) If a deductible is computed on the basis of a covered employee's
compensation instead of being a fixed dollar amount and the employee remains
employed during the period of COBRA continuation coverage, the plan is permitted
to choose whether to apply the deductible by treating the employee's
compensation as continuing without change for the duration of the COBRA
continuation coverage at the level that was used to compute the deductible in
effect immediately before the COBRA continuation coverage began, or to apply the
deductible by tCOBRA_Insuranceing the employee's actual compensation into account. In
applying a deductible that is computed on the basis of the covered employee's
compensation instead of being a fixed dollar amount, for periods of COBRA
continuation coverage in which the employee is not employed by the employer, the
plan is required to compute the deductible by treating the employee's
compensation as continuing without change for the duration of the COBRA
continuation coverage either at the level that was used to compute the
deductible in effect immediately before the COBRA continuation coverage began or
at the level that was used to compute the deductible in effect immediately
before the employee's employment was terminated.
(f) The rules of this Q&A-2 are illustrated by the following examples; in each
example, deductibles under the plan are determined on a calendar year basis:
Example 1. (i) A group health plan applies a separate $100 annual deductible to
each individual it covers. The plan provides that the spouse and dependent
children of a covered employee will lose coverage on the last day of the month
after the month of the covered employee's death. A covered employee dies on June
11, 2001. The spouse and the two dependent children elect COBRA continuation
coverage, which will begin on August 1, 2001. As of July 31, 2001, the spouse
has incurred $80 of covered expenses, the older child has incurred no covered
expenses, and the younger one has incurred $120 of covered expenses (and
therefore has already satisfied the deductible).
(ii) At the beginning of COBRA continuation coverage on August 1, the spouse has
a remaining deductible of $20, the older child still has the full $100
deductible, and the younger one has no further deductible.
Example 2. (i) A group health plan applies a separate $200 annual deductible to
each individual it covers, except that each family member is treated as having
satisfied the individual deductible once the family has incurred $500 of covered
expenses during the year. The plan provides that upon the divorce of a covered
employee, coverage will end immediately for the employee's spouse and any
children who do not remain in the employee's custody. A covered employee with
four dependent children is divorced, the spouse obtains custody of the two
oldest children, and the spouse and those children all elect COBRA continuation
coverage to begin immediately. The family had accumulated $420 of covered
expenses before the divorce, as follows: $70 by each parent, $200 by the oldest
child, $80 by the youngest child, and none by the other two children.
(ii) The resulting family consisting of the spouse and the two oldest children
accumulated a total of $270 of covered expenses, and thus the remaining
deductible for that family could be as high as $230 (because the plan would not
have to count the incurred expenses of the covered employee and the youngest
child). The remaining deductible for the resulting family consisting of the
covered employee and the two youngest children is not subject to the rules of
this Q&A-2 because their coverage is not COBRA continuation coverage.
Example 3. Each year a group health plan pays 70 percent of the cost of an
individual's psychotherapy after that individual's first three visits during the
year. A qualified beneficiary whose election of COBRA continuation coverage
tCOBRA_Insurancees effect beginning August 1, 2001 and who has already made two visits as of
that date need only pay for one more visit before the plan must begin to pay 70
percent of the cost of the remaining visits during 2001.
Example 4. (i) A group health plan has a $250 annual deductible per covered
individual. The plan provides that if the deductible is not satisfied in a
particular year, expenses incurred during October through December of that year
are credited toward satisfaction of the deductible in the next year. A qualified
beneficiary who has incurred covered expenses of $150 from January through
September of 2001 and $40 during October elects COBRA continuation coverage
beginning November 1, 2001.
(ii) The remaining deductible amount for this qualified beneficiary is $60 at
the beginning of the COBRA continuation coverage. If this individual incurs
covered expenses of $50 in November and December of 2001 combined (so that the
$250 deductible for 2001 is not satisfied), the $90 incurred from October
through December of 2001 are credited toward satisfaction of the deductible
amount for 2002.
Q-3: How do a plan's limits apply to COBRA continuation coverage?
A-3: (a) Limits are treated in the same way as deductibles (see Q&A-2 of this
section).
This rule applies both to limits on plan benefits (such as a maximum number of
hospital days or dollar amount of reimbursable expenses) and limits on
out-of-pocket expenses (such as a limit on copayments, a limit on deductibles
plus copayments, or a catastrophic limit). This rule applies equally to annual
and lifetime limits and applies equally to limits on specific benefits and
limits on benefits in the aggregate under the plan.
(b) The rule of this Q&A-3 is illustrated by the following examples; in each
example limits are determined on a calendar year basis:
Example 1.
(i) A group health plan pays for a maximum of 150 days of hospital confinement
per individual per year. A covered employee who has had 20 days of hospital
confinement as of May 1, 2001 terminates employment and elects COBRA
continuation coverage as of that date.
(ii) During the remainder of the year 2001 the plan need only pay for a maximum
of 130 days of hospital confinement for this individual.
Example 2. (i) A group health plan reimburses a maximum of $20,000 of covered
expenses per family per year, and the same $20,000 limit applies to unmarried
covered employees. A covered employee and spouse who have no children divorce on
May 1, 2001, and the spouse elects COBRA continuation coverage as of that date.
In 2001, the employee had incurred $5,000 of expenses and the spouse had
incurred $8,000 before May 1.
(ii) The plan can limit its reimbursement of the amount of expenses incurred by
the spouse on and after May 1 for the remainder of the year to $12,000
($20,000-$8,000 = $12,000). The remaining limit for the employee is not subject
to the rules of this Q&A-3 because the employee's coverage is not COBRA
continuation coverage.
Example 3.
(i) A group health plan pays for 80 percent of covered expenses after
satisfaction of a $100-per-individual deductible, and the plan pays for 100
percent of covered expenses after a family has incurred out-of-pocket costs of
$2,000. The plan provides that upon the divorce of a covered employee, coverage
will end immediately for the employee's spouse and any children who do not
remain in the employee's custody. An employee and spouse with three dependent
children divorce on June 1, 2001, and one of the children remains with the
employee. The spouse elects COBRA continuation coverage as of that date for the
spouse and the other two children. During January through May of 2001, the
spouse incurred $600 of covered expenses and each of the two children in the
spouse's custody after the divorce incurred covered expenses of $1,100. This
resulted in total out-of-pocket costs for these three individuals of $800 ($300
total for the three deductibles, plus $500 for 20 percent of the other $2,500 in
incurred expenses [$600 + $1,100 + $1,100 = $2,800; $2,800-$300 = $2,500]).
(ii) For the remainder of 2001, the resulting family consisting of the spouse
and two children has an out-of-pocket limit of $1,200 ($2,000-$800 = $1,200) .
The remaining out-of-pocket limit for the resulting family consisting of the
employee and one child is not subject to the rules of this Q&A-3 because their
coverage is not COBRA continuation coverage.
Q-4: Can a qualified beneficiary who elects COBRA continuation coverage ever
change from the coverage received by that individual immediately before the
qualifying event?
A-4: (a) In general, a qualified beneficiary need only be given an opportunity
to continue the coverage that she or he was receiving immediately before the
qualifying event. This is true regardless of whether the coverage received by
the qualified beneficiary before the qualifying event ceases to be of value to
the qualified beneficiary, such as in the case of a qualified beneficiary
covered under a region- specific health maintenance organization (HMO) who
leaves the HMO's service region. The only situations in which a qualified
beneficiary must be allowed to change from the coverage received immediately
before the qualifying event are as set forth in paragraphs (b) and (c) of this
Q&A-4 and in Q&A-1 of this section (regarding changes to or elimination of the
coverage provided to similarly situated nonCOBRA beneficiaries).
(b) If a qualified beneficiary participates in a region-specific benefit package
(such as an HMO or an on-site clinic) that will not service her or his health
needs in the area to which she or he is relocating (regardless of the reason for
the relocation), the qualified beneficiary must be given an opportunity to elect
alternative coverage that the employer or employee organization mCOBRA_Insurancees available
to active employees. If the employer or employee organization mCOBRA_Insurancees group health
plan coverage available to similarly situated nonCOBRA beneficiaries that can be
extended in the area to which the qualified beneficiary is relocating, then that
coverage is the alternative coverage that must be made available to the
relocating qualified beneficiary. If the employer or employee organization does
not mCOBRA_Insurancee group health plan coverage available to similarly situated nonCOBRA
beneficiaries that can be extended in the area to which the qualified
beneficiary is relocating but mCOBRA_Insurancees coverage available to other employees that
can be extended in that area, then the coverage made available to those other
employees must be made available to the relocating qualified beneficiary.
However, the employer or employee organization is not required to mCOBRA_Insurancee any other
coverage available to the relocating qualified beneficiary if the only coverage
the employer or employee organization mCOBRA_Insurancees available to active employees is not
available in the area to which the qualified beneficiary relocates (because all
such coverage is region-specific and does not service individuals in that area).
(c) If an employer or employee organization mCOBRA_Insurancees an open enrollment period
available to similarly situated active employees with respect to whom a
qualifying event has not occurred, the same open enrollment period rights must
be made available to each qualified beneficiary receiving COBRA continuation
coverage. An open enrollment period means a period during which an employee
covered under a plan can choose to be covered under another group health plan or
under another benefit package within the same plan, or to add or eliminate
coverage of family members.
(d) The rules of this Q&A-4 are illustrated by the following examples:
Example 1.
(i) E is an employee who works for an employer that maintains several group
health plans. Under the terms of the plans, if an employee chooses to cover any
family members under a plan, all family members must be covered by the same plan
and that plan must be the same as the plan covering the employee. Immediately
before E's termination of employment (for reasons other than gross misconduct),
E is covered along with E's spouse and children by a plan. The coverage under
that plan will end as a result of the termination of employment.
(ii) Upon E's termination of employment, each of the four family members is a
qualified beneficiary. Even though the employer maintains various other plans
and options, it is not necessary for the qualified beneficiaries to be allowed
to switch to a new plan when E terminates employment.
(iii) COBRA continuation coverage is elected for each of the four family
members. Three months after E's termination of employment there is an open
enrollment period during which similarly situated active employees are offered
an opportunity to choose to be covered under a new plan or to add or eliminate
family coverage.
(iv) During the open enrollment period, each of the four qualified beneficiaries
must be offered the opportunity to switch to another plan (as though each
qualified beneficiary were an individual employee). For example, each member of
E's family could choose coverage under a separate plan, even though the family
members of employed individuals could not choose coverage under separate plans.
Of course, if each family member chooses COBRA continuation coverage under a
separate plan, the plan can require payment for each family member that is based
on the applicable premium for individual coverage under that separate plan. See
Q&A-1 of Sec. 54.4980B-8.
Example 2. (i) The facts are the same as in Example 1, except that E's family
members are not covered under E's group health plan when E terminates
employment.
(ii) Although the family members do not have to be given an opportunity to elect
COBRA continuation coverage, E must be allowed to add them to E's COBRA
continuation coverage during the open enrollment period. This is true even
though the family members are not, and cannot become, qualified beneficiaries
(see Q&A-1 of Sec. 54.4980B-3).
Q-5: Aside from open enrollment periods, can a qualified beneficiary who has
elected COBRA continuation coverage choose to cover individuals (such as newborn
children, adopted children, or new spouses) who join the qualified beneficiary's
family on or after the date of the qualifying event?
A-5: (a) Yes. Under section 9801 and Sec. 54.9801-6T, employees eligible to
participate in a group health plan (whether or not participating), as well as
former employees participating in a plan (referred to in those rules as
participants), are entitled to special enrollment rights for certain family
members upon the loss of other group health plan coverage or upon the
acquisition by the employee or participant of a new spouse or of a new dependent
through birth, adoption, or placement for adoption, if certain requirements are
satisfied. Employees not participating in the plan also can obtain rights for
self-enrollment under those rules. Once a qualified beneficiary is receiving
COBRA continuation coverage (that is, has timely elected and made timely payment
for COBRA continuation coverage), the qualified beneficiary has the same right
to enroll family members under those special enrollment rules as if the
qualified beneficiary were an employee or participant within the meaning of
those rules. However, neither a qualified beneficiary who is not receiving COBRA
continuation coverage nor a former qualified beneficiary has any special
enrollment rights under those rules.
(b) In addition to the special enrollment rights described in paragraph (a) of
this Q&A-5, if the plan covering the qualified beneficiary provides that new
family members of active employees can become covered (either automatically or
upon an appropriate election) before the next open enrollment period, then the
same right must be extended to the new family members of a qualified
beneficiary.
(c) If the addition of a new family member will result in a higher applicable
premium (for example, if the qualified beneficiary was previously receiving
COBRA continuation coverage as an individual, or if the applicable premium for
family coverage depends on family size), the plan can require the payment of a
correspondingly higher amount for the COBRA continuation coverage. See Q&A-1 of
Sec. 54.4980B-8.
(d) The right to add new family members under this Q&A-5 is in addition to the
rights that newborn and adopted children of covered employees may have as
qualified beneficiaries; see Q&A-1 in Sec. 54.4980B-3.
Sec. 54.4980B-6 Electing COBRA continuation coverage.
The following questions-and-answers address the manner in which COBRA
continuation coverage is elected:
Q-1: What is the election period and how long must it last?
A-1: (a) A group health plan can condition the availability of COBRA
continuation coverage upon the timely election of such coverage. An election of
COBRA continuation coverage is a timely election if it is made during the
election period. The election period must begin not later than the date the
qualified beneficiary would lose coverage on account of the qualifying event.
(See paragraph (c) of Q&A-1 of Sec. 54.4980B-4 for the meaning of lose
coverage.) The election period must not end before the date that is 60 days
after the later of--
(1) The date the qualified beneficiary would lose coverage on account of the
qualifying event; or
(2) The date notice is provided to the qualified beneficiary of her or his right
to elect COBRA continuation coverage.
(b) An election is considered to be made on the date it is sent to the plan
administrator.
(c) The rules of this Q&A-1 are illustrated by the following example:
Example.
(i) An unmarried employee without children who is receiving employer-paid
coverage under a group health plan voluntarily terminates employment on June 1,
2001. The employee is not disabled at the time of the termination of employment
nor at any time thereafter, and the plan does not provide for the extension of
the required periods (as is permitted under section 4980B(f)(8)).
(ii) Case 1: If the plan provides that the employer-paid coverage ends
immediately upon the termination of employment, the election period must begin
not later than June 1, 2001, and must not end earlier than July 31, 2001. If
notice of the right to elect COBRA continuation coverage is not provided to the
employee until June 15, 2001, the election period must not end earlier than
August 14, 2001.
(iii) Case 2: If the plan provides that the employer-paid coverage does not end
until 6 months after the termination of employment, the employee does not lose
coverage until December 1, 2001. The election period can therefore begin as late
as December 1, 2001, and must not end before January 30, 2002.
(iv) Case 3: If employer-paid coverage for 6 months after the termination of
employment is offered only to those qualified beneficiaries who waive COBRA
continuation coverage, the employee loses coverage on June 1, 2001, so the
election period is the same as in Case 1. The difference between Case 2 and Case
3 is that in Case 2 the employee can receive 6 months of employer-paid coverage
and then elect to pay for up to an additional 12 months of COBRA continuation
coverage, while in Case 3 the employee must choose between 6 months of
employer-paid coverage and paying for up to 18 months of COBRA continuation
coverage. In all three cases, COBRA continuation coverage need not be provided
for more than 18 months after the termination of employment, and in certain
circumstances might be provided for a shorter period (see Q&A-1 of Sec.
54.4980B-7).
Q-2: Is a covered employee or qualified beneficiary responsible for informing
the plan administrator of the occurrence of a qualifying event?
A-2: (a) In general, the employer or plan administrator must determine when a
qualifying event has occurred. However, each covered employee or qualified
beneficiary is responsible for notifying the plan administrator of the
occurrence of a qualifying event that is either a dependent child's ceasing to
be a dependent child under the generally applicable requirements of the plan or
a divorce or legal separation of a covered employee. The group health plan is
not required to offer the qualified beneficiary an opportunity to elect COBRA
continuation coverage if the notice is not provided to the plan administrator
within 60 days after the later of--
(1) The date of the qualifying event; or
(2) The date the qualified beneficiary would lose coverage on account of the
qualifying event.
(b) For purposes of this Q&A-2, if more than one qualified beneficiary would
lose coverage on account of a divorce or legal separation of a covered employee,
a timely notice of the divorce or legal separation that is provided by the
covered employee or any one of those qualified beneficiaries will be sufficient
to preserve the election rights of all of the qualified beneficiaries.
Q-3: During the election period and before the qualified beneficiary has made an
election, must coverage be provided?
A-3: (a) In general, each qualified beneficiary has until 60 days after the
later of the date the qualifying event would cause her or him to lose coverage
or the date notice is provided to the qualified
beneficiary of her or his right to elect COBRA continuation coverage to decide
whether to elect COBRA continuation coverage. If the election is made during
that period, coverage must be provided from the date that coverage would
otherwise have been lost (but see Q&A-4 of this section). This can be
accomplished as described in paragraph (b) or (c) of this Q&A-3.
(b) In the case of an indemnity or reimbursement arrangement, the employer or
employee organization can provide for plan coverage during the election period
or, if the plan allows retroactive reinstatement, the employer or employee
organization can terminate the coverage of the qualified beneficiary and
reinstate her or him when the election is made. Claims incurred by a qualified
beneficiary during the election period do not have to be paid before the
election (and, if applicable, payment for the coverage) is made. If a provider
of health care (such as a physician, hospital, or pharmacy) contacts the plan to
confirm coverage of a qualified beneficiary during the election period, the plan
must give a complete response to the health care provider about the qualified
beneficiary's COBRA continuation coverage rights during the election period. For
example, if the plan provides coverage during the election period but cancels
coverage retroactively if COBRA continuation coverage is not elected, then the
plan must inform a provider that a qualified beneficiary for whom coverage has
not been elected is covered but that the coverage is subject to retroactive
termination. Similarly, if the plan cancels coverage but then retroactively
reinstates it once COBRA continuation coverage is elected, then the plan must
inform the provider that the qualified beneficiary currently does not have
coverage but will have coverage retroactively to the date coverage was lost if
COBRA continuation coverage is elected. (See paragraph (c) of Q&A-5 in Sec.
54.4980B-8 for similar rules that a plan must follow in confirming coverage
during a period when the plan has not received payment but that is still within
the grace period for a qualified beneficiary for whom COBRA continuation
coverage has been elected.)
(c)(1) In the case of a group health plan that provides health services (such as
a health maintenance organization or a walk-in clinic), the plan can require
with respect to a qualified beneficiary who has not elected and paid for COBRA
continuation coverage that the qualified beneficiary choose between--
(i) Electing and paying for the coverage; or
(ii) Paying the reasonable and customary charge for the plan's services, but
only if a qualified beneficiary who chooses to pay for the services will be
reimbursed for that payment within 30 days after the election of COBRA
continuation coverage (and, if applicable, the payment of any balance due for
the coverage).
(2) In the alternative, the plan can provide continued coverage and treat the
qualified beneficiary's use of the facility as a constructive election. In such
a case, the qualified beneficiary is obligated to pay any applicable charge for
the coverage, but only if the qualified beneficiary is informed that use of the
facility will be a constructive election before using the facility.
Q-4: Is a waiver before the end of the election period effective to end a
qualified beneficiary's election rights?
A-4: If, during the election period, a qualified beneficiary waives COBRA
continuation coverage, the waiver can be revoked at any time before the end of
the election period. Revocation of the waiver is an election of COBRA
continuation coverage. However, if a waiver of COBRA continuation coverage is
later revoked, coverage need not be provided retroactively (that is, from the
date of the loss of coverage until the waiver is revoked). Waivers and
revocations of waivers are considered made on the date they are sent to the
employer, employee organization, or plan administrator, as applicable.
Q-5: Can an employer or employee organization withhold money or other benefits
owed to a qualified beneficiary until the qualified beneficiary either waives
COBRA continuation coverage, elects and pays for such coverage, or allows the
election period to expire?
A-5: No. An employer, and an employee organization, must not withhold anything
to which a qualified beneficiary is otherwise entitled (by operation of law or
other agreement) in order to compel payment for COBRA continuation coverage or
to coerce the qualified beneficiary to give up rights to COBRA continuation
coverage (including the right to use the full election period to decide whether
to elect such coverage). Such a withholding constitutes a failure to comply with
the COBRA continuation coverage requirements. Furthermore, any purported waiver
obtained by means of such a withholding is invalid.
Q-6: Can each qualified beneficiary mCOBRA_Insurancee an independent election under COBRA?
A-6: Yes. Each qualified beneficiary (including a child who is born to or placed
for adoption with a covered employee during a period of COBRA continuation
coverage) must be offered the opportunity to mCOBRA_Insurancee an independent election to
receive COBRA continuation coverage. If the plan allows similarly situated
active employees with respect to whom a qualifying event has not occurred to
choose among several options during an open enrollment period (for example, to
switch to another group health plan or to another benefit package under the same
group health plan), then each qualified beneficiary must also be offered an
independent election to choose during an open enrollment period among the
options made available to similarly situated active employees with respect to
whom a qualifying event has not occurred. If a qualified beneficiary who is
either a covered employee or the spouse of a covered employee elects COBRA
continuation coverage and the election does not specify whether the election is
for self-only coverage, the election is deemed to include an election of COBRA
continuation coverage on behalf of all other qualified beneficiaries with
respect to that qualifying event. An election on behalf of a minor child can be
made by the child's parent or legal guardian. An election on behalf of a
qualified beneficiary who is incapacitated or dies can be made by the legal
representative of the qualified beneficiary or the qualified beneficiary's
estate, as determined under applicable state law, or by the spouse of the
qualified beneficiary. (See also Q&A-5 of Sec. 54.4980B-7 relating to the
independent right of each qualified beneficiary with respect to the same
qualifying event to receive COBRA continuation coverage during the disability
extension.) The rules of this Q&A-6 are illustrated by the following examples;
in each example each group health plan is subject to COBRA:
Example 1.
(i) Employee H and H 's spouse are covered under a group health plan immediately
before H 's termination of employment (for reasons other than gross misconduct).
Coverage under the plan will end as a result of the termination of employment.
(ii) Upon H 's termination of employment, both H and H 's spouse are qualified
beneficiaries and each must be allowed to elect COBRA continuation coverage.
Thus, H might elect COBRA continuation coverage while the spouse declines to
elect such coverage, or H might elect COBRA continuation coverage for both of
them. In contrast, H cannot decline COBRA continuation coverage on behalf of H
's spouse. Thus, if H does not elect COBRA continuation coverage on behalf of
the spouse, the spouse must still be allowed to elect COBRA continuation
coverage.
Example 2.
(i) An employer maintains a group health plan under which all employees receive
employer-paid coverage. Employees can arrange to cover their families by paying
an additional amount. The employer also maintains a cafeteria plan, under which
one of the options is to pay part or all of the employee share of the cost for
family coverage under the group health plan. Thus, an employee might pay for
family coverage under the group health plan partly with before-tax dollars and
partly with after-tax dollars.
(ii) If an employee's family is receiving coverage under the group health plan
when a qualifying event occurs, each of the qualified beneficiaries must be
offered an opportunity to elect COBRA continuation coverage, regardless of how
that qualified beneficiary's coverage was paid for before the qualifying event.
Sec. 54.4980B-7 Duration of COBRA continuation coverage.
The following questions-and-answers address the duration of COBRA continuation
coverage:
Q-1: How long must COBRA continuation coverage be made available to a qualified
beneficiary?
A-1: (a) Except for an interruption of coverage in connection with a waiver, as
described in Q&A-4 of Sec. 54.4980B-6, COBRA continuation coverage that has been
elected for a qualified beneficiary must extend for at least the period
beginning on the date of the qualifying event and ending not before the earliest
of the following dates--
(1) The last day of the maximum required period under section 4980B(f)(2)(B)(i)
(the maximum coverage period) and, if applicable, section 4980B(f)(8) (relating
to the optional extension of required periods in a case where coverage is lost
after the date of, instead of on the date of, the qualifying event);
(2) The first day for which timely payment is not made to the plan with respect
to the qualified beneficiary (see Q&A-5 in Sec. 54.4980B- 8);
(3) The date upon which the employer or employee organization ceases to provide
any group health plan (including successor plans) to any employee;
(4) The date, after the date of the election, upon which the qualified
beneficiary first becomes covered under any other group health plan, as
described in Q&A-2 of this section; and
(5) The date, after the date of the election, upon which the qualified
beneficiary first becomes entitled to Medicare benefits, as described in Q&A-3
of this section.
(b) However, a group health plan can terminate for cause the coverage of a
qualified beneficiary receiving COBRA continuation coverage on the same basis
that the plan terminates for cause the coverage of similarly situated nonCOBRA
beneficiaries. For example, if a group health plan terminates the coverage of
active employees for the submission of a fraudulent claim, then the coverage of
a qualified beneficiary can also be terminated for the submission of a
fraudulent claim. Notwithstanding the preceding two sentences, the coverage of a
qualified beneficiary can be terminated for failure to mCOBRA_Insurancee timely payment to
the plan only if payment is not timely under the rules of Q&A-5 in Sec.
54.4980B-8.
(c) In the case of an individual who is not a qualified beneficiary and who is
receiving coverage under a group health plan solely because of the individual's
relationship to a qualified beneficiary, if the plan's obligation to mCOBRA_Insurancee COBRA
continuation coverage available to the qualified beneficiary ceases under this
section, the plan is not obligated to mCOBRA_Insurancee coverage available to the individual
who is not a qualified beneficiary.
Q-2: When may a plan terminate a qualified beneficiary's COBRA continuation
coverage due to coverage under another group health plan? A-2: (a) If a
qualified beneficiary first becomes covered under another group health plan
(including for this purpose any group health plan of a governmental employer or
employee organization) after the date on which COBRA continuation coverage is
elected for the qualified beneficiary and the other coverage satisfies the
requirements of paragraphs (b), (c), and (d) of this Q&A-2, then the plan may
terminate the qualified beneficiary's COBRA continuation coverage upon the date
on which the qualified beneficiary first becomes covered under the other group
health plan (even if the other coverage is less valuable to the qualified
beneficiary). By contrast, if a qualified beneficiary first becomes covered
under another group health plan on or before the date on which COBRA
continuation coverage is elected, then the other coverage cannot be a basis for
terminating the qualified beneficiary's COBRA continuation coverage.
(b) The requirement of this paragraph (b) is satisfied if the qualified
beneficiary is actually covered, rather than merely eligible to be covered,
under the other group health plan.
(c) The requirement of this paragraph (c) is satisfied if the other group health
plan is a plan that is not maintained by the employer or employee organization
that maintains the plan under which COBRA continuation coverage must otherwise
be made available.
(d) The requirement of this paragraph (d) is satisfied if the other group health
plan does not contain any exclusion or limitation with respect to any
preexisting condition of the qualified beneficiary (other than such an exclusion
or limitation that does not apply to, or is satisfied by, the qualified
beneficiary by reason of the provisions in section 9801 (relating to limitations
on preexisting condition exclusion periods in group health plans)).
(e) The rules of this Q&A-2 are illustrated by the following examples:
Example 1. (i) Employer X maintains a group health plan subject to COBRA. C is
an employee covered under the plan. C is also covered under a group health plan
maintained by Employer Y, the employer of C 's spouse. C terminates employment
(for reasons other than gross misconduct), and the termination of employment
causes C to lose coverage under X 's plan (and, thus, is a qualifying event). C
elects to receive COBRA continuation coverage under X 's plan.
(ii) Under these facts, X 's plan cannot terminate C 's COBRA continuation
coverage on the basis of C 's coverage under Y 's plan. Example 2. (i) Employer
W maintains a group health plan subject to COBRA. D is an employee covered under
the plan. D terminates employment (for reasons other than gross misconduct), and
the termination of employment causes D to lose coverage under W 's plan (and,
thus, is a qualifying event). D elects to receive COBRA continuation coverage
under W 's plan. Later D becomes employed by Employer V and is covered under V
's group health plan. D 's coverage under V 's plan is not subject to any
exclusion or limitation with respect to any preexisting condition of D.
(ii) Under these facts, W can terminate D 's COBRA continuation coverage on the
date D becomes covered under V 's plan.
Example 3.
(i) The facts are the same as in Example 2, except that D becomes employed by V
and becomes covered under V 's group health plan before D elects COBRA
continuation coverage under W 's plan.
(ii) Because the termination of employment is a qualifying event, D must be
offered COBRA continuation coverage under W 's plan, and W is not permitted to
terminate D 's COBRA continuation coverage on account of D 's coverage under V
's plan because D first became covered under V 's plan before COBRA continuation
coverage was elected for D.
Q-3: When may a plan terminate a qualified beneficiary's COBRA continuation
coverage due to the qualified beneficiary's entitlement to Medicare benefits?
A-3: (a) If a qualified beneficiary first becomes entitled to Medicare benefits
under Title XVIII of the Social Security Act (42 U.S.C. 1395-1395ggg) after the
date on which COBRA continuation coverage is elected for the qualified
beneficiary, then the plan may terminate the qualified beneficiary's COBRA
continuation coverage upon the date on which the qualified beneficiary becomes
so entitled. By contrast, if a qualified beneficiary first becomes entitled to
Medicare benefits on or before the date that COBRA continuation coverage is
elected, then the qualified beneficiary's entitlement to Medicare benefits
cannot be a basis for terminating the qualified beneficiary's COBRA continuation
coverage.
(b) A qualified beneficiary becomes entitled to Medicare benefits upon the
effective date of enrollment in either part A or B, whichever occurs earlier.
Thus, merely being eligible to enroll in Medicare does not constitute being
entitled to Medicare benefits.
Q-4: [Reserved]
A-4: [Reserved]
Q-5: How does a qualified beneficiary become entitled to a disability extension?
A-5: (a) A qualified beneficiary becomes entitled to a disability extension if
the requirements of paragraphs (b), (c), and (d) of this Q&A-5 are satisfied
with respect to the qualified beneficiary. If the disability extension applies
with respect to a qualifying event, it applies with respect to each qualified
beneficiary entitled to COBRA continuation coverage because of that qualifying
event. Thus, for example, the 29-month maximum coverage period applies to each
qualified beneficiary who is not disabled as well as to the qualified
beneficiary who is disabled, and it applies independently with respect to each
of the qualified beneficiaries. See Q&A-1 in Sec. 54.4980B-8, which permits a
plan to require payment of an increased amount during the disability extension.
(b) The requirement of this paragraph (b) is satisfied if a qualifying event
occurs that is a termination, or reduction of hours, of a covered employee's
employment.
(c) The requirement of this paragraph (c) is satisfied if an individual (whether
or not the covered employee) who is a qualified beneficiary in connection with
the qualifying event described in paragraph (b) of this Q&A-5 is determined
under Title II or XVI of the Social Security Act (42 U.S.C. 401-433 or
1381-1385) to have been disabled at any time during the first 60 days of COBRA
continuation coverage. For this purpose, the period of the first 60 days of
COBRA continuation coverage is measured from the date of the qualifying event
described in paragraph (b) of this Q&A-5 (except that if a loss of coverage
would occur at a later date in the absence of an election for COBRA continuation
coverage and if the plan provides for the extension of the required periods in
accordance with section 4980B(f)(8), then the period of the first 60 days of
COBRA continuation coverage is measured from the date on which the coverage
would be lost). However, in the case of a qualified beneficiary who is a child
born to or placed for adoption with a covered employee during a period of COBRA
continuation coverage, the period of the first 60 days of COBRA continuation
coverage is measured from the date of birth or placement for adoption. For
purposes of this paragraph (c), an individual is determined to be disabled
within the first 60 days of COBRA continuation coverage if the individual has
been determined under Title II or XVI of the Social Security Act to have been
disabled before the first day of COBRA continuation coverage and has not been
determined to be no longer disabled at any time between the date of that
disability determination and the first day of COBRA continuation coverage.
(d) The requirement of this paragraph (d) is satisfied if any of the qualified
beneficiaries affected by the qualifying event described in paragraph (b) of
this Q&A-5 provides notice to the plan administrator of the disability
determination on a date that is both within 60 days after the date the
determination is issued and before the end of the original 18-month maximum
coverage period that applies to the qualifying event.
Q-6: Under what circumstances can the maximum coverage period be expanded?
A-6: (a) The maximum coverage period can be expanded if the requirements of
Q&A-5 of this section (relating to the disability extension) or paragraph (b) of
this Q&A-6 are satisfied.
(b) The requirements of this paragraph (b) are satisfied if a qualifying event
that gives rise to an 18-month maximum coverage period (or a 29-month maximum
coverage period in the case of a disability extension) is followed, within that
18-month period (or within that 29- month period, in the case of a disability
extension), by a second qualifying event (for example, a death or a divorce)
that gives rise to a 36-month maximum coverage period. (Thus, a termination of
employment following a qualifying event that is a reduction of hours of
employment cannot be a second qualifying event that expands the maximum coverage
period; the bankruptcy of the employer also cannot be a second qualifying event
that expands the maximum coverage period.) In such a case, the original 18-month
period (or 29-month period, in the case of a disability extension) is expanded
to 36 months, but only for those individuals who were qualified beneficiaries
under the group health plan in connection with the first qualifying event and
who are still qualified beneficiaries at the time of the second qualifying
event. No qualifying event (other than a qualifying event that is the bankruptcy
of the employer) can give rise to a maximum coverage period that ends more than
36 months after the date of the first qualifying event (or more than 36 months
after the date of the loss of coverage, in the case of a plan that provides for
the extension of the required periods). For example, if an employee covered by a
group health plan that is subject to COBRA terminates employment (for reasons
other than gross misconduct) on December 31, 2000, the termination is a
qualifying event giving rise to a maximum coverage period that extends for 18
months to June 30, 2002. If the employee dies after the employee and the
employee's spouse and dependent children have elected COBRA continuation
coverage and on or before June 30, 2002, the spouse and dependent children
(except anyone among them whose COBRA continuation coverage had already ended
for some other reason) will be able to receive COBRA continuation coverage
through December 31, 2003.
Q-7: If health coverage is provided to a qualified beneficiary after a
qualifying event without regard to COBRA continuation coverage (for example, as
a result of state or local law, the Uniformed Services Employment and
Reemployment Rights Act of 1994 (38 U.S.C. 4315), industry practice, a
collective bargaining agreement, severance agreement, or plan procedure), will
such alternative coverage extend the maximum coverage period?
A-7: (a) No. The end of the maximum coverage period is measured solely as
described in Q&A-1 and Q&A-6 of this section, which is generally from the date
of the qualifying event.
(b) If the alternative coverage does not satisfy all the requirements for COBRA
continuation coverage, or if the amount that the group health plan requires to
be paid for the alternative coverage is greater than the amount required to be
paid by similarly situated nonCOBRA beneficiaries for the coverage that the
qualified beneficiary can elect to receive as COBRA continuation coverage, the
plan covering the qualified beneficiary immediately before the qualifying event
must offer the qualified beneficiary receiving the alternative coverage the
opportunity to elect COBRA continuation coverage. See Q&A-1 of Sec. 54.4980B-6.
(c) If an individual rejects COBRA continuation coverage in favor of alternative
coverage, then, at the expiration of the alternative coverage period, the
individual need not be offered a COBRA election. However, if the individual
receiving alternative coverage is a covered employee and the spouse or a
dependent child of the individual would lose that alternative coverage as a
result of a qualifying event (such as the death of the covered employee), the
spouse or dependent child must be given an opportunity to elect to continue that
alternative coverage, with a maximum coverage period of 36 months measured from
the date of that qualifying event.
Q-8: Must a qualified beneficiary be given the right to enroll in a conversion
health plan at the end of the maximum coverage period for COBRA continuation
coverage?
A-8: If a qualified beneficiary's COBRA continuation coverage under a group
health plan ends as a result of the expiration of the maximum coverage period,
the group health plan must, during the 180-day period that ends on that
expiration date, provide the qualified beneficiary the option of enrolling under
a conversion health plan if such an option is otherwise generally available to
similarly situated nonCOBRA beneficiaries under the group health plan. If such a
conversion option is not otherwise generally available, it need not be made
available to qualified beneficiaries.
Sec. 54.4980B-8 Paying for COBRA continuation coverage.
The following questions-and-answers address paying for COBRA continuation
coverage:
Q-1: Can a group health plan require payment for COBRA continuation coverage?
A-1: (a) Yes. For any period of COBRA continuation coverage, a group health plan
can require the payment of an amount that does not exceed 102 percent of the
applicable premium for that period. (See paragraph (b) of this Q&A-1 for a rule
permitting a plan to require payment of an increased amount due to the
disability extension.) The applicable premium is defined in section 4980B(f)(4).
A group health plan can terminate a qualified beneficiary's COBRA continuation
coverage as of the first day of any period for which timely payment is not made
to the plan with respect to that qualified beneficiary (see Q&A-1 of Sec.
54.4980B-7). For the meaning of timely payment, see Q&A-5 of this section.
(b) A group health plan is permitted to require the payment of an amount that
does not exceed 150 percent of the applicable premium for any period of COBRA
continuation coverage covering a disabled qualified beneficiary (for example,
whether single or family coverage) if the coverage would not be required to be
made available in the absence of a disability extension. (See Q&A-5 of Sec.
54.4980B-7 for rules to determine whether a qualified beneficiary is entitled to
a disability extension.) A plan is not permitted to require the payment of an
amount that exceeds 102 percent of the applicable premium for any period of
COBRA continuation coverage to which a qualified beneficiary is entitled without
regard to the disability extension. Thus, if a qualified beneficiary entitled to
a disability extension experiences a second qualifying event within the original
18-month maximum coverage period, then the plan is not permitted to require the
payment of an amount that exceeds 102 percent of the applicable premium for any
period of COBRA continuation coverage. By contrast, if a qualified beneficiary
entitled to a disability extension experiences a second qualifying event after
the end of the original 18-month maximum coverage period, then the plan may
require the payment of an amount that is up to 150 percent of the applicable
premium for the remainder of the period of COBRA continuation coverage (that is,
from the beginning of the 19th month through the end of the 36th month) as long
as the disabled qualified beneficiary is included in that coverage. The rules of
this paragraph (b) are illustrated by the following examples; in each example
the group health plan is subject to COBRA:
Example 1. (i) An employer maintains a group health plan. The plan determines
the cost of covering individuals under the plan by reference to two categories,
individual coverage and family coverage, and the applicable premium is
determined for those two categories. An employee and members of the employee's
family are covered under the plan. The employee experiences a qualifying event
that is the termination of the employee's employment. The employee's family
qualifies for the disability extension because of the disability of the
employee's spouse. (Timely notice of the disability is provided to the plan
administrator.) Timely payment of the amount required by the plan for COBRA
continuation coverage for the family (which does not exceed 102 percent of the
cost of family coverage under the plan) was made to the plan with respect to the
employee's family for the first 18 months of COBRA continuation coverage, and
the disabled spouse and the rest of the family continue to receive COBRA
continuation coverage through the 29th month.
(ii) Under these facts, the plan may require payment of up to 150 percent of the
applicable premium for family coverage in order for the family to receive COBRA
continuation coverage from the 19th month through the 29th month. If the plan
determined the cost of coverage by reference to three categories (such as
employee, employee-plus-one-dependent, employee-plus-two-or-more-dependents) or
more than three categories, instead of two categories, the plan could still
require, from the 19th month through the 29th month of COBRA continuation
coverage, the payment of 150 percent of the cost of coverage for the category of
coverage that included the disabled spouse.
Example 2.
(i) The facts are the same as in Example 1, except that only the covered
employee elects and pays for the first 18 months of COBRA continuation coverage.
(ii) Even though the employee's disabled spouse does not elect or pay for COBRA
continuation coverage, the employee satisfies the requirements for the
disability extension to apply with respect to the employee's qualifying event.
Under these facts, the plan may not require the payment of more than 102 percent
of the applicable premium for individual coverage for the entire period of the
employee's COBRA continuation coverage, including the period from the 19th month
through the 29th month. If COBRA continuation coverage had been elected and paid
for with respect to other nondisabled members of the employee's family, then the
plan could not require the payment of more than 102 percent of the applicable
premium for family coverage (or for any other appropriate category of coverage
that might apply to that group of qualified beneficiaries under the plan, such
as employee-plus-one-dependent or employee-plus-two-or-more-dependents) for
those family members to continue their coverage from the 19th month through the
29th month.
(c) A group health plan does not fail to comply with section 9802(b) and Sec.
54.9802-1T(b) (which generally prohibit an individual from being charged, on the
basis of health status, a higher premium than that charged for similarly
situated individuals enrolled in the plan) with respect to a qualified
beneficiary entitled to the disability extension merely because the plan
requires payment of an amount permitted under paragraph (b) of this Q&A-1.
Q-2: When is the applicable premium determined and when can a group health plan
increase the amount it requires to be paid for COBRA continuation coverage?
A-2: (a) The applicable premium for each determination period must be computed
and fixed by a group health plan before the determination period begins. A
determination period is any 12-month period selected by the plan, but it must be
applied consistently from year to year. The determination period is a single
period for any benefit package. Thus, each qualified beneficiary does not have a
separate determination period beginning on the date (or anniversaries of the
date) that COBRA continuation coverage begins for that qualified beneficiary.
(b) During a determination period, a plan can increase the amount it requires to
be paid for a qualified beneficiary's COBRA continuation coverage only in the
following three cases:
(1) The plan has previously charged less than the maximum amount permitted under
Q&A-1 of this section and the increased amount required to be paid does not
exceed the maximum amount permitted under Q&A-1 of this section;
(2) The increase occurs during the disability extension and the increased amount
required to be paid does not exceed the maximum amount permitted under paragraph
(b) of Q&A-1 of this section; or
(3) A qualified beneficiary changes the coverage being received (see paragraph
(c) of this Q&A-2 for rules on how the amount the plan requires to be paid may
or must change when a qualified beneficiary changes the coverage being
received).
(c) If a plan allows similarly situated active employees who have not
experienced a qualifying event to change the coverage they are receiving, then
the plan must also allow each qualified beneficiary to change the coverage being
received on the same terms as the similarly situated active employees. (See
Q&A-4 in Sec. 54.4980B-5.) If a qualified beneficiary changes coverage from one
benefit package (or a group of benefit packages) to another benefit package (or
another group of benefit packages), or adds or eliminates coverage for family
members, then the following rules apply. If the change in coverage is to a
benefit package, group of benefit packages, or coverage unit (such as family
coverage, self-plus-one-dependent, or self-plus-two-or-more- dependents) for
which the applicable premium is higher, then the plan may increase the amount
that it requires to be paid for COBRA continuation coverage to an amount that
does not exceed the amount permitted under Q&A-1 of this section as applied to
the new coverage. If the change in coverage is to a benefit package, group of
benefit packages, or coverage unit (such as individual or self-plus-one-
dependent) for which the applicable premium is lower, then the plan cannot
require the payment of an amount that exceeds the amount permitted under Q&A-1
of this section as applied to the new coverage.
Q-3: Must a plan allow payment for COBRA continuation coverage to be made in
monthly installments?
A-3: Yes. A group health plan must allow payment for COBRA continuation coverage
to be made in monthly installments. A group health plan is permitted to also
allow the alternative of payment for COBRA continuation coverage being made at
other intervals (for example, weekly, quarterly, or semiannually).
Q-4: Is a plan required to allow a qualified beneficiary to choose to have the
first payment for COBRA continuation coverage applied prospectively only?
A-4: No. A plan is permitted to apply the first payment for COBRA continuation
coverage to the period of coverage beginning immediately after the date on which
coverage under the plan would have been lost on account of the qualifying event.
Of course, if the group health plan allows a qualified beneficiary to waive
COBRA continuation coverage for any period before electing to receive COBRA
continuation coverage, the first payment is not applied to the period of the
waiver.
Q-5: What is timely payment for COBRA continuation coverage?
A-5: (a) Except as provided in this paragraph (a) or in paragraph (b) or (d) of
this Q&A-5, timely payment for a period of COBRA continuation coverage under a
group health plan means payment that is made to the plan by the date that is 30
days after the first day of that period. Payment that is made to the plan by a
later date is also considered timely payment if either--
(1) Under the terms of the plan, covered employees or qualified beneficiaries
are allowed until that later date to pay for their coverage for the period; or
(2) Under the terms of an arrangement between the employer or employee
organization and an insurance company, health maintenance organization, or other
entity that provides plan benefits on the employer's or employee organization's
behalf, the employer or employee organization is allowed until that later date
to pay for coverage of similarly situated nonCOBRA beneficiaries for the period.
(b) Notwithstanding paragraph (a) of this Q&A-5, a plan cannot require payment
for any period of COBRA continuation coverage for a qualified beneficiary
earlier than 45 days after the date on which the election of COBRA continuation
coverage is made for that qualified beneficiary.
(c) If, after COBRA continuation coverage has been elected for a qualified
beneficiary, a provider of health care (such as a physician, hospital, or
pharmacy) contacts the plan to confirm coverage of a qualified beneficiary for a
period for which the plan has not yet received payment, the plan must give a
complete response to the health care provider about the qualified beneficiary's
COBRA continuation coverage rights, if any, described in paragraphs (a), (b),
and (d) of this Q&A-5. For example, if the plan provides coverage during the 30-
and 45-day grace periods described in paragraphs (a) and (b) of this Q&A-5 but
cancels coverage retroactively if payment is not made by the end of the
applicable grace period, then the plan must inform a provider with respect to a
qualified beneficiary for whom payment has not been received that the qualified
beneficiary is covered but that the coverage is subject to retroactive
termination if timely payment is not made. Similarly, if the plan cancels
coverage if it has not received payment by the first day of a period of coverage
but retroactively reinstates coverage if payment is made by the end of the grace
period for that period of coverage, then the plan must inform the provider that
the qualified beneficiary currently does not have coverage but will have
coverage retroactively to the first date of the period if timely payment is
made. (See paragraph (b) of Q&A-3 in Sec. 54.4980B-6 for similar rules that the
plan must follow in confirming coverage during the election period.)
(d) If timely payment is made to the plan in an amount that is not significantly
less than the amount the plan requires to be paid for a period of coverage, then
the amount paid is deemed to satisfy the plan's requirement for the amount that
must be paid, unless the plan notifies the qualified beneficiary of the amount
of the deficiency and grants a reasonable period of time for payment of the
deficiency to be made. For this purpose, as a safe harbor, 30 days after the
date the notice is provided is deemed to be a reasonable period of time.
(e) Payment is considered made on the date on which it is sent to the plan.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 3. The authority citation for part 602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 4. In Sec. 602.101, paragraph (c) is amended by adding entries in numerical
order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
Current OMB CFR part or section where identified and described
control No. * * * * *
54.4980B-6................................................. 1545-1581
54.4980B-7................................................. 1545-1581
54.4980B-8................................................. 1545-1581
* * * * *
Approved: December 28, 1998.
Robert E. Wenzel, Deputy Commissioner of Internal Revenue.
Donald C. Lubick,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 99-1520 Filed 2-2-99;
8:45 am] BILLING CODE 4830-01-P