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Small Business Employee Benefits and HR Blog

Employers Must Notify Laid-Off Workers of COBRA, and New Exchange Options

On Friday May 2, the federal administration issued a proposed rule requiring employers to inform laid-off workers of their coverage options under COBRA, as well as the option to buy individual health insurance coverage through their state's Health Insurance Exchange. 

This article provides an overview of COBRA, the Exchanges, and the new employer notification requirements.New_COBRA_and_Exchange_Notice_Requirements

What is COBRA?

Under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), certain terminated employees, retirees, spouses, former spouses, and dependent children have the right to temporarily continue their employer-sponsored health benefits. Companies with more than 20 employees are required to offer COBRA to participants that meet certain qualifying events.

In order to participate in COBRA, the former employee usually pays the full cost of the premium or benefit plus up to a 2% administration fee. COBRA participants are generally eligible for coverage for a maximum of 18 months. COBRA is a temporary and expensive option, especially for former employees who are trying to keep up with expenses right after losing a job. 

How do the Exchanges Work for Laid-Off Workers?

Under the Affordable Care Act (ACA), most Americans can buy coverage through the new online Health Insurance Exchanges for a defined period each year (called annual open enrollment periods). However, people are allowed to sign up after the deadline if they have life events that affect their insurance coverage, including losing job-based health insurance.

When an employee loses their job-based health insurance, this makes them eligible to enroll in the Health Insurance Exchanges during a special enrollment period lasting 60 days after their loss of coverage. Laid-off workers may also be eligible for the premium tax credits, based on their household income.

For most terminated employees, individual coverage through the Health Insurance Exchanges is more affordable than electing COBRA. And, unlike electing COBRA coverage, coverage purchased through the Exchanges is portable and long-term.

What the Proposed Rule Says About COBRA and Health Insurance Exchanges

In the proposed rule, the Department of Labor (DOL) and Department of Health and Human Services (HHS) set new guidance for employers requiring them to tell workers who lose their job-based health insurance about new options to get coverage on their own, as well as their eligibility for COBRA.

The DOL has published COBRA-related questions and answers here, and posted updated COBRA model notices here.

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