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COBRA Continuation Coverage Requirements

  • 356. What are the coverage continuation or COBRA requirements that certain group health plans must meet?

    • Editor’s Note: ARRA 2009 provided a temporary premium subsidy for COBRA continuation coverage for certain unemployed workers. See “Temporary COBRA Premium Assistance under ARRA 2009,” Q 357.

      An insured or self-funded group health plan maintained by an employer to provide health care, directly or otherwise, to the employer’s employees, former employees, or their families generally must offer COBRA continuation coverage. Certain plans are exempt from the COBRA continuation coverage rules (Q 360). Insured plans are not only those providing coverage under group policies, but include any arrangement to provide health care to two or more employees under individual policies. A plan is an employer provided health plan if the plan’s coverage would be unavailable at the same cost to individuals absent the individual’s employment-related connection with the employer; it is immaterial whether the employer makes contributions to the plan on behalf of its employees.1

      COBRA generally does not require plan sponsors to offer continuation coverage for disability income coverage.2 For contracts issued after 1996, the COBRA requirements do not apply to plans under which substantially all of the coverage is for qualified long-term care services. A plan may use any reasonable method to determine whether substantially all of the coverage under the plan is for qualified long-term care services.

      Additionally, amounts contributed by an employer to an HSA or an Archer MSA (Q 390, Q 422) are not considered part of a group health plan subject to COBRA continuation requirements.3

      Employer-sponsored health care plans subject to COBRA requirements must provide that if, as a result of a qualifying event, any qualified beneficiary would lose coverage under the plan, the qualified beneficiary must be entitled to elect, within the election period, continuation coverage under the plan.4

      Further, a group health plan generally will not meet the COBRA requirements unless the plan’s coverage of the cost of pediatric vaccines is not reduced below the coverage provided by the plan as of May 1, 1993.5

      Continuation Coverage Defined

      COBRA continuation coverage must consist of coverage identical to that provided under the plan to similarly situated beneficiaries with respect to whom a qualifying event has not occurred. Any modification of coverage for similarly situated beneficiaries also must apply in the same manner for all COBRA qualified beneficiaries.6

      A case brought under the COBRA provisions of ERISA held that an employer did not meet its obligation to offer continuation coverage where the only health plan available to a qualified beneficiary following the insolvency of a self-insured multiemployer trust under which the beneficiary originally had elected COBRA coverage was a geographically-restrictive HMO that did not provide service in the area of the beneficiary’s residence.7

      Qualified beneficiaries electing COBRA coverage generally are subject to the same deductibles as similarly situated non-COBRA beneficiaries. Amounts accumulated toward deductibles, plan benefits, and plan cost limits prior to a qualifying event are carried over into the COBRA continuation coverage period.8

      A qualified beneficiary electing COBRA continuation coverage need not be given the opportunity to change coverage from the type he or she was receiving prior to the qualifying event, even where the coverage is of lesser or no value to the qualified beneficiary, except in two situations.

      First, if a qualified beneficiary was participating in a region-specific plan that does not provide services in the region to which the beneficiary is relocating, the beneficiary must be able, within a reasonable period after requesting other coverage, to elect the alternative coverage that the employer or employee organization makes available to active employees. An employer or employee organization is not required to make any other coverage available to a relocating qualified beneficiary if the only coverage that the employer makes available to active employees is not available in the area where the qualified beneficiary is relocating.

      Second, if an employer or employee organization makes an open enrollment period available to similarly situated active employees, the same open enrollment period rights must be offered to each qualified beneficiary receiving COBRA coverage.9


      1.    IRC § 4980B(g)(2); Treas. Reg. § 54.4980B-2, A-1.

      2.    Austell v. Raymond James & Assoc., Inc., 120 F.3d 32 (4th Cir. 1997).

      3.    IRC § 4980B(g)(2); Treas. Reg. § 54.4980B-2, A-1.

      4.    IRC § 4980B(f)(1); Treas. Reg. § 54.4980B-1, A-1.

      5.    IRC § 4980B(f)(1).

      6.    IRC § 4980B(f)(2).

      7.    Coble v. Bonita House, Inc., 789 F. Supp. 320 (N. D. Cal. 1992).

      8.    Treas. Reg. § 54.4980B-5, A-2, A-3.

      9.    Treas. Reg. § 54.4980B-5, A-4.

  • 357. What special rules applied to COBRA premium assistance under legislation enacted in 2009 and 2010?

    • Ordinarily, if an unemployed worker elects to receive COBRA continuation coverage, the percentage of the applicable premium that may be charged can be as high as 102 percent (Q 368). In February 2009, Congress enacted temporary relief to help scores of unemployed workers maintain their health insurance coverage by making it more affordable.1 Essentially a 65 percent subsidy or premium assistance was available for COBRA continuation coverage premiums for certain workers who had been involuntarily terminated as the result of a COBRA qualifying event occurring during the period from September 1, 2008, through May 31, 2010, as extended under the Continuing Extension Act of 2010.

      An assistance eligible individual was eligible for the premium reduction for up to 15 months as extended under the Department of Defense Appropriations Act of 2010 from the first month the premium reduction provisions applied to the individual. The premium reduction ended if the individual became eligible for coverage under any other group health plan or for Medicare benefits.2

      Reduced Premium Amount

      In the case of any premium for a period of coverage beginning on or after February 17, 2009, an assistance eligible individual was treated for purposes of any COBRA continuation provision as having paid the amount of such premium if the individual paid 35 percent of the amount of the premium, determined without regard to the premium assistance provision.3 The employer was reimbursed for the other 65 percent of the premium that was not paid by the assistance eligible individual through a credit against its payroll taxes.4

      The premium used to determine the 35 percent share that must have been paid by or on behalf of an assistance eligible individual was the cost that would be charged to him or her for COBRA continuation coverage if the individual were not an assistance eligible individual. Thus, if, without regard to the subsidy, an assistance eligible individual was required to pay 102 percent of the applicable premium for continuation coverage, that is, the maximum generally permitted under COBRA rules, the assistance eligible individual was then required to pay only 35 percent of the 102 percent of the applicable premium.

      If the premium that would be charged to the assistance eligible individual was less than the maximum COBRA premium, for example, if the employer subsidized the coverage by paying all or part of the cost, then the amount actually charged to the assistance eligible individual was used to determine the assistance eligible individual’s 35 percent share.5

      In determining whether an assistance eligible individual had paid 35 percent of the premium, payments made on behalf of the individual by another person, other than an employer with respect to which an involuntary termination occurred, were taken into account; for example, by a parent, guardian, state agency, or charity.6

      Premium Reduction Period

      The premium reduction applied as of the first period of coverage beginning on or after February 17, 2009 for which the assistance eligible individual was eligible to pay only 35 percent of the premium, as determined without regard to the premium reduction, and still be treated as having made full payment. For this purpose, a period of coverage was a monthly or shorter period with respect to which premiums were charged by the plan with respect to such coverage.7

      The premium reduction applied until the earliest of:

      (1)     the first date the assistance eligible individual became eligible for other group health plan coverage, with certain exceptions, or Medicare coverage;

      (2)     the date that was 15 months (under the Department of Defense Authorizations Act of 2010; it was nine months under ARRA 2009) after the first day of the first month for which the ARRA premium reduction provisions applied to the individual; or

      (3)     the date the individual ceased to be eligible for COBRA continuation coverage.8

      Coverage Eligible for Premium Reduction

      The premium reduction was available for COBRA continuation coverage of any group health plan, except a flexible spending arrangement (“FSA”) offered under a cafeteria plan, including vision-only and dental-only plans as well as mini-med plans. The premium reduction was not available for continuation coverage offered by employers for non-health benefits that were not subject to COBRA continuation coverage, for example, group life insurance.9

      Retiree health coverage could have been treated as COBRA continuation coverage for which the premium reduction was available only if the retiree coverage did not differ from the coverage made available to similarly situated active employees. The amount charged for the coverage could be higher than that charged to active employees and the retiree coverage still may have been eligible for the ARRA premium reduction so long as the charge to retirees did not exceed the maximum amount allowed under federal COBRA.10

      The premium reduction also was available for COBRA continuation coverage under a health reimbursement arrangement (“HRA”). Although an HRA may qualify as an FSA, the exclusion of FSAs from the premium reduction was limited to FSAs provided through a cafeteria plan, which would not include an HRA.11

      Premium Reduction Extension under DDAA 2010

      The Department of Defense Appropriations Act of 2010 (“DDAA 2010”) amended ARRA 2009 by extending the period to qualify for the COBRA premium reduction until February 28, 2010, a period further extended to May 31, 2010, under the Continuing Extension Act of 2010, and extending the maximum period for receiving the subsidy an additional six months (from nine to 15 months).12

      Assistance eligible individuals who had reached the end of the original premium reduction period were in a transition period which gave them additional time to pay extension-related reduced premiums.13 An individual’s transition period was the period that began immediately after the end of the maximum number of months, which generally was nine, of premium reduction available under ARRA prior to its amendment. An individual was in a transition period only if the premium reduction provisions would continue to apply due to the extension from nine to 15 months and they otherwise remained eligible for the premium reduction.14 These individuals must have been provided a notice of the extension within 60 days of the first day of their transition period.15 The retroactive payment or payments for the period or periods of coverage must have been made by the later of February 17, 2010, or 30 days from when the notice was provided.16

      DOL Procedure for Denial of Premium Reduction

      The Department of Labor issued a fact sheet entitled “COBRA Premium Reduction” that explains its expedited review of denials of premium reduction. The DOL states that individuals, who are denied treatment as assistance eligible individuals and, thus, are denied eligibility for the premium reduction, whether by their plan, employer, or insurer, were entitled to request an expedited review of the denial by the DOL. The DOL was then required to make a determination within 15 business days of receipt of a completed request for review. The official application form17 was to be filed online or submitted by fax or mail.


      1.    § 3001 of ARRA 2009 (P.L. 115-5).

      2.    § 3 of the Continuing Extension Act of 2010; § 1010 of the Department of Defense Appropriations Act of 2009; § 3001(a) of ARRA 2009; Notice 2009-27, 2009-16 IRB 838; IRS News Release IR-2010-52 (4-26-2010).

      3.    Section 3001(a)(1)(A) of ARRA 2009; Notice 2009-27, 2009-16 IRB 838.

      4.    See IRC § 6432(c), as added by ARRA 2009; Notice 2009-27, 2009-16 IRB 838.

      5.    Notice 2009-27, 2009-16 IRB 838, Q&A 20.

      6.    Notice 2009-27, 2009-16 IRB 838, Q&A 20.

      7.    Notice 2009-27, 2009-16 IRB 838, Q&A 30.

      8.    Notice 2009-27, 2009-16 IRB 838, Q&A 33; see § 1010, DDAA 2010 and § 3001(a)(2)(A) of ARRA 2009.

      9.    Notice 2009-27, 2009-16 IRB 838, Q&A 27.

      10.      Notice 2009-27, 2009-16 IRB 838, Q&A 28.

      11.      Notice 2009-27, 2009-16 IRB 838, Q&A 29.

      12.      Section 3001(a)(3)(A) of ARRA 2009, as amended by § 1010(a) of DDAA 2010; § 3001(a)(2)(A)(ii)(I) of ARRA 2009, as amended by § 1010(b) of DDAA 2010.

      13.      See § 3001(a)(16)(C) of ARRA 2009, as added by § 1010(c) of DDAA 2010.

      14.      See § 3001(a)(16)(C)(i) of ARRA 2009, as added by § 1010(c) of DDAA 2010.

      15.      See § 3001(a)(16)(D) of ARRA 2009, as added by DDAA 2010.

      16.      See § 3001(a)(16)(A)(ii) of ARRA 2009, as added by § 1010(c) of DDAA 2010.

      17.      Available at: www.dol.gov/COBRA.

  • 358. Who was eligible for the temporary COBRA premium assistance made available under legislation enacted in 2009 and 2010?

    • Under the temporary COBRA premium assistance rules enacted in 2009 and 2010, an assistance eligible individual meant any qualified beneficiary if:

      (1)     the qualified beneficiary was eligible for COBRA continuation coverage related to a qualifying event occurring during the period that began with September 1, 2008, and ended with May 31, 2010, under the Continuing Extension Act of 2010;

      (2)     the qualified beneficiary elected such coverage; and

      (3)     the qualifying event with respect to the COBRA continuation coverage consisted of an involuntary termination of the covered employee’s employment and occurred during such period.1

      If an assistance eligible individual who was receiving the premium reduction became eligible for coverage under any other group health plan or Medicare, the individual was required to notify the group health plan in writing. The notice must have been provided to the group health plan in the time and manner specified by the Department of Labor (“DOL”).2 A person who was required to notify a group health plan but failed to do so was required to pay a penalty of 110 percent of the premium reduction improperly received after eligibility for the other coverage. No penalty was imposed with respect to any failure if it was shown that the failure was due to reasonable cause and not to willful neglect.3

      Involuntary Termination

      According to the IRS, for purposes of the temporary premium reduction assistance, an involuntary termination was:

      (1)     a severance from employment that was due to the independent exercise of the unilateral authority of the employer to terminate the employment;

      (2)     other than due to the employee’s implicit or explicit request;

      (3)     where the employee was willing and able to continue performing services.4

      Thus, an involuntary termination may have included an employer’s failure to renew a contract at the time the contract expired if the employee was willing and able to execute a new contract providing terms and conditions similar to those in the expiring contract and to continue providing the services. It also may have included an employee-initiated termination from employment if the termination constituted a termination for good reason due to employer action that caused a material negative change in the employment relationship for the employee.5

      The IRS has cautioned that an involuntary termination was the involuntary termination of employment, not the involuntary termination of health coverage. Consequently, qualifying events other than an involuntary termination, for example, divorce or a dependent child ceasing to be a dependent child under the generally applicable requirements of the plan, such as loss of dependent status due to aging out of eligibility, were not involuntary terminations qualifying an individual for the premium reduction.6

      Involuntary termination generally included the following:

      (1)     A lay-off period with a right of recall or a temporary furlough period (i.e., an involuntary reduction to zero hours resulting in a loss of health coverage);7

      (2)     An employer’s action to end an individual’s employment while the individual is absent from work due to illness or disability. Mere absence from work due to illness or disability before the action to end the individual’s employment status was not an involuntary termination;8

      (3)     Retirement, if the facts and circumstances indicated that, absent retirement, the employer would have terminated the employee’s services and the employee had knowledge that he or she would be terminated;9

      (4)     An involuntary termination for cause was considered to be an involuntary termination. For purposes of COBRA, if a termination of employment was due to gross misconduct of an employee, then the termination was not a qualifying event and the employee therefore was not eligible for COBRA continuation coverage;10

      (5)     A resignation as the result of a material change in the geographic location of employment for the employee;11 and

      (6)     A buy-out, that is, a termination elected by the employee in return for a severance package, where the employer indicates that after the offer period for the severance package, a certain number of remaining employees in the employee’s group will be terminated.12

      Involuntary termination did not include the following:

      (1)     The death of an employee;13

      (2)     A mere reduction in hours (i.e., not a reduction to zero hours);14 and

      (3)     A work stoppage as the result of a strike initiated by employees or their representatives, although a lockout initiated by an employer was an involuntary termination.15

      The determination of whether a termination was involuntary or not was based on all the facts and circumstances. For example, if a termination was designated as voluntary or as a resignation, but the facts and circumstances indicate that absent the voluntary termination, the employer would have terminated the employee’s services, and the employee had knowledge that the employee would be terminated, the termination then was considered to be involuntary.16


      1.    Section 3 of the Continuing Extension Act of 2010; § 1010(a) of the Department of Defense Appropriations Act of 2010; § 3001(a)(3)(C) of ARRA 2009; Notice 2009-27, 2009-16 IRB 838, Q&A 10; IRS News Release IR-2010-52 (4-26-2010).

      2.    Section 3001(a)(2)(C) of ARRA 2009; Notice 2009-27, 2009-16 IRB 838.

      3.    IRC § 6720C, as added by ARRA 2009; Notice 2009-27, 2009-16 IRB 838.

      4.    Notice 2009-27, 2009-16 IRB 838, Q&A 1.

      5.    Notice 2009-27, 2009-16 IRB 838, Q&A 1.

      6.    Notice 2009-27, 2009-16 IRB 838, Q&A 1.

      7.    Notice 2009-27, 2009-16 IRB 838, Q&A 2.

      8.    Notice 2009-27, 2009-16 IRB 838, Q&A 4.

      9.    Notice 2009-27, 2009-16 IRB 838, Q&A 5.

      10.      Notice 2009-27, 2009-16 IRB 838, Q&A 6.

      11.      Notice 2009-27, 2009-16 IRB 838, Q&A 7.

      12.      Notice 2009-27, 2009-16 IRB 838, Q&A 9.

      13.      Notice 2009-27, 2009-16 IRB 838, Q&A 1.

      14.      Notice 2009-27, 2009-16 IRB 838, Q&A 3.

      15.      Notice 2009-27, 2009-16 IRB 838, Q&A 8.

      16.      Notice 2009-27, 2009-16 IRB 838, Q&A 1.

  • 359. What are the tax implications of any premium reductions under the COBRA temporary premium assistance rules?

    • The amount of any COBRA premium reduction taken under the special rules enacted in 2009 and 2010 (see Q 357 and Q 358) was excluded from an individual’s gross income.1 If the premium reduction was provided with respect to any COBRA continuation coverage that covered an individual, the individual’s spouse, or the individual’s dependent, and the individual’s modified adjusted gross income, that is, the adjusted gross income plus amounts excluded under IRC Sections 911, 931, or 933, exceeded $145,000, or $290,000 for married couples filing jointly, then the amount of the premium reduction was recaptured as an increase in the individual’s federal income tax liability.2 The recapture was phased in for individuals with a modified adjusted gross income in excess of $125,000, or $250,000 for married couples filing jointly.3 An individual was able to elect to permanently waive the right to the premium reduction, for example, to avoid receiving and then repaying the premium reduction.4


      1.    IRC. § 139C, as added by ARRA 2009. See also Notice 2009-27, 2009-16 IRB 838, 839.

      2.    See § 3001(b)(1), ARRA 2009. See also Notice 2009-27, 2009-16 IRB 838, 839.

      3.    See § 3001(b)(2), ARRA 2009. See also Notice 2009-27, 2009-16 IRB 838, 839.

      4.    See § 3001(b)(3), ARRA 2009. See also Notice 2009-27, 2009-16 IRB 838, 839.

  • 360. Are all employers subject to COBRA continuation coverage requirements?

    • No.

      Church plans, as defined in IRC Section 414(e), governmental plans, as defined in IRC Section 414(d), and small-employer plans generally are not subject to COBRA continuation coverage requirements, although there are temporary rules applicable to small employers under the American Recovery and Reinvestment Act of 2009 (“ARRA”).1 ARRA provided a temporary premium subsidy for COBRA continuation coverage for certain unemployed workers (Q 356) and also applied to small employers if health care continuation coverage was required by a state.2

      A small-employer plan is defined as a group health plan maintained by an employer that normally employed fewer than 20 employees during the preceding calendar year on a typical business day.3 Under final regulations, an employer is considered to have employed fewer than 20 employees during a calendar year if it had fewer than 20 employees on at least 50 percent of its typical business days during that year. Only common law employees are taken into account for purposes of the small-employer exception. Self-employed individuals, independent contractors, and directors are not counted. In the case of a multiemployer plan, a small-employer plan is a group health plan under which each of the employers contributing to the plan for a calendar year normally employed fewer than 20 employees during the preceding calendar year.4


      1.    IRC § 4980B(d).

      2.    Section 3001(a)(10)(B) of ARRA 2009.

      3.    IRC § 4980B(d).

      4.    Treas. Reg. § 54.4980B-2, A-5.

  • 361. What is a qualifying event for purposes of COBRA continuation coverage requirements?

    • A qualifying event is any of the following events that, but for the required COBRA continuation coverage, would result in the loss of coverage of a covered employee or a spouse or dependent child of a covered employee under the plan:

      (1)     Death of a covered employee;

      (2)     Voluntary or involuntary termination for reasons other than a covered employee’s gross misconduct (Q 363) or reduction in hours of a covered employee’s employment;

      (3)     Divorce or legal separation of a covered employee;

      (4)     A covered employee becoming entitled to Medicare benefits;

      (5)     A dependent child ceasing to be a dependent child for purposes of a plan; and

      (6)     A proceeding under the federal bankruptcy law with respect to an employer from whose employment the covered employee retired at any time.1

      Taking a leave under the Family and Medical Leave Act of 1993 (FMLA) is not a qualifying event. A qualifying event does occur when an employee is covered under an employer’s group health plan the day before beginning an FMLA leave, the employee does not come back to work at the end of the leave, and the employee would lose coverage under the plan (other than under the COBRA continuation coverage) before the end of what would be the maximum coverage period. The same is true for a spouse or dependent child of the employee. The date that such a qualifying event occurs is the last day of the employee’s FMLA leave, and the period of maximum coverage is measured from this day.2

      If an employer eliminates coverage for a class of employees to which an employee on FMLA leave would otherwise have belonged on or before the last day of the employee’s FMLA leave, there is no qualifying event.

      A qualifying event can occur even if an employee does not pay the employee’s share of the premiums for coverage under a group health plan during an FMLA leave, or even if an employee declined coverage during FMLA leave.3 Further, COBRA continuation coverage may not be conditioned on an employee reimbursing an employer for premiums paid by the employer for group health plan coverage during an FMLA leave taken by the employee.4

      There is no qualifying event where, following a termination of employment, a loss of coverage does not occur until after the end of what would have been the maximum period of COBRA continuation coverage.5


      1.    IRC § 4980B(f)(3); Treas. Reg. § 54.4980B-4, A-1.

      2.    Treas. Reg. § 54.4980B-10, A-1, A-2.

      3.    Notice 94-103, 1994-2 CB 569.

      4.    Treas. Reg. § 54.4980B-10, A-1, A-3, A-5.

      5.    Williams v. Teamsters Local Union No. 727, Case No. 03 C 2122, 2003 US Dist. LEXIS 18906 (N.D. Ill., 10-22-03).

  • 362. Under what circumstances do employees serving in the military receive COBRA-like health insurance coverage continuation?

    • The call to active military duty of reserve personnel has been characterized as a qualifying event by the IRS. Although not specifically stated, the event presumably is a reduction in hours.1

      Employees serving in the uniformed services are entitled to COBRA-like continuation health coverage under the Uniformed Services Employment and Reemployment Rights Act2 regardless of whether the employer is otherwise exempt from COBRA’s continuation coverage requirements. Consequently, employers with fewer than 20 employees must provide continuation benefits to service members even in the absence of an obligation to do so under COBRA. The Veteran’s Benefit Improvement Act of 2004 increased the period for which the employee may elect from 18 to 24 months. This extension applies to all continuation elections made after December 10, 2004.


      1.    Notice 90-58, 1990-2 CB 345.

      2.    USERRA, 38 USC § 4317(a).

  • 363. What is gross misconduct for the purposes of disqualifying an employee and the employee’s beneficiaries from COBRA health insurance continuation requirements?

    • If a covered employee’s employment is terminated for gross misconduct, no COBRA continuation coverage is available to the employee or to the employee’s qualified beneficiaries.1 If an employer fails to notify an employee at the time of the employee’s termination that the termination is on account of gross misconduct, its ability to deny COBRA coverage may be undermined.2

      The fact that an employer has grounds to terminate an employee for gross misconduct does not support a denial of COBRA coverage if the employee voluntarily resigns to avoid being fired. An allegation of gross misconduct after a voluntary termination cannot be used to evade liability where an employer has not properly processed a COBRA election and the carrier refuses to extend coverage.3

      The Seventh Circuit Court of Appeals decided that it is not sufficient that an employer believed, in good faith, that an employee had engaged in gross misconduct. The district court had held that the proper test is not whether an employee actually engaged in gross misconduct but whether the employer believed in good faith that the employee had. The appeals court held that COBRA requires more than a good faith belief by an employer and that an employee should have been given the chance to demonstrate that the employer was mistaken and thus obtain COBRA rights.4

      An insurance carrier is bound by an employer’s determination and cannot decline COBRA coverage merely because the employer might have been entitled to terminate the employee on grounds of gross misconduct.5

      Case Law Examples

      The term “gross misconduct” is not specifically defined in COBRA or in regulations under COBRA. Therefore, whether a terminated employee has engaged in “gross misconduct” that will justify a plan not offering COBRA to that former employee and family members will depend on the specific facts and circumstances. Generally, it can be assumed that being fired for most ordinary reasons, such as excessive absences, or generally poor performance, does not amount to “gross misconduct.”6

      The IRS has announced that it will not issue rulings on whether an action constitutes gross misconduct for COBRA purposes.7 For these reasons, the concept of gross misconduct has been developed through case law.

      Some courts have provided a standard by which conduct can be judged, finding that conduct is gross misconduct if it is so outrageous that it shocks the conscience;8 that gross misconduct may be intentional, wanton, willful, deliberate, reckless or in deliberate indifference to an employer’s interest;9 or that gross misconduct is conduct evincing such willful or wanton disregard of an employer’s interests as is found in deliberate violation or disregard of standards of behavior which the employer has the right to expect of his or her employee.10

      Some more specific examples follow.

      Mere incompetence is not gross misconduct.11

      One court has held that breach of a company confidence did not constitute “gross misconduct.”12

      An employee did not engage in gross misconduct by falsifying mileage reports, failing to attend mandatory meetings, and receiving an unsolicited offer of employment.13

      Under a state law definition of gross misconduct, an employee who admitted stealing an employer’s merchandise was considered to have been terminated for gross misconduct and, thus, was not entitled to COBRA continuation coverage.14

      Cash handling irregularities, invoice irregularities, and the failure to improve the performance of one of an employer’s stores was held to be gross misconduct.15

      In a case where a court concluded that Congress left the definition of gross misconduct up to employers, two employees who had been terminated for refusing to comply with directions of a supervisor were considered to have been terminated for gross misconduct.16

      A bank employee who cashed a fellow employee’s check knowing there were insufficient funds to satisfy it and held the check in her cash drawer until the check could be covered was held to have been terminated for gross misconduct.17

      A bank employee’s violation of a bank’s corporate credit card policy and blatant misrepresentation concerning a small loan application to a federal agency constituted gross misconduct.18

      In some cases, conduct was egregious. One court held that a security guard who “deserted his post … and was found asleep at his residence” and falsified records, creating a fictional guard to collect another paycheck, was terminated for gross misconduct.19

      Throwing an apple at a co-worker and uttering racial slurs was found to be gross misconduct.20

      Misconduct need not take place on the job to constitute gross misconduct. Off-duty behavior also may eliminate an employee’s right to elect COBRA coverage. Gross misconduct was found where an employee assaulted a subordinate with whom the employee was having a romantic relationship while away from the workplace.21

      Having an accident while driving a company vehicle under the influence of alcohol and on company business constituted gross misconduct, even though it was a misdemeanor offense under state law.22


      1.    IRC § 4980B(f)(3)(B); ERISA § 603(2).

      2.    Mlsna v. Unitel Com., Inc., 91 F.3d 876 (7th Cir. 1996).

      3.    Conery v. Bath Assoc., 803 F. Supp. 1388 (N.D. Ind. 1992).

      4.    Kariotis v. Navistar Int’l Transp. Corp., 131 F.3d 672 (7th Cir. 1997).

      5.    Conery v. Bath Assoc., 803 F. Supp. 1388 (N.D. Ind. 1992).

      6.    U.S. Department of Labor Health Benefits Advisor Glossary, Office of Compliance Assistance Policy.

      7.    Rev. Proc. 2018-3.

      8.    Zickafoose v. UBServs. Inc. 23 F.Supp.2d 652, 654 (S.D.W. Va. 1998).

      9.    Collins v. Aggreko, Inc. 884 F.Supp. 450, 454 (D. Utah 1995).

      10.      Paris v. F. Korbel & Btos., Inc., 751 F.Supp. 834, 838 (N.D. Cal. 1990).

      11.      Mlsna v. Unitel Com., Inc., 91 F.3d 876 (7th Cir. 1996).

      12.      Paris v. F. Korbel & Bros., Inc., 751 F. Supp. 834 (N.D. Cal. 1990).

      13.      Cabral v. The Olsten Corp., 843 F. Supp. 701 (M.D. Fla. 1994).

      14.      Burke v. American Stores Employee Benefit Plan, 818 F. Supp. 1131 (N.D. Ill. 1993).

      15.      Avina v. Texas Pig Stands, Inc., 1991 U.S. Dist. LEXIS 13957 (W.D. Tex. 1991).

      16.      Bryant v. Food Lion, Inc., 100 F. Supp.2d 346 (D. S.C. 2000).

      17.      Moffitt v. Blue Cross & Blue Shield Miss., 722 F. Supp. 1391 (N.D. Miss. 1989).

      18.      Johnson v. Shawmut Nat’l Corp., 1994 U.S. Dist. LEXIS 19437 (D. Mass, 1994).

      19.      Adkins v. United Int’l Investigative Servs, Inc., 1992 U.S. Dist. LEXIS 4719 (N.D. Cal. 1992).

      20.      Nakisa v. Continental Airlines, 26 EBC 1568 (S.D. Tex. 2001).

      21.      Zickafoose v. UB Servs., Inc., 23 F. Supp.2d 652 (S.D.W.V. 1998).

      22.      Collins v. Aggreko, Inc., 884 F. Supp. 450 (D. Utah 1995).

  • 364. For how long must COBRA continuation coverage generally be provided?

    • COBRA continuation coverage must be provided from the date of a qualifying event until the earliest of any of the following events:

      1. the passage of the maximum required period of coverage;
      2. the date the employer ceases to provide any group health plan to any employee;
      3. the date coverage ceases under the plan by reason of a failure to make timely payment of the applicable premium (Q 368);
      4. the date the qualified beneficiary first becomes covered as an employee or otherwise after the date of the election under any other plan providing health care that does not contain any exclusion or limit with respect to any pre-existing condition of the beneficiary other than an exclusion or limitation that does not apply to, or is satisfied by, the beneficiary by reason of the portability, access, and renewability requirements for group health plans found in the IRC as well as in similar sections of ERISA and the Public Health Service Act;
      5. the date the qualified beneficiary, other than a retired covered employee or a spouse, surviving spouse, or dependent child of the covered employee, first becomes entitled to Medicare benefits after the date of the election; or
      6. in the case of a qualified beneficiary who is disabled at any time during the first 60 days of continuation coverage, the month that begins more than 30 days after the date when the Social Security Administration has made a final determination under Title II or XVI of the Social Security Act that the beneficiary is no longer disabled.1

      Applying a strict reading of IRC Section 4980B(f)(2)(B), the U.S. Supreme Court found that an employee whose employment has been terminated is eligible to elect COBRA continuation coverage under the employee’s former employer’s group health plan despite the fact that the employee also had coverage under another plan offered by the employee’s spouse’s employer at the time the employee’s employment was terminated. In effect, the Court concluded that an employee with coverage under another plan at the time of termination of employment does not fall within the requirement that the qualified beneficiary first becomes, after the date of the election, covered under any other medical care plan.2

      A federal government plan is not considered another plan providing health care for this purpose, because the federal government is not an employer under IRC Section 5000(d). Thus, eligibility for a federal government group health plan will not terminate COBRA continuation coverage.3

      Being entitled to Medicare benefits is defined not as mere eligibility for benefits, but as actual enrollment in either Part A or Part B of Medicare.4 Entitlement to Medicare benefits will not terminate the obligation to provide continuation coverage to qualified beneficiaries entitled to continuation coverage by virtue of a proceeding in a case under the federal bankruptcy law. See Q 365 for a detailed discussion of the exceptions to the maximum required period of coverage.


      1.    IRC § 4980B(f)(2)(B).

      2.    Geissal v. Moore Medical Corp., 524 U.S. 74 (1998); 118 S. Ct. 1869 (1998); Treas. Reg. § 54.4980B-7, A-2. See also Ann. 98-22, 1998-12 IRB 33.

      3.    Notice 90-58, 1990-2 CB 345. See also McGee v. Funderburg, 17 F.3d 1122 (8th Cir. 1994).

      4.    Treas. Reg. § 54.4980B-7, A-3.

  • 365. What is the maximum required period of COBRA continuation coverage? Are there any exceptions to this required maximum period?

    • The general maximum required period of coverage is 36 months from the date of a qualifying event.1 There are significant exceptions.

      One exception is the termination or reduction of hours. When a qualifying event is a termination, other than by reason of a covered employee’s gross misconduct (Q 363), or a reduction in hours of a covered employee’s employment, the maximum required period of coverage generally is 18 months from the date of the termination or reduction. If another qualifying event other than a proceeding in a case under the federal bankruptcy law occurs during the 18 month period following the termination or reduction of hours, the maximum required period is extended to 36 months from the date of the termination or reduction.2

      A second exception is disability. In the case of a qualified beneficiary who is determined, under Title II or Title XVI of the Social Security Act, to have been disabled any time during the first 60 days of continuation coverage, any reference to 18 months dealing with termination of employment, a reduction in hours, or with multiple qualifying events is deemed to be a reference to 29 months with respect to all qualified beneficiaries. This extension applies only if a qualified beneficiary has provided the plan administrator with appropriate notice of the determination of disability within 60 days of the determination and provides the plan administrator with notice within 30 days of the date of any final determination that the qualified beneficiary is no longer disabled.3

      Regulations clarify that this extension of coverage to 29 months due to disability is available if three conditions are satisfied: (1) a termination or reduction of hours of a covered employee’s employment occurs, (2) an individual, whether or not the covered employee, who is a qualified beneficiary in connection with the qualifying event described in (1) is determined to have been disabled at any time during the first 60 days of COBRA coverage, and (3) any of the qualified beneficiaries affected by the qualifying event described in (1) provides notice to the plan administrator of the disability determination on a date that is both within 60 days after the date when the determination is issued and before the end of the original 18 month period. The extension due to disability applies independently to each qualified beneficiary, whether or not he or she is disabled.4

      A third exception relates to Medicare. In the case of a termination, other than by gross misconduct (Q 363), or a reduction in hours that occurs fewer than 18 months after the date when a covered employee became entitled to Medicare benefits, the period of coverage for qualified beneficiaries other than the covered employee shall not terminate before the close of the 36 month period beginning when the covered employee became so entitled.5

      A fourth exception is the employer’s bankruptcy. The bankruptcy of an employer is the only qualifying event that can result in a maximum required period of coverage of more than 36 months.6 Where the qualifying event is a proceeding in a case under the federal bankruptcy law and the covered employee is alive when the bankruptcy proceedings commence, the maximum required period extends until the death of the covered employee or, in the case of a surviving spouse or dependent children of a covered employee, until 36 months after the death of the covered employee. When a covered employee dies before bankruptcy proceedings commence and the employee’s surviving spouse is, as a surviving spouse, a beneficiary under the plan on the day before bankruptcy proceedings commence, the maximum required period extends until the surviving spouse’s date of death.7

      Finally, there is a conversion exception. A qualified beneficiary must be given the option to convert the insurance coverage during the 180 day period ending on the expiration of the COBRA continuation coverage period if a conversion option otherwise generally is available to similarly situated non-COBRA beneficiaries.8


      1.    IRC § 4980B(f)(2)(B)(i)(IV).

      2.    IRC § 4980B(f)(2)(B)(i).

      3.    IRC § 4980B(f)(2)(B)(i).

      4.    Treas. Reg. § 54.4980B-7, A-5.

      5.    IRC § 4980B(f)(2)(B)(i)(V).

      6.    Treas. Reg. § 54.4980B-7, A-6.

      7.    IRC § 4980B(f)(2)(B)(i)(III).

      8.    IRC § 4980B(f)(2)(E); Treas. Reg. § 54.4980B-7, A-8.

  • 366. Who is a qualified beneficiary for purposes of COBRA continuation coverage requirements?

    • With respect to a covered employee under a group health plan, a qualified beneficiary is any other individual who, on the day prior to that covered employee’s qualifying event, is a covered employee’s spouse or dependent child. A child born to or placed for adoption with a covered employee during the period of continuation coverage is included in the definition of qualified beneficiary.1 Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.2 Each qualified beneficiary has individual rights so that continuation decisions may be made on a person by person basis.

      Employers are not required to offer COBRA continuation coverage to domestic partners, though some employers have negotiated with their insurance companies to do so.

      If a qualifying event is a proceeding in a case under federal bankruptcy law, a qualified beneficiary is any covered employee who retired on or before the date of substantial elimination of coverage and individuals who, on the day before bankruptcy proceedings commence, were covered under the plan as a covered employee’s spouse, surviving spouse, or dependent child.3

      Where a qualifying event is a change in employment status of a covered employee, qualified beneficiaries are the covered employee, spouse and dependent children covered under the plan on the day before the qualifying event.4

      If a qualifying event is a covered employee’s death, divorce, or legal separation, or the covered employee’s entitlement to Medicare, the qualified beneficiaries are the covered employee’s spouse and dependent children who were covered under the plan the day before the qualifying event.5

      If a qualifying event is the loss of a covered child’s dependent status, then that dependent child is the only qualified beneficiary.6

      The term qualified beneficiary does not include an individual who is covered under a group health plan due to another individual’s election of COBRA continuation coverage and not by a prior qualifying event. This means that an individual who marries a qualified beneficiary other than the covered employee on or after the  date of the qualifying event does not become a qualified beneficiary in his or her own right by reason of the marriage.

      Likewise, a child born to or placed for adoption with a qualified beneficiary does not become a qualified beneficiary. New family members do not become qualified beneficiaries themselves, even if they become covered under the group health plan.7

      A person whose status as a covered employee is attributable to a time when the person was a nonresident alien who received no earned income from the person’s employer that constituted income from sources within the United States is not a qualified beneficiary.8

      An individual who does not elect COBRA continuation coverage ceases to be a qualified beneficiary at the end of the election period.9

      There are situations in which a second qualifying event occurs. For example, an employee terminates employment and then subsequently divorces. In this situation, the maximum period of coverage for the employee remains 18 months and the maximum period for the impacted dependents remains 36 months. Notice must be provided to the plan administrator to obtain this extension.


      1.    IRC § 4980B(g)(1)(A); Treas. Reg. § 54.4980B-3, A-1.

      2.    FAQs for Employees About COBRA Continuation Health Coverage, U.S. Department of Labor Employee Benefits Security Administration.

      3.    IRC § 4980B(g)(1)(D); Treas. Reg. § 54.4980B-3, A-1.

      4.    IRC § 4980B(f)(3).

      5.    IRC § 4980B(f)(3).

      6.    IRC § 4980(f)(3)(E).

      7.    Treas. Reg. § 54.4980B-3, A-1.

      8.    IRC § 4980B(g)(1)(C).

      9.    Treas. Reg. § 54.4980B-3, A-1.

  • 367. Who is a covered employee for purposes of the COBRA continuation coverage requirements? Who is a similarly situated non-COBRA beneficiary?

    • A covered employee is any individual who is or was provided coverage under a group health plan by virtue of the individual’s performance of services for one or more persons maintaining the plan, including as an employee defined in IRC Section 401(c)(1), or because of membership in an employee organization that maintains the plan.1

      In addition, the following persons are employees if their relationship to the employer maintaining the plan makes them eligible to be covered under the plan: self-employed individuals, independent contractors and their agents and independent contractors, and corporate directors.2

      A person eligible for coverage but not actually covered is not a covered employee.

      Final COBRA regulations introduce the term similarly situated non-COBRA beneficiaries, defined as a group of covered employees, their spouses, or their dependent children receiving coverage under an employer’s or employee organization’s group health plan for a reason other than the rights provided under the COBRA requirements and who most similarly are situated to the qualified beneficiary just before the qualifying event, based on all the facts and circumstances.3 COBRA beneficiaries are accorded the same rights and coverage as similarly situated non-COBRA beneficiaries.


      1.    IRC § 4980B(f)(7); Treas. Reg. § 54.4980B-3, A-2.

      2.    Treas. Reg. § 54.4980B-3, A-2.

      3.    Treas. Reg. § 54.4980B-3, A-3.

  • 368. Who must pay the cost of COBRA continuation coverage and how is the cost calculated?

    • Editor’s Note: See Q 372 for a discussion of the special rules that were enacted in 2020 in response to the COVID-19 pandemic.

      A plan may require a qualified beneficiary to pay a premium for continuation coverage. The premium generally cannot exceed a percentage of the applicable premium.

      The applicable premium is the plan’s cost for similarly situated beneficiaries (Q 367) with respect to whom a qualifying event has not occurred. The applicable premium for each determination period must be fixed by the plan before the determination period begins. A determination period is defined as any 12 month period selected by the plan, provided that it is applied consistently from one year to the next. Because the determination period is a single period for any benefit package, each qualified beneficiary will not have a separate determination period.1

      Except as provided under ARRA 2009 (Q 356), the percentage of the applicable premium that may be charged is generally 102 percent. In the case of a disabled qualified beneficiary, the premium may be as much as 150 percent of the applicable premium for any month after the 18 month of continuation coverage. A plan may require payment equal to 150 percent of the applicable premium if a disabled qualified beneficiary experiences a second qualifying event during the disability extension period, after the 18 month. The 150 percent amount may be charged until the end of the 36 month maximum period of coverage, that is, from the beginning of the 19 month through the end of the 36th month. A plan that does so will not fail to comply with the nondiscrimination requirements of IRC Section 9802(b).2

      Coverage may not be conditioned on evidence of insurability and cannot be contingent on an employee’s reimbursement of his or her employer for group health plan premiums paid during a leave taken under the Family and Medical Leave Act of 1993.3

      During a determination period, a plan may increase the cost of the COBRA coverage only if the plan has previously charged less than the maximum amount permitted and even after the increase the maximum amount will not be exceeded or a qualified beneficiary changes his or her coverage. If a plan allows similarly situated active employees to change their coverage, each qualified beneficiary must be given the same opportunity.4

      A qualified beneficiary must be permitted to make premium payments on at least a monthly basis. Any person or entity may make the required payment for COBRA continuation coverage on behalf of a qualified beneficiary.5

      COBRA premiums must be paid in a timely fashion, which is defined as 45 days after the date of election for the period between a qualifying event and an election, and 30 days after the first date of the period for all other periods.6 An employer may retroactively terminate COBRA continuation coverage if the initial premium is not timely paid. In Harris v. United Automobile Insurance Group, Inc.,7 the 11th Circuit Court of Appeals ruled that the additional time provided in Treasury Regulation Section 54.4980B-8, A-5, applies only to those plans that are fully funded, that is, that involve an agreement with an insurance company to provide benefits. Because the health plan in Harris was funded and sponsored by the company (so that it was self-funded), the IRS regulation did not apply. Consequently, the time for submitting the taxpayer’s premium payment was not extended beyond that provided by the plan. Accordingly, the company was within its right in terminating the taxpayer’s coverage.

      In effect, the Harris court ruled that the employer did not have an “arrangement” under which it was given a certain period of time to pay for the coverage of non-COBRA beneficiaries. The additional time frame provided in the regulation applies only to those plans that are fully-funded, meaning those that involve an agreement with an insurance company to provide benefits.

      An employer is not required to set off the premium amount against the amount of a claim incurred during the 60 day election period but before the election was made.8

      A plan must treat a timely payment that is not significantly less than the required amount as full payment, unless the plan notifies the qualified beneficiary of the amount of the deficiency and grants a reasonable period for payment. A reasonable period of time for this purpose is 30 days after the date when notice is provided. An amount will be considered as not significantly less if the shortfall is no greater than the lesser of $50 or 10 percent of the required amount.9

      Revenue Ruling 96-8 provides some guidance in the area of determining COBRA costs.10

      See Q 369 for a discussion of the Health Coverage Tax Credit.


      1.    Treas. Reg. § 54.4980B-8, A-2(a).

      2.    IRC § 4980B(f)(2)(C); Treas. Reg. § 54.4980B-8, A-1.

      3.    IRC § 4980B(f)(2)(D); Treas. Reg. § 54.4980B-10, A-5; Notice 94-103, 1994-2 CB 569.

      4.    Treas. Reg. § 54.4980B-8, A-2(b).

      5.    Treas. Reg. § 54.4980B-8, A-3, A-5.

      6.    Treas. Reg. § 54.4980B-8, A-5.

      7.    Harris v. United Automobile Insurance Group, Inc., 579 F.3d 1227 (11th Cir. 2009).

      8.    Goletto v. W. H. Braum Inc., 25 EBC 1974 (10th Cir. 2001).

      9.    Treas. Reg. § 54.4980B-8, A-5(b).

      10.   Rev. Rul. 96-8, 1996-1 CB 286.

  • 369. What is the Health Coverage Tax Credit?

    • Under the Trade Act of 2002, certain eligible individuals are entitled to receive a refundable tax credit equal to 72.5 percent (after February 12, 2011 and before January 1, 2014, extended for periods ending before January 1, 2021 by the Further Consolidated Appropriations Act, 2020 (FCAA 2020) of the cost of certain types of health coverage, including COBRA continuation coverage. Eligible individuals are displaced workers qualifying for assistance under the Trade Adjustment Assistance program and individuals age 55 or older receiving a benefit from the Pension Benefit Guaranty Corporation.1

      The Trade Act of 2002 also made the tax credit advanceable and, under the Health Coverage Tax Credit (HCTC) program established by the Treasury Department, eligible individuals receive a qualified health insurance costs credit eligibility certificate.2 These individuals can pay 20 percent of a required premium to providers along with the certificate, and the government will pay the remaining 80 percent of the premium. The government may make advance payments of the credit for health insurance costs of eligible individuals, but the total amount of these payments made cannot exceed 72.5 (was 65 percent) percent of the amount paid by a taxpayer for a taxable year.3 Providers are required to file a prescribed information return identifying the individuals receiving subsidized coverage and the amount and timing of the payments. Providers must provide each covered individual with a statement of the information reported for that individual.4 The HCTC program was effective August 1, 2003.

      TAARA 2015 reinstated the HCTC, but also provided new rules to coordinate the HCTC with the premium assistance tax credit. Generally, the rules provide that, beginning in 2016, insurance purchased on the health insurance exchanges does not qualify as coverage for which the HCTC may be claimed. Further, an eligible individual must make an election to have the HCTC apply and is not entitled to the premium assistance tax credit for any months during which an HCTC election is in effect.5


      1.    IRC § 35, as amended by ARRA 2009.

      2.    IRC § 7527, as amended by ARRA 2009.

      3.    IRC § 7527(b).

      4.    IRC § 6050T.

      5.    Pub. Law No. 114-27, § 407.

  • 370. How does an individual claim the additional 7.5 percent retroactive health coverage tax credit?

    • If an eligible individual was enrolled in the monthly HCTC program during the 2011 tax year, they were sent a Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. This form was provided because the HCTC Program made monthly payment(s) to the individual’s health plan administrator in one or months in the 2011 tax year.

      Boxes 3 through 14, on Form 1099-H, reflect the tax credit amount the individual received for each month in 2011 (an 80 percent tax credit for payments made by the HCTC Program in January and February 2011 and a 65 percent tax credit for payments made in March through December 2011).

      To claim the additional 7.5 percent retroactive credit:

      1. Refer to the box to the left of box 8 on Form 1099-H. This is the additional 7.5 percent retroactive credit that the HCTC Program has calculated. If the amount listed is $0.00, there is no retroactive credit amount.
      2. Complete and file Form 8885, Health Coverage Tax Credit, with 2011 Form 1040, U.S. Individual Income Tax Return. Enter the retroactive tax credit amount on line 7 of Form 8885, Health Coverage Tax Credit. It is not necessary to complete lines 1 through 6 and it is not necessary to submit any supporting documentation.

      Note: If a credit is claimed for any month for which a payment was made directly to a qualified health plan, lines 1 through 6 must be completed for those months. Then, the additional 7.5 percent retroactive credit amount is added to the sum of any amount on Part II, line 6, of Form 8885 and the total is entered on Part II, line 7. All required supporting documentation must be submitted and copies should be retained.


      Planning Point: Form 8885 must be filed along with Form 1040.


       

  • 371. When must an election to receive COBRA continuation coverage be made?

    • Editor’s Note: In response to COVID-19, the IRS and DOL announced an extension of the 60-day COBRA election window discussed below. ARPA also introduced a 100 percent COBRA premium subsidy. See Q 372 for details.

      The period during which a qualified beneficiary may elect continuation coverage runs from the date when the qualified beneficiary’s coverage terminates under the plan by reason of a qualifying event until 60 days after the later of: 1) the date when the coverage terminates; or 2) the date when notice is provided by a plan administrator to any qualified beneficiary of the right to continued coverage.1

      A COBRA continuation coverage election is considered made on the date it is sent to a plan administrator. If an election is made at any time during this period, the continuation coverage is provided from the date when coverage is lost.2

      Where a former employee became incapacitated 10 days after resigning without making a continuation coverage election, the 60-day election period was tolled. Thus, a continuation coverage election made by the former employee’s temporary administrator approximately 70 days after the resignation was found to be timely.3

      Each qualified beneficiary must be offered the opportunity to make an independent election to receive COBRA continuation coverage. If a qualified beneficiary who is either a covered employee or his or her spouse makes an election that does not specify for whom the election is being made, regulations provide that the election will be deemed to include an election for all other qualified beneficiaries.4

      If a qualified beneficiary waives the right to COBRA coverage but subsequently revokes the waiver prior to the end of the election period, the employer must provide the qualified beneficiary with prospective coverage, but not for the period between the waiver and the revocation. A waiver or revocation of a waiver is considered to have been made on the date it is sent.5

      An employer may not withhold any compensation or other benefits to which a qualified beneficiary is entitled to coerce the qualified beneficiary into a decision concerning COBRA continuation coverage.6

      Second COBRA Election Period

      The Trade Act of 2002 added a second 60-day COBRA election period for individuals eligible under the Trade Adjustment Assistance (“TAA”) program if the individuals did not elect COBRA coverage during their initial election period. The second election period begins on the first day of the month in which an individual becomes TAA eligible, but no election can be made more than six months after an initial TAA-related loss of coverage. Any election during a second election period is retroactive to the first day of the second election period.7

      The second opportunity to elect COBRA continuation coverage applies to individuals who are eligible for trade adjustment assistance (TAA) or alternative trade adjustment assistance (ATAA) and who did not elect COBRA during the general election period. This additional, second election period is measured 60 days from the first day of the month in which an individual is determined TAA-eligible. For example, if an individual’s general election period runs out and he or she is determined TAA-eligible 61 days after separating from employment, at the beginning of the month, he or she would have approximately 60 more days to elect COBRA. However, if this same individual is not determined TAA-eligible until the end of the month, the 60 days are still measured from the first of the month, in effect giving the individual about 30 days. Additionally, the Trade Act of 2002 added another limit on the second election period. A COBRA election must be made not later than six months after the date of the TAA-related loss of coverage. COBRA coverage chosen during the second election period typically begins on the first day of that period.8

      TAA recipients were eligible for COBRA coverage extensions for as long as they had TAA eligibility or until January 1, 2014. PBGC payees were eligible for COBRA coverage extensions until January 1, 2014. If the payee passed away, their spouse or dependents could receive an additional 24 months of COBRA or until January 1, 2014.9


      1.    IRC § 4980B(f)(5).

      2.    IRC § 4980B(f)(5); Treas. Reg. § 54.4980B-6, A-1, A-3.

      3.    Branch v. G. Bernd Co., 955 F.2d 1574 (11th Cir. 1992).

      4.    IRC § 4980B(f)(5)(B); Treas. Reg. § 54.4980B-6, A-6.

      5.    Treas. Reg. § 54.4980B-6, A-4.

      6.    Treas. Reg. § 54.4980B-6, A-5.

      7.    IRC § 4980B(f)(5)(C).

      8.    More information about the Trade Act is available at www.doleta.gov/tradeact.

      9.    See “FAQs For Employees About COBRA Continuation Health Coverage, U.S. Department of Labor, Employee Benefits Security Administration”.

  • 372. What is the new COBRA election window and subsidy for 2020 and 2021?

    • Editor’s Note: In response to COVID-19, the IRS and DOL announced an extension of the 60-day COBRA election window. The 60-day election window was paused for relevant time periods that include March 1, 2020. The clock was stopped and will not resume ticking until the end of the “outbreak period”. The outbreak period is defined as the window of time beginning March 1, 2020 and ending 60 days after the date that the COVID-19 national emergency is declared ended. The 45-day payment clock and 30-day grace period for late COBRA payments were also paused.


      Planning Point: As of the date of this publication, the emergency period continues in effect. Under ERISA, however, the government only has authority to order relevant time periods to be disregarded for one year.

      The IRS, Department of Treasury, HHS and DOL have clarified that taxpayers subject to the relief will have the applicable periods disregarded until the earlier of (a) one year from the date they were first eligible for relief or (b) 60 days after the announced end of the national emergency (the end of the outbreak period). On the applicable date, the timeframes for individuals and plans with periods that were previously disregarded will resume. In other words, in no case will a disregarded period exceed one year. However, the relief also acknowledges that taxpayers continue to struggle in the wake of the pandemic–and notes that plan fiduciaries should make reasonable accommodations to prevent the loss of benefits or delayed payments where possible.1


      An example can illustrate application of the tolling period.  Assume the individual terminated employment on February 20, 2020, beginning the 60-day clock to make a COBRA election. Nine days elapsed between February 20 and March 1, when the clock was paused. If the emergency period had ended June 1, 2020, the clock would begin running 60 days later. When the clock began again, the individual would have 51 remaining days to make a COBRA election.2

      The American Rescue Plan Act of 2021 (ARPA) provided free COBRA coverage for a six-month period between April 1, 2021 through September 30, 2021 for employees and their family members who lost group health coverage because of involuntary termination or reduced work hours. The COBRA subsidy applies to all employees who lost employer-sponsored health care due to an involuntary loss of work since the COVID-19 pandemic began. Employees who lost coverage as of April 2020 were potentially eligible for the entire six-month subsidy. Those employees’ 18-month COBRA period included the period from April 1 through September 30, 2021. However, individuals who were eligible for other group health coverage or Medicare were not eligible for the subsidy. The subsidy was available to both employees who did not elect COBRA coverage during the original election period and those who initially elected COBRA, but let coverage lapse. These individuals had to be offered an additional 60-day window to elect COBRA coverage and were not required to pay retroactive premiums to the original loss-of-coverage date. Plan administrators were required to begin notifying eligible individuals of the subsidy within 60 days of April 1, 2021.

      Generally, individuals were assistance-eligible individuals (AEIs) during eligibility waiting periods if the period overlapped the subsidy period. For example, the individual was an AEI during periods outside the open enrollment period for a spouse’s employer-sponsored health coverage (though once the individual qualified for the coverage, the subsidy was no longer available).

      Employers who changed health plan options were required to place the AEI in the plan most similar to their pre-termination plan, even if the replacement plan was more expensive (and the 100 percent subsidy continued to apply).

      Importantly, it was possible that employers who were no longer covered by federal COBRA requirements would have been required to advance the subsidy based on past coverage periods (for example, COBRA requirements might cease to apply if the employer terminated employees so that the federal rules no longer applied). If the employer was subject to COBRA when the individual experienced the reduction in hours or involuntary termination, the employer must offer the subsidy.


      Planning Point: IRS guidance on the ARPA COBRA premium subsidies clarified the definition of “involuntary termination”–and, thus, offered valuable guidance on who qualified for the subsidies. For COBRA subsidy purposes, an employee is involuntarily terminated if the employee is willing and able to continue working, and yet the employer chooses to end the employment relationship. However, an employee’s termination is considered voluntary if the employee resigns–even if the employee resigns because the employee can no longer find childcare or because a child’s school has closed. Termination for gross misconduct is also treated as a voluntary termination that disqualifies the employee from receiving the subsidy.

      If the employee quits because of concerns about workplace safety, even in response to the employee’s health situation or the health of a household member, the resignation is treated as a voluntary termination unless the employee can show that the employer’s actions with respect to workplace safety created a material negative change in the employment relationship similar to a constructive discharge. The IRS makes it clear that it takes a facts-and-circumstances analysis to determine whether termination of an employment relationship was involuntary on the employee’s part.3


      Notice Requirements

      ARPA required employers to notify assistance eligible individuals (AEIs) about the availability of the 100 percent COBRA subsidies and their rights under the new law. The DOL released a series of model notices to be provided under certain situations. The general notice was to be provided within 60 days after a qualifying COBRA event (as is normally the case) for individuals who experienced any qualifying event between April 1, 2021 and September 30, 2021 (including voluntary terminations). Certain employers also had to provide a notice of alternative deadlines for plans subject to state COBRA laws.

      A “Notice of Extended Election Period” was required by May 31, 2021 if the individual had a COBRA qualifying event that caused them to lose federal COBRA coverage because of involuntary termination of employment or reduction in hours between October 1, 2019 and March 31, 2021. Those individuals had a special 60-day window to elect COBRA between April 1, 2021 and September 30, 2021, although the COBRA coverage period could not exceed the coverage period they would have been entitled to receive based on the original qualifying event. Employers should have also attached a “Request for Treatment as an Assistance Eligible Individual” to the three notices above, providing the form for individuals to complete to request premium assistance.

      The Notice of Expiration of Subsidy Period must be provided between 15 and 45 days before the subsidy ends.


      Planning Point: For taxpayers who lost eligibility upon the end of the last overage period beginning on or before September 30, 2021, notice was required between August 16 and September 15, 2021. Model notices are available on the Department of Labor website.

      Failure to provide the notices on time can subject the employer to a $100 per day, per beneficiary penalty (up to a maximum of $200 per family, per day).


      Employer Tax Credit.

      On the date when the AEI provides the employer with a COBRA election, the employer became entitled to a credit for premiums not paid by the AEI for any coverage period that began before that date. In other words, if the AEI retroactively elected coverage as of April 15, 2021 and provided the election notice in June, the employer is entitled to a credit for premiums the AEI did not pay from April 15 through June.

      On the first day of each subsequent coverage period (month), the employer was entitled to a credit for premiums the AEI does not pay that month.

      The employer reports the credit and individuals receiving the credit on Form 941 and was entitled to reduce federal employment tax deposits in anticipation of the credit. Like other COVID-19-related tax credits, if tax deposits were not sufficient to cover the entire credit amount, the employer could file Form 7200 with the IRS to receive advance payment of the credit.4


      1.    EBSA Disaster Relief Notice 2021-01.

      2.    See 85 FR 26351 and EBSA Disaster Relief Notice 2020-01.

      3.    Notice 2021-31.

      4.    Notice 2021-31.

  • 373. What notice of COBRA continuation coverage is required?

    • Employer’s Initial Notice. A plan must provide written notice of COBRA continuation coverage rights to each covered employee and spouse at the commencement of their coverage under the plan1 and the COBRA rights provided under the plan must be described in the plan’s summary plan description (SPD).

      ERISA requires group health plans to give covered employees an SPD within 90 days after the employee first becomes a participant in a plan (or within 120 days after the plan is first subject to the reporting and disclosure provisions of ERISA). In addition, if there are material changes to the plan, the plan must give employees a summary of material modifications (SMM) not later than 210 days after the end of the plan year in which the changes become effective. If the change is a material reduction in covered services or benefits, the SMM must be furnished not later than 60 days after the reduction is adopted. A participant or beneficiary covered under the plan may request a copy of the SPD and any SMMs (as well as any other plan documents), which must be provided within 30 days of a written request.

      Within the first 90 days of coverage, group health plans must give each employee and each spouse who becomes covered under the plan a general notice describing COBRA rights.2

      Notice to Plan Administrator. An employer must notify a plan administrator within 30 days of the date when any of the following qualifying events occur:

      (1)     the death of a covered employee;

      (2)     the termination or reduction in hours of employment of a covered employee;

      (3)     a covered employee’s becoming entitled to Medicare benefits; or

      (4)     a proceeding in a case under federal bankruptcy law.3

      Notice to Employer. A covered employee or spouse must notify the employer of a divorce or legal separation within 60 days.4 At least one court has permitted a covered employee to terminate coverage for the employee’s soon to be ex-spouse. That court denied the COBRA coverage the spouse sought upon learning that the spouse’s coverage had been terminated because neither the spouse nor the covered employee had provided timely notice of the divorce to the employer.5 Where a covered employee told a plan administrator that he had divorced his spouse before directing that her coverage be terminated, the notice requirement was satisfied and the spouse had to be notified of her right to elect COBRA continuation coverage.6

      An individual who ceases to be a dependent child is required to notify the employer of this occurrence within 60 days.7

      Notice to Qualified Beneficiary. Within 14 days of receiving notice from an employer, a plan administrator must notify any qualified beneficiary with respect to a qualifying event.8 If coverage is continued at the employer’s expense after the qualifying event, this notice may be delayed until coverage actually is lost.9 This notice requirement will be deemed satisfied if notice is sent to the qualified beneficiary’s last known address by first class mail, unless the plan administrator has reason to know that this method of delivery has failed.10


      Planning Point: The Fifth Circuit11 recently found that an employee’s retirement constituted a qualifying event that triggered the employer’s notice obligations. In this case, the employee was placed on paid administrative leave, exhausted her paid leave benefits and was then placed on unpaid leave until she later retired.  The employer paid the employee portion of her insurance premiums until her retirement.  Later, an insurance claim was denied, and the employee was notified that she owed back insurance premiums and at that point received a COBRA notice.  The court found that while placement on unpaid leave was not a qualifying event, her retirement did constitute a qualifying event because she experienced a loss of health coverage since she was unable to keep her insurance at the same rate.  That retirement triggered the employer’s COBRA notice obligations.  The court was clear that there is no requirement that the qualifying event be “contemporaneous” with the qualifying event–but instead may occur within 18 months of the qualifying event.  Because the employee did not receive her COBRA notice on time, there was a violation.


      Notice of Disability. Additionally, each qualified beneficiary determined under Title II or XVI of the Social Security Act to have been disabled at any time during the first 60 days of continuation coverage must notify the plan administrator of that determination within 60 days after the date of that determination and must notify the plan administrator of any final determination that the qualified beneficiary is no longer disabled within 30 days of the date of that determination.12

      Statute of Limitations. Because neither COBRA nor ERISA contain a statute of limitations for making a claim that the employer did not timely provide notice, courts may look to state statutes of limitations.13

      Exhaustion of Administrative Remedies. Although covered employees and qualified beneficiaries generally must exhaust their administrative remedies under a plan before bringing suit, in the case of a failure to provide a COBRA election notice, exhaustion of remedies is not required, unless otherwise judicially imposed by a state court.14

      ERISA and PHSA. COBRA continuation coverage is not only a tax requirement. There are similar requirements under ERISA and the Public Health Service Act (PHSA) with other sanctions. The Department of Labor issued proposed regulations in 2003 updating the various notices and disclosures required under COBRA.15 The new regulations, which were effective in their final form for plan years beginning in 2004, provide rules that set minimum standards for the timing and content of the notices required under COBRA and establish standards for administering the notice process.16


      1.    IRC § 4980B(f)(6)(A).

      2.    See “An Employee’s Guide to Health Benefits Under COBRA, U.S. Department of Labor Employee Benefits Security Administration.”

      3.    IRC § 4980B(f)(6)(B).

      4.    IRC § 4980B(f)(6)(C).

      5.    Johnson v. Northwest Airlines, Inc., 2001 U.S. Dist. LEXIS 2160 (N.D. Cal. 2001).

      6.    Phillips v. Saratoga Harness Racing Inc., 240 F.3d 174 (2d Cir. 2001). See also Rev. Rul 2002-88, 2002-5 2 IRB 995.

      7.    IRC § 4980B(f)(6)(C).

      8.    IRC § 4980B(f)(6)(D).

      9.    Wilcock v. National Distributors, Inc., 2001 U.S. Dist. LEXIS 11413 (D. Maine 2001).

      10.      See Wooderson v. American Airlines Inc., 2001 U.S. Dist. LEXIS 3721 (N.D. Texas 2001).

      [11]      See Randolph v. E. Baton Rouge Par. Sch. Sys., No. 21-30022, 2021 WL 5577014 (5th Cir. Nov. 30, 2021).

      12.      IRC § 4980B(f)(6)(C).

      13.      Mattson v. Farrell Distributing Corp., 163 F. Supp.2d 411 (D. Vt. 2001).

      14.      Thompson v. Origin Tech. in Business, Inc., 2001 U.S. Dist. LEXIS 12609 (N.D. Texas 2001).

      15.      29 CFR Part 2590, 68 Fed. Reg. 31832 (May 28, 2003).

      16.      29 CFR Part 2590, 68 Fed. Reg. 31832 (May 28, 2003).

  • 374. Which entity is responsible for providing COBRA continuation coverage following a business reorganization?

    • The parties to a business reorganization transaction generally are free to allocate responsibility for providing COBRA continuation coverage by contract even if the contract assigns the COBRA responsibility to a party other than the party to which it would be assigned under the final regulations. If the assigned party defaults on its responsibility to provide COBRA coverage and the other party would have had the responsibility under the final regulations, the responsibility will return to this other party.1

      For both sales of stock and sales of substantial assets, final regulations provide that a seller retains the obligation to provide COBRA continuation coverage to existing qualified beneficiaries provided that the seller continues to maintain a group health plan. In the event of a stock sale where a seller ceases to provide any group health plan to any employee in connection with the sale and therefore is not responsible for providing COBRA continuation coverage, final regulations provide that the buyer is responsible for providing COBRA continuation coverage to existing qualified beneficiaries. A group health plan of the buying group has this obligation beginning on the later of: (1) the date the selling group ceases to provide any group health plan to any employee; or (2) the date of the stock sale. The obligation continues as long as the buying group continues to maintain a group health plan.2

      In the event of an asset sale where the seller ceases to provide any group health plan and the buyer continues the business operations associated with the assets purchased without interruption, the buyer is considered to be a successor employer to the seller. As a successor employer, the buyer is obligated to offer COBRA continuation coverage. Final regulations provide examples as to which party has the obligation to offer COBRA continuation coverage with respect to both asset sales and stock sales.3 For a discussion of the results when an employer stops contributing to a multiemployer health plan, see Q 375.


      1.    Treas. Reg. § 54.4980B-9, A-7.

      2.    Treas. Reg. § 54.4980B-9, A-8(b)(1).

      3.    Treas. Reg. § 54.4980B-9, A-8.

  • 375. What are the results for COBRA purposes if an employer stops making contributions to a multiemployer health plan?

    • It is not considered a COBRA qualifying event if an employer stops making contributions to a multiemployer plan. Further, when an employer stops making contributions to a multiemployer group health plan, the plan continues to be obligated to make COBRA continuation coverage available to qualified beneficiaries associated with the employer. Once the employer provides group health insurance to a significant number of employees who were formerly covered under the multiemployer plan or starts contributing to another multiemployer plan, the employer’s plan or the new multiemployer plan must assume the COBRA obligation.1

      If, however, the employer that stops contributing to the multiemployer plan makes group health plan coverage available to (or starts contributing to another multiemployer plan that is a group health plan) a class of the employer’s employees formerly covered under the multiemployer plan, the plan maintained by the employer (or the other multiemployer plan), from that date forward, has the obligation to make COBRA continuation coverage available to any qualified beneficiary who was receiving coverage under the multiemployer plan on the day before the cessation of contributions. The qualifying event must have occurred in connection with a covered employee whose last employment prior to the qualifying event was with the employer.


      1.    Treas. Reg. § 54.4980B-9, A-10.

  • 376. What are the consequences of breaching COBRA continuation coverage requirements?

    • Statutory Penalties

      The penalty for failure to make continuation coverage available is an excise tax of $100 per day during the noncompliance period with respect to each qualified beneficiary, limited to $200 per day in the case of more than one qualified beneficiary in the same family. Attorney’s fees also may be available. Where a covered employee’s spouse and children were not participants on the date of the qualifying event, the award was limited to penalties and attorney’s fees based on the covered employee only.1

      The noncompliance period begins on the date when the failure first begins and continues until the failure is corrected or the date that is six months after the last date on which the employer could have been required to provide continuation coverage to the beneficiary, whichever date is earlier.2

      The minimum tax for a failure that is not discovered until after the employer receives a notice of tax audit is $2,500 (increasing to $15,000 for violations that are deemed more than de minimis). However, no tax is imposed on any failure for which it is established that the employer (or plan in the case of a multiemployer plan) did not know, or exercising reasonable diligence would not have known, that such failure existed.3

      No tax is imposed for the period during which it is shown that none of the persons liable for the tax knew or, by exercising reasonable diligence, would have known, that the failure existed. There is no tax if the failure was due to reasonable cause, not willful neglect, and is corrected within the first 30 days of the noncompliance period.4

      Normally, an employer is liable for the tax. In the case of a multiemployer plan, the tax is imposed directly on the plan. In addition, a person responsible for administering the plan or providing benefits under it pursuant to a written agreement is liable if that person causes the failure by failing to perform one or more of its responsibilities. A person also may be liable if the individual fails to comply, within 45 days, with a written request of the employer, the plan administrator, or, in limited situations, a qualified beneficiary to provide benefits that the person provides to similarly situated active employees. This excise tax may be imposed on a third party such as an insurer or third party administrator if the third party assumes certain responsibilities.5

      In the case of single employer plans, the maximum excise tax for failures due to reasonable cause, not willful neglect, is 10 percent of the aggregate amount paid by the employer during the preceding tax year for medical care coverage or, if less, $500,000.6 The maximum excise tax in the case of a person other than an employer is limited to $2 million with respect to all plans.7

      In the case of a failure due to reasonable cause, the Secretary of the Treasury may waive part or all of the tax to the extent it is excessive relative to the failure involved. The determination of the excessiveness of the excise tax is to be made based on the seriousness of the failure, not on a particular taxpayer’s ability to pay the tax.8

      Failure to make continuation coverage available will be treated as corrected if it is retroactively undone to the extent possible and the qualified beneficiary is placed in as good a financial position as the individual would have been in had the failure not occurred and had the beneficiary elected the most favorable coverage in light of the expenses incurred since the failure first occurred.9

      Other Remedies

      In addition to the excise taxes discussed above, other civil remedies are available under ERISA.10 Employees or other qualified beneficiaries can bring civil actions to obtain other equitable relief, including an injunction and restitution, and to recover additional penalties of up to $110 per day for failure to provide required notices or to furnish requested information.11 Compensatory damages are not available.12


      1.    Wright v. Hanna Steel Corp., 270 F.3d 1336 (11th Cir. 2001).

      2.    IRC § 4980B(b).

      3.    IRC § 4980B(b)(3)(A).

      4.    IRC § 4980B(c).

      5.    IRC § 4980B(e); Treas. Reg. § 54.4980B-2, A-10. See Paris v. Korbel, 751 F. Supp. 834 (N.D. Cal. 1990).

      6.    IRC § 4980B(c)(4)(A).

      7.    IRC § 4980B(c)(4)(C).

      8.    IRC § 4980B(c)(5).

      9.    IRC § 4980B(g)(4).

      10.   ERISA § 502.

      11.   ERISA §§ 502(a)(1), 502(a)(3); 62 Fed. Reg. 40696.

      12.   Geissal v. Moore Med. Corp., 158 F. Supp.2d 976 (E.D. Mo. 2001).