Employee Benefits-COBRA Continuation Health Care Coverage And Disabled Individuals

So, you and your family are receiving COBRA continuation health care coverage, and you or a family member becomes disabled.  How does the disability affect the COBRA coverage?

A. Normal Period of COBRA Coverage.

COBRA provides a temporary extension of the group health care coverage that you and your family are receiving because of your job, but would otherwise be lost due to certain life events.

First, how does COBRA normally work? Let us assume that you are (or were) an employee, and that you, your spouse and your other dependents are receiving group health care coverage through a group health plan at work. Let us further assume that an event occurs, which results in the loss of all or some of the health care coverage. In such a case, under law, COBRA continuation health care coverage may be elected, and will be available from the date of such event, as follows:

(1)  for 18 months for you, your spouse and your other dependents, if the health coverage is lost under the plan due to a termination of your employment (other than due to your gross misconduct) or a reduction of your work hours;

(2)  for 36 months for you, your spouse and your other dependents, if the health coverage is lost under the plan because you become entitled to Medicare;

(3)  for 36 months for your spouse and your other dependents, if their health coverage is lost under the plan due to your death, or due to your divorce or separation from your spouse; and

(4)  for 36 months for a dependent, if the dependent’s health coverage is lost under the plan due to his or her ceasing to be a dependent eligible for coverage.

IRC section 4980B(f)(2)(B)(i)

Note: When the event causing the loss of health care coverage is a divorce or separation, or a child’s losing eligibility for coverage, you or a family member must notify the plan administrator of the plan (the “Plan Administrator”) that this event has occurred, within 60 days of the event, in order for COBRA coverage to be available. The 60-day notice period may be extended under DOL regulations (29 CFR section 2590.606-3(c)(1)). In the case of any other event, you employer will notify the Plan Administrator.

IRC section 4980B(f)(6)(B) and (C)

Note: If the plan elects, the period of COBRA continuation coverage can begin, and be measured from, the date on which the health care coverage is lost, as opposed to the date of the event causing the loss of coverage.

IRC section 4980B(f)(8)

Note: In this case, it is assumed that COBRA coverage is elected for you and your family. Under the law, you and each member of your family has an independent right to elect COBRA continuation coverage. You, as the current or former employee, may elect COBRA continuation coverage on behalf of your spouse, and you or your spouse may elect COBRA continuation coverage on behalf of your dependent children.

B. Special Rules.

Next, the period of COBRA continuation health coverage is extended under two special rules.

First, the 18- month period in clause (1) in section “A” above is extended to 36 months, if an event described in clause (2) through (4) in section “A” above occurs during that 18-month period (the “multiple event rule”).  The extension applies to whichever of your spouse and dependents would lose coverage due to the new event, if coverage had not already been lost due to the event described in clause (1). You or a family member must notify the Plan Administrator that this second event, other than entitlement to Medicare, has occurred, within 60 days of the occurrence (with possible extension of this 60-day period under 29 CFR section 2590.606-3(c)(1)). The employer provides the notice of Medicare entitlement to the Plan Administrator.

Second, if you lose coverage due to an event in clause (1), and that event occurs less than 18 months after the date you became entitled to Medicare (and such entitlement did not result in a loss of coverage), then the period of coverage for your spouse and dependents does not terminate prior to the close of the 36-month period beginning on the date of your Medicare entitlement. The employer provides the notice of Medicare entitlement to the Plan Administrator.

IRC sections 4980B(f)(2)(B)(i), 4980B(f)(6)(B) and (C)

C. Early Ending of COBRA Coverage.

COBRA coverage will end early, prior to the expiration of the applicable 18-month or 36-month period described in section “A” or “B” above, as follows:

— for you, your spouse and your other dependents, if the health plan terminates;

— for you, your spouse and your other dependents, if the applicable premium for the COBRA coverage (see below) is not timely paid; or

— for you, your spouse or another dependent, if after COBRA coverage has been elected, such individual becomes covered under another group health plan, or becomes entitled to Medicare.

IRC section 4980B(f)(2)(B)

D. Extension of the Period of COBRA Coverage When an Individual Becomes Disabled.

Now, let us assume that a disability arises.  You, your spouse or any of your other dependents may be determined by the Social Security Administration (“SSA”) to have been disabled at any time during the first 60 days of receiving COBRA continuation coverage.  If so, the 18-month period in clause (1) in section “A” above, or in the multiple event rule in section “B” above, is extended to a 29-month period, for the COBRA coverage then being received by you, your spouse and other dependents. The extension would not be applicable if the disability ends prior to the expiration of such 18-month period.

Note: This extension is applicable only if you or a family member has provided notice of the SSA determination to the Plan Administrator before the end of such 18-month period, and within 60 days after the date on which the determination is made. The 60-day notice period may be extended under DOL regulations (29 CFR section 2590.606-3(c)(2)).

A premium is charged for the COBRA coverage of you, your spouse and your other dependents. The normal premium may be up to 102% of the group health plan’s cost of providing the coverage (the 2% portion is an administrative charge). The premium may be increased, to up to 150% of such cost for each month of COBRA coverage provided after the end of such 18- month period due to the disability (no special administrative charge).

IRC sections 4980B(f)(2)(B)(i)(VIII), 4980B(f)(2)(C) and 4980B(f)(6)(C)

Generally, according to the SSA website, SSA will consider an individual to be disabled if it determines that:

  • the individual cannot do work that he or she did before;
  • the individual cannot adjust to other work because of his or her medical condition(s); and
  • the disability has lasted or is expected to last for at least one year or to result in death.

E. Special Rule for COBRA Coverage And Premium Amounts.

To restate the above, a group health plan is permitted to charge a premium that is up to 150 percent of the plan’s cost of coverage for any period of COBRA continuation coverage available only due to an individual’s disability.  Conversely, the plan is not permitted to charge a premium that exceeds 102 percent of plan’s cost of coverage, for any period of COBRA continuation coverage to which an individual is entitled without regard to the disability extension. Thus, if an individual, who is entitled to a disability extension, experiences a second event  that would cause a coverage loss within the original 18-month maximum coverage period, so that his or her period of coverage is extended under the multiple events rule, the plan cannot charge a premium that exceeds 102 percent of the coverage cost for the extended period. By contrast, if an individual, who is entitled to a disability extension, experiences a second event that could cause a coverage loss after the end of the original 18-month maximum coverage period, then the plan may require the payment of a premium of up to 150 percent of the coverage cost for the extension (that is, from the beginning of the 19th month through the end of the 29th month) (so long as the disabled individual is receiving COBRA coverage-see below).

Now, assume that only the employee elects and pays for the first 18 months of COBRA continuation coverage following an event described in clause (1) of section “A”. Further, assume that the employee’s spouse is determined by SSA to be disabled during that 18-month period, although he or she has not elected to receive COBRA continuation coverage. The spouse’s disability entitles the employee to the extension of COBRA coverage to 29 months. In this case, however, since the spouse is not receiving COBRA continuation coverage, the premium charged to the employee may not exceed 102% of the cost of coverage, even in the 19th through 29th month of the coverage. Similarly, if COBRA continuation coverage had been elected and paid for with respect to other nondisabled dependents, those dependents are entitled to the 29-month period of COBRA coverage, but the premium the plan charges could not exceed 102% of the coverage cost for the full 29-month period.

Treas. Reg.§ 54.4980B-8, Q/A-1(b)

F. Termination of Extended COBRA Coverage for Disability.

The COBRA coverage will terminate prior to the end of the 29- month period of coverage as follows. The coverage will terminate at the start of the month that begins more than 30 days after the date of the final determination by the SSA that you, your spouse or other dependent, as applicable, is no longer disabled. You or another family member is required to notify the Plan Administrator within 30 days of the date of such final determination. The 30-day notice period may be extended under DOL regulations (29 CFR section 2590.606-3(c)(3)).

IRC section 4980B(f)(2)(B)(v), 4980B(f)(6)(C).

The COBRA coverage would also terminate prior to the end of the 29-month period as described in section “C” above.