Even though Congress passed the Consolidated Omnibus Budget Reconciliation Act that provides the option of continued health coverage when employees quit or lose their jobs, many employees are still not aware of its benefits. And many employers are unaware of the penalties for not following proper procedures.
Referred to as COBRA, the federal act requires employers with 20 or employees to allow individuals covered under a group health plan to continue identical coverage for periods of 18 to 36 months.
“One of the fingers on the COBRA hand is a new law that came into play last year that we call HIPAA. It`s one of the new buzz words and it`s very important to the industry,” said Renee Roberts, personnel office for the Mississippi Employment Security Commission.
HIPAA, also known as the Health Insurance Portability and Accountability Act, was passed by Congress in 1996. HIPAA was proposed to provide transferable health coverage by limiting pre-existing conditions and exclusions in health plans.
“The new law means if I have health insurance and have satisfied the pre-existing time, and as long as I don`t have a break in coverage of more than 63 days, I don`t have to satisfy another pre-existing (condition),” Roberts said. “If I go to work in private industry and my coverage ends at the end of this month, I would have to get a certificate but would not have to serve pre-existing time with my new company.”
HIPAA has made a significant impact on COBRA administration by amending the definition of a qualified beneficiary, expanding the disability determination date, creating special enrollment periods, and requiring that employers and health insurance providers issue written certification of prior “creditable coverage” for every person covered under the health plan.
Roberts said that COBRA has very specific guidelines, which must be followed to the letter.
“I must mail information about COBRA to the home address of the employee. I cannot give it to them,” said Roberts. “If a spouse gets a divorce, they need to know they have right to continued coverage.”
Roberts said various circumstances can be sometimes confusing to employees, particularly with dependent coverage.
“If I die, my husband could continue COBRA coverage,” she said. “He would have to pay full price and would have a limited time to secure other health insurance. If I change jobs, my husband would lose coverage, but we could take coverage through COBRA. If I had a minor child and I died, the child would be able to continue coverage for a limited time. If I lost my job or my hours dropped to the point I would not be eligible for insurance, I could keep my insurance through COBRA.”
In addition to federal legislation for COBRA dealing with 20 or more employees, state continuation is available for smaller groups, said Cathy Vernon, director of consumer services division of the Mississippi Department of Insurance.
“An employee is allowed to continue small group coverage for a limited time,” Vernon said.
Many people don`t realize COBRA provides the same coverage as your group health plan, Roberts said.
“It`s an extension of the same coverage while you`re securing other coverage. If you had 80/20 coverage before, that`s what you`ll have,” Roberts said.
COBRA coverage can extend to medical, dental, vision, hearing, prescription drugs, employee assistance plans, drug and alcohol treatment plans and alternative health plans.
The biggest surprise when employees qualify for COBRA is the amount of the premium, said Richard Mills, vice president of sales for American Public Life in Jackson. “So many employees aren`t really aware of how much of the cost of their health insurance premium the employer has paid, so when they`re faced with paying the entire premium, it really comes as a sticker shock to them,” Mills said.
Other than a elective 2% fee employers can charge for administrative costs, coverage costs the same, he said.
Many employers do not have a notification program in place when employees leave and do not realize the penalties or the liability involved, Mills said.
“There`s a great deal of liability on the employer if he doesn`t properly notify the employee,” Mills said. “If an employer fails to notify me of my COBRA rights, and I don`t exercise it because he didn`t notify me, what happens if I`m injured in an accident six months later?”
Failure for compliance carries a penalty tax of $100 a day for the non-compliance period, limited to $200 per day if there is more than one qualified beneficiary in the same family, Mills said.