Consolidated Omnibus Budget Reconciliation Act of 1985
Encyclopedia
The Consolidated Omnibus Budget Reconciliation Act of 1985 (or COBRA) is a law passed by the U.S. Congress on a reconciliation basis
and signed by President Reagan
that, among other things, mandates an insurance
program giving some employees the ability to continue health insurance
coverage after leaving employment. COBRA includes amendments to the Employee Retirement Income Security Act
of 1974 (ERISA). The law deals with a great variety of subjects, such as tobacco
price supports, railroads, private pension
plans, emergency room treatment
, disability insurance
, and the postal service
, but it is perhaps best known for Title X, which amends the Internal Revenue Code
and the Public Health Service Act
to deny income tax deduction
s to employers (generally those with 20 or more full time equivalent employees) for contributions to a group health plan unless such plan meets certain continuing coverage requirements. The violation for failing to meet those criteria was subsequently changed to an excise tax.
Although this statute
became law on April 7, 1986, its official name is the Consolidated Omnibus Budget Reconciliation Act of 1985 . Because of the discrepancy between the official name of the Act and the year in which it was enacted, some government publications refer to the Act as the Consolidated Omnibus Budget Reconciliation Act of 1986. The Act is often referred to simply as "COBRA".
" causes them to lose coverage. However, the legislation was subsequently amended to instead impose an excise tax upon an employer whose health plan fails to satisfy the applicable rules. A qualifying employer is generally an employer with 20 or more full time equivalent employees.
Among the "qualifying events" listed in the statute are loss of benefits coverage due to (1) the death of the covered employee; (2) an employee loses eligibility for coverage due to involuntary termination or a reduction in hours as a result of resignation, discharge (except for "gross misconduct"), layoff, strike or lockout, medical leave, or slowdown in business operations; (3) divorce or legal separation that terminates the ex-spouse's eligibility for benefits; or (4) a dependent child reaching the age at which he or she is no longer covered. COBRA imposes different notice requirements on participants and beneficiaries, depending on the particular qualifying event that triggers COBRA rights.
COBRA also allows for coverage for up to 18 months in most cases. If the individual is deemed disabled by the Social Security Administration, coverage may continue for up to 29 months. In the case of divorce from the former employee, the former spouse's coverage may continue for up to 36 months. In the case of death of the former employee, the widow's coverage may continue for up to 36 months.
COBRA does not apply, on the other hand, if employees lose their benefits coverage because the employer has terminated the plan altogether or if the employer has gone out of business. In cases where COBRA does not apply, some states have stepped in with state health insurance continuation laws, usually called "mini-COBRA" laws, which help employees continue their health insurance when federal COBRA does not apply.
COBRA does not, unlike other federal statutes such as the Family and Medical Leave Act (FMLA), require the employer to pay for the cost of providing continuation coverage. Instead it allows employees and their dependents to maintain coverage at their own expense by paying the full cost of the premium the employer and the employee previously paid, plus up to a 2% administrative charge (50% for the latter 11 months under the disability extension).
According to the U.S. Department of Labor
:
Employees and dependents can also opt for a lesser form of coverage, e.g., to choose continuation coverage under a plan that only covers the employee, but not his or her dependents, or that only provides medical and hospitalization coverage and does not pay for dental work, if those options are available to covered employees.
Employees and dependents lose coverage if they fail to make timely payments of these premiums. Employers are required to inform employees and dependents upon loss of coverage, in writing, by at least fifteen days before the coverage ceases.
The American Recovery and Reinvestment Act of 2009
as signed by President Barack Obama includes a 65% subsidy to employees for COBRA-enabled insurance for up to 9 months after an involuntary termination (this has since been expanded to 15 months). An employee is eligible for this subsidy if
If the employee has an adjusted gross income in 2009 over $125,000 if filing as single ($250,000 if filing jointly), then the subsidy will be recaptured in a phased manner from the employee through the tax system.
Termination of employment must have occurred between September 1, 2008 and December 31, 2009 (later expanded to February 28, 2010, expanded again to March 31, 2010, and then expanded again to June 2, 2010). Specific provisions and responsibilities may differ in the state specific mini-COBRA plans for employers with fewer than 20 employees throughout half of the previous calendar year. Those employees who are eligible for the ultimate benefits of this subsidy are referred to as Assistance Eligible Individuals (or AEIs).
Employers subject to Federal COBRA are required to:
This Act was signed into law by President Barack Obama on February 17, 2009.
On December 19, 2009, President Obama signed into law the Department of Defense Appropriations Act, 2010, which made several amendments to the COBRA provisions of the American Recovery and Reinvestment Act of 2009 (ARRA). The Act extends COBRA subsidy eligibility to employees who lost their jobs due to no fault of their own between January 1 and February 28, 2010. The nine-month subsidy period was also expanded to fifteen months.
On March 3, 2010, President Obama signed into law the Temporary Extension Act of 2010. The Act extends COBRA subsidy eligibility to employees who lost their jobs due to no fault of their own between March 1 and 31, 2010. In addition, employees who lost group health insurance due to reduced work hours on or after Sept. 1, 2008, followed by involuntary termination between March 2 and March 31, 2010, will now be eligible for the COBRA subsidy.
The Continuing Extension Act of 2010 extends premium assistance for COBRA benefits through May 31, 2010.
As of June 2010, an extension of COBRA's premium assistance has not materialized, and attempts by congressional members to include such provisions have been dropped. As of June 1, 2010, all newly unemployed workers must pay full coverage costs as determined by their respective plans. This is due in part to conservative Democrats in Congress who have expressed concerns about treating some unemployed workers differently than others, such as people priced out of the private insurance market. A number of Senate Democrats expressed concern about this situation and have introduced legislation to expand COBRA coverage to people who become unemployed through November 2010, but such legislation did not pass in 2010.
Reconciliation (United States Congress)
Reconciliation is a legislative process of the United States Senate intended to allow consideration of a budget bill with debate limited to twenty hours under Senate Rules...
and signed by President Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
that, among other things, mandates an insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
program giving some employees the ability to continue health insurance
Health insurance
Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is...
coverage after leaving employment. COBRA includes amendments to the Employee Retirement Income Security Act
Employee Retirement Income Security Act
The Employee Retirement Income Security Act of 1974 is an American federal statute that establishes minimum standards for pension plans in private industry and provides for extensive rules on the federal income tax effects of transactions associated with employee benefit plans...
of 1974 (ERISA). The law deals with a great variety of subjects, such as tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...
price supports, railroads, private pension
Pension
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...
plans, emergency room treatment
Emergency Medical Treatment and Active Labor Act
The Emergency Medical Treatment and Active Labor Act is a U.S. Act of Congress passed in 1986 as part of the Consolidated Omnibus Budget Reconciliation Act . It requires hospitals to provide care to anyone needing emergency healthcare treatment regardless of citizenship, legal status or ability to...
, disability insurance
Disability insurance
Disability Insurance, often called DI or disability income insurance, is a form of insurance that insures the beneficiary's earned income against the risk that a disability will make working uncomfortable , painful , or impossible...
, and the postal service
United States Postal Service
The United States Postal Service is an independent agency of the United States government responsible for providing postal service in the United States...
, but it is perhaps best known for Title X, which amends the Internal Revenue Code
Internal Revenue Code
The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...
and the Public Health Service Act
Public Health Service Act
The Public Health Service Act is a United States federal law enacted in 1944. The full act is captured under Title 42 of the United States Code "The Public Health and Welfare", Chapter 6A "Public Health Service"....
to deny income tax deduction
Tax deduction
Income tax systems generally allow a tax deduction, i.e., a reduction of the income subject to tax, for various items, especially expenses incurred to produce income. Often these deductions are subject to limitations or conditions...
s to employers (generally those with 20 or more full time equivalent employees) for contributions to a group health plan unless such plan meets certain continuing coverage requirements. The violation for failing to meet those criteria was subsequently changed to an excise tax.
Although this statute
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
became law on April 7, 1986, its official name is the Consolidated Omnibus Budget Reconciliation Act of 1985 . Because of the discrepancy between the official name of the Act and the year in which it was enacted, some government publications refer to the Act as the Consolidated Omnibus Budget Reconciliation Act of 1986. The Act is often referred to simply as "COBRA".
Provisions
As originally enacted, Title X of the Act provided that a qualifying employer will not be permitted to take a tax deduction for its health insurance costs unless its health insurance plan allows employees of the employer and the employee's immediate family members who had been covered by a health care plan to maintain their coverage if a "qualifying eventQualifying event
A qualifying event is an event that results in the loss of employer sponsored benefits due to which a qualified beneficiary is eligible for COBRA benefits....
" causes them to lose coverage. However, the legislation was subsequently amended to instead impose an excise tax upon an employer whose health plan fails to satisfy the applicable rules. A qualifying employer is generally an employer with 20 or more full time equivalent employees.
Among the "qualifying events" listed in the statute are loss of benefits coverage due to (1) the death of the covered employee; (2) an employee loses eligibility for coverage due to involuntary termination or a reduction in hours as a result of resignation, discharge (except for "gross misconduct"), layoff, strike or lockout, medical leave, or slowdown in business operations; (3) divorce or legal separation that terminates the ex-spouse's eligibility for benefits; or (4) a dependent child reaching the age at which he or she is no longer covered. COBRA imposes different notice requirements on participants and beneficiaries, depending on the particular qualifying event that triggers COBRA rights.
COBRA also allows for coverage for up to 18 months in most cases. If the individual is deemed disabled by the Social Security Administration, coverage may continue for up to 29 months. In the case of divorce from the former employee, the former spouse's coverage may continue for up to 36 months. In the case of death of the former employee, the widow's coverage may continue for up to 36 months.
COBRA does not apply, on the other hand, if employees lose their benefits coverage because the employer has terminated the plan altogether or if the employer has gone out of business. In cases where COBRA does not apply, some states have stepped in with state health insurance continuation laws, usually called "mini-COBRA" laws, which help employees continue their health insurance when federal COBRA does not apply.
COBRA does not, unlike other federal statutes such as the Family and Medical Leave Act (FMLA), require the employer to pay for the cost of providing continuation coverage. Instead it allows employees and their dependents to maintain coverage at their own expense by paying the full cost of the premium the employer and the employee previously paid, plus up to a 2% administrative charge (50% for the latter 11 months under the disability extension).
According to the U.S. Department of Labor
United States Department of Labor
The United States Department of Labor is a Cabinet department of the United States government responsible for occupational safety, wage and hour standards, unemployment insurance benefits, re-employment services, and some economic statistics. Many U.S. states also have such departments. The...
:
Employees and dependents can also opt for a lesser form of coverage, e.g., to choose continuation coverage under a plan that only covers the employee, but not his or her dependents, or that only provides medical and hospitalization coverage and does not pay for dental work, if those options are available to covered employees.
Employees and dependents lose coverage if they fail to make timely payments of these premiums. Employers are required to inform employees and dependents upon loss of coverage, in writing, by at least fifteen days before the coverage ceases.
Coordination of coverage
An individual covered under COBRA may also be covered by another group health plan or Medicare as long as one of two conditions are met:- The other coverage was in force as of or prior to the coverage under COBRA, or,
- The other coverage is subject to pre-existing conditions exclusions or limitations.
Subsidy under federal stimulus
Only 10% of Americans eligible for COBRA insurance in 2006 used it, many because they were unable to afford to pay the full premium after their job loss. While some employers may voluntarily help subsidize or fully cover the cost of COBRA insurance as part of a termination or exit package, it is more common for the ex-employee to cover the entire cost.The American Recovery and Reinvestment Act of 2009
American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Act of 2009, abbreviated ARRA and commonly referred to as the Stimulus or The Recovery Act, is an economic stimulus package enacted by the 111th United States Congress in February 2009 and signed into law on February 17, 2009, by President Barack Obama.To...
as signed by President Barack Obama includes a 65% subsidy to employees for COBRA-enabled insurance for up to 9 months after an involuntary termination (this has since been expanded to 15 months). An employee is eligible for this subsidy if
- the termination of employment was involuntary,
- the terminated employee has no other group sponsored health insurance option, and
- the terminated employee is otherwise eligible to enroll in COBRACobraCobra is a venomous snake belonging to the family Elapidae. However, not all snakes commonly referred to as cobras are of the same genus, or even of the same family. The name is short for cobra capo or capa Snake, which is Portuguese for "snake with hood", or "hood-snake"...
.
If the employee has an adjusted gross income in 2009 over $125,000 if filing as single ($250,000 if filing jointly), then the subsidy will be recaptured in a phased manner from the employee through the tax system.
Termination of employment must have occurred between September 1, 2008 and December 31, 2009 (later expanded to February 28, 2010, expanded again to March 31, 2010, and then expanded again to June 2, 2010). Specific provisions and responsibilities may differ in the state specific mini-COBRA plans for employers with fewer than 20 employees throughout half of the previous calendar year. Those employees who are eligible for the ultimate benefits of this subsidy are referred to as Assistance Eligible Individuals (or AEIs).
Employers subject to Federal COBRA are required to:
- Notify terminated employees of their potential rights under ARRA by sending a series of notices
- Provide a method for qualified AEIs to enroll
- Pay the full amount of the premiums and seek reimbursement of the 65% subsidy by including it in the Employer's Quarterly Federal Tax Return (Form 941)
This Act was signed into law by President Barack Obama on February 17, 2009.
On December 19, 2009, President Obama signed into law the Department of Defense Appropriations Act, 2010, which made several amendments to the COBRA provisions of the American Recovery and Reinvestment Act of 2009 (ARRA). The Act extends COBRA subsidy eligibility to employees who lost their jobs due to no fault of their own between January 1 and February 28, 2010. The nine-month subsidy period was also expanded to fifteen months.
On March 3, 2010, President Obama signed into law the Temporary Extension Act of 2010. The Act extends COBRA subsidy eligibility to employees who lost their jobs due to no fault of their own between March 1 and 31, 2010. In addition, employees who lost group health insurance due to reduced work hours on or after Sept. 1, 2008, followed by involuntary termination between March 2 and March 31, 2010, will now be eligible for the COBRA subsidy.
The Continuing Extension Act of 2010 extends premium assistance for COBRA benefits through May 31, 2010.
As of June 2010, an extension of COBRA's premium assistance has not materialized, and attempts by congressional members to include such provisions have been dropped. As of June 1, 2010, all newly unemployed workers must pay full coverage costs as determined by their respective plans. This is due in part to conservative Democrats in Congress who have expressed concerns about treating some unemployed workers differently than others, such as people priced out of the private insurance market. A number of Senate Democrats expressed concern about this situation and have introduced legislation to expand COBRA coverage to people who become unemployed through November 2010, but such legislation did not pass in 2010.
External links
- US Department of Labor: COBRA FAQs for Employees
- Employee Brochure, Department of Labor (pdf)
- Other Resources, Department of Labor
- COBRA Insurance Information Center (private website)
- Library of Congress THOMAS summary of the Act.
- General information from the Centers for Medicare and Medicaid ServicesCenters for Medicare and Medicaid ServicesThe Centers for Medicare & Medicaid Services , previously known as the Health Care Financing Administration , is a federal agency within the United States Department of Health and Human Services that administers the Medicare program and works in partnership with state governments to administer...
(CMS) - COBRA insurance information (private website)