The Independent Counsel


Taming COBRA


Many employers know that COBRA (the 1985 Consolidated Omnibus Budget Reconciliation Act) requires continuation of an employee's group health coverage for at least 18 months after the employee leaves the company.

However, it can come as a surprise that employees on leave also receive COBRA's coverage, and that spouses can enjoy mandated COBRA coverage for no less than 36 months in cases of separation, as can dependents. Since the coverage period is measured only from date of notice to each beneficiary of his or her COBRA rights, it is essential that notice be given promptly to all covered parties in order to minimize the duration of coverage.

A recent case involving a company of about 200 employees shows the extreme consequences that can result from a failure to give notice: The company placed an employee who was terminally ill with AIDS on medical leave in 1988. His wife became legally separated from him in 1990, prior to the expiration of extended coverage, and the employer failed to notify her of her rights under COBRA.

Coverage thus extended to the wife, also an AIDS patient, until her death in 1993. The employer has since learned that their child also contracted AIDS, and that a COBRA eligibility notice should have been, but was not sent to him when he turned 18 back in 1990. Since no notice was sent until 1994, the child will continued to be covered until 1997.

The result: COBRA coverage extended by nearly ten years. Cost to employer: Health insurance premiums trebled to nearly $10,000 per employee due to costs it might have avoided. The employer now cannot afford to continue funding its plan, but its employees will leave if they are asked to contribute.

Comment: The foregoing example shows the large price that a company may have to pay for lack of COBRA awareness. Companies would be well advised to establish comprehensive COBRA notice procedures for all employee departures.

© ASSOCIATION OF INDEPENDENT GENERAL COUNSEL 1994; (all rights reserved). This article is not intended as legal advice. Consult a qualified attorney for assistance concerning a specific issue or problem.