HR 101: Coordinating COBRA With the Affordable Care Act

Employers with 20 or more employees are required to offer COBRA benefits to departing, eligible employees.

Managing these COBRA benefits can be a burden to mid-sized businesses, whether they invest the time to manage the process in-house or invest the money to have a third party manage it.

The Affordable Care Act has added a new wrinkle into this process that both employers and employees should be aware of. The issue boils down to timing.

Differences when COBRA meets Obamacare

Individuals have 60 days from receiving the notice to elect participation in COBRA benefits, and the benefits are retroactive to the date their benefits as an employee ended. This gives the employee a tremendous amount of flexibility to consider electing.

The departing employee also has the option of choosing coverage through their state or federal health insurance exchange, often at a savings vs. their former employers plan. There are some major differences though that need to be considered by the individual and should be communicated by the employer.

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  • First, the coverage is not retroactive, it begins once you elect the coverage but would not cover any medical claims prior. This does not allow the individual to “roll the dice” like they can with COBRA benefits
  • Second, there are different rules for when you can enroll in coverage through your state or federal exchange. You can only enroll within 60 days of a qualifying event (loss of coverage qualifies), or during the open enrollment period of November 15th through February 15th. Rather than 60 days from receipt of the notice, the individual has 60 days from the end of coverage to elect or they might need to wait a few months.
  • Third, the individual will need to be careful about accepting free COBRA, if offered by their ex-employer. While loss of coverage due to termination would be considered a qualifying event to gain coverage through a connector, this does not apply if the individual voluntarily ceases COBRA benefits. This can occur of an individual accepts two months of paid COBRA from their ex-employer and then decides to switch to a less expensive plan through the connector. If the COBRA benefits were cancelled and the individual applies through their connector, they could find themselves without any coverage for an extended period of time.

The Affordable Care Act has certainly brought some new challenges to employers and individuals, but they can be managed. The key is to keep on top of the regulations as much as you can and partner with someone who can help.

This was originally published on the Genesis HR Solutions blog.

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