COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1985. Under COBRA, workers and their families must be offered continued health coverage when their regular health plans are discontinued due to such events as voluntary or involuntary termination or reduction of work hours, change in Medicare eligibility, employee death or divorce (otherwise known as qualifying events). It is the responsibility of the employer to notify employees of their rights under COBRA or face financial and/or legal fines.

An employee covered by a group health plan on the day before a qualifying event who is either an employee, the employee’s spouse, or an employee’s dependent child. In some cases a retiree, their spouse and dependent children can also be qualified beneficiary’s. In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary.

A certain event that would cause an individual to lose health coverage. The following lists specific qualifying events:

• termination of employment for reasons other than gross misconduct
• death of the covered employee
• divorce or legal separation
• covered employee becomes eligible for Medicare
• loss of dependent child status under the plan rules

The Qualifying Event will determine who the Qualified Beneficiaries are and the amount of time that a plan must offer the health coverage to them under COBRA. Generally speaking, qualified beneficiaries are covered for the following period of time:

• Termination of Employment: 18 months
• Reduction in work hours: 18 months
• Employee Death: 36 months
• Divorce or Legal Separation: 36 months
• Dependent Child Ceasing to be a dependant: 36 months

COBRA is applicable to any company that employs 20 or more individuals on more than 50% of its typical business days in the preceding year and offers group health plans. These health plans include: medical, dental vision, prescription drug, and medical reimbursement flexible spending plans.

Companies can be audited by the Internal Revenue Service where the burden of compliance is placed upon the employer. COBRA regulations are enforced through a joint effort by the IRS, US Department of Labor and Department of Health and Human Services. Violations resulting from non-compliance include non-deductible excise tax penalties of $100 per individual affected per day. Statutory fines of up to $110 per day can also be imposed under ERISA (Employee Retirement Income Security Act). Civil lawsuits and attorney’s fees on top of all of this can really add up to substantial penalties for a company.