356 / What are the coverage continuation or COBRA requirements that certain group health plans must meet?

An insured or self-funded group health plan maintained by an employer to provide health care, directly or otherwise, to the employer’s employees, former employees, or their families generally must offer COBRA continuation coverage. Certain plans are exempt from the COBRA continuation coverage rules ( Q 360). Insured plans are not only those providing coverage under group policies, but include any arrangement to provide health care to two or more employees under individual policies. A plan is an employer provided health plan if the plan’s coverage would be unavailable at the same cost to individuals absent the individual’s employment-related connection with the employer; it is immaterial whether the employer makes contributions to the plan on behalf of its employees.¹

COBRA generally does not require plan sponsors to offer continuation coverage for disability income coverage.² For contracts issued after 1996, the COBRA requirements do not apply to plans under which substantially all of the coverage is for qualified long-term care services. A plan may use any reasonable method to determine whether substantially all of the coverage under the plan is for qualified long-term care services.

Additionally, amounts contributed by an employer to an HSA or an Archer MSA ( Q 390, Q 422) are not considered part of a group health plan subject to COBRA continuation requirements.³

Employer-sponsored health care plans subject to COBRA requirements must provide that if, as a result of a qualifying event, any qualified beneficiary would lose coverage under the plan, the qualified beneficiary must be entitled to elect, within the election period, continuation coverage under the plan.⁴

Further, a group health plan generally will not meet the COBRA requirements unless the plan’s coverage of the cost of pediatric vaccines is not reduced below the coverage provided by the plan as of May 1, 1993.⁵

Continuation Coverage Defined

COBRA continuation coverage must consist of coverage identical to that provided under the plan to similarly situated beneficiaries with respect to whom a qualifying event has not occurred. Any modification of coverage for similarly situated beneficiaries also must apply in the same manner for all COBRA qualified beneficiaries.⁶

A case brought under the COBRA provisions of ERISA held that an employer did not meet its obligation to offer continuation coverage where the only health plan available to a qualified beneficiary following the insolvency of a self-insured multiemployer trust under which the beneficiary originally had elected COBRA coverage was a geographically-restrictive HMO that did not provide service in the area of the beneficiary’s residence.⁷

Qualified beneficiaries electing COBRA coverage generally are subject to the same deductibles as similarly situated non-COBRA beneficiaries. Amounts accumulated toward deductibles, plan benefits, and plan cost limits prior to a qualifying event are carried over into the COBRA continuation coverage period.⁸

A qualified beneficiary electing COBRA continuation coverage need not be given the opportunity to change coverage from the type he or she was receiving prior to the qualifying event, even where the coverage is of lesser or no value to the qualified beneficiary, except in two situations.

First, if a qualified beneficiary was participating in a region-specific plan that does not provide services in the region to which the beneficiary is relocating, the beneficiary must be able, within a reasonable period after requesting other coverage, to elect the alternative coverage that the employer or employee organization makes available to active employees. An employer or employee organization is not required to make any other coverage available to a relocating qualified beneficiary if the only coverage that the employer makes available to active employees is not available in the area where the qualified beneficiary is relocating.

Second, if an employer or employee organization makes an open enrollment period available to similarly situated active employees, the same open enrollment period rights must be offered to each qualified beneficiary receiving COBRA coverage.⁹