The passage of the ACA set new requirements for companies offering health insurance to their employees. Not only will this affect the coverage for your current employees, but it could also impact what you need to offer employees who leave your company and continue to receive health benefits through the COBRA program. It’s important to understand how the ACA connects with your company’s COBRA coverage requirements so you can stay compliant with both programs.
The ACA Fills the Same Need as COBRA Coverage
The goal of COBRA is to help workers and their families maintain their health insurance coverage even after leaving a job. Americans can remain insured by their ex-company’s plan for 18 to 36 months through COBRA, according to the Department of Labor (DOL). The length of COBRA coverage depends on the reason for an employee’s departure.
With the creation of the health insurance marketplace as part of the Affordable Care Act, employees have additional options. When a worker leaves your company, he or she will qualify for a 60-day Special Enrollment Period to sign up for a plan in the marketplace, according to Healthcare.gov. This means he or she can buy a plan on the individual market even if it’s outside of the regular open enrollment period and, as a result, will have additional options when choosing her health coverage. This may be an option you want to educate your employees on when they are leaving the company.
COBRA Coverage Requirements Stay the Same
Even with the passage of the ACA, most COBRA requirements remain the same. You must offer continuation of coverage after an employee leaves your company. COBRA also requires that you offer the exact same plan options and benefits to COBRA enrollees as the options you offer your current employees. However, you aren’t required to pay for the COBRA benefits. You can require COBRA enrollees to pay up to of 100 percent of the plan cost plus an extra 2 percent administration fee, according to the DOL.
However, with the introduction of the ACA also came minimum essential coverage requirements for group plans. You will need to offer minimum essential coverage to employees and those enrolled in COBRA or risk a fine (if you have 50–99 employees, you have until 2016). Because the regulations for COBRA require you to offer the same coverage to COBRA enrollees that regular employees receive, your COBRA coverage must also meet minimum coverage requirements.
No Penalty if Workers Don’t Elect COBRA
For many Americans, it makes more financial sense to enroll under the ACA rather than under COBRA. Some people could be eligible for tax credits under the ACA but not with COBRA. As with other insurance, there is no penalty to your firm if your workers don’t choose to elect COBRA. All this program requires is that you make COBRA coverage available to people who leave your company; it’s up to them whether they want to opt in or out.
You should let your departing employees know about both options. You should also tell them that if they elect COBRA, they won’t be able to change their enrollment right away. If they want to join the ACA, they’ll need to wait until the next open enrollment period in November to sign up for a plan that will start on the first of January of the following year.
This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.
David Rodeck is a professional freelance writer based out of Delaware. Before writing full-time, he worked as a health- and life-insurance agent. He specializes in making insurance, investing and financial planning understandable.