What is Cobra?

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). COBRA is a federal statute that requires employers to provide Employees and their dependents who lose coverage under a group health plan maintained by the employer, as a result of a Qualifying Event, with an opportunity to continue group health insurance coverage.

What is a Health Plan under Cobra?

A Health Plan is a plan maintained by an employer or employee organization to provide health care to individuals who have an employment-related connection to the employer or employee organization or to the families of such individuals. Individuals with an employment-related connection include Employees, former Employees, and their family members. A plan is considered to provide health care whether it does so directly or through insurance, reimbursement, or other means, and whether it does so through an on-site facility or cafeteria or other flexible benefit arrangement. Insurance includes one or more individual policies under an arrangement maintained by an employer to provide health care to two or more Employees.

Health care includes diagnosis, cure, mitigation, treatment, or prevention of disease, and any other services or care for the purpose of affecting any structure or function of the body. Plans covering the following are generally considered Health Plans under COBRA:
-Medical or surgical care
-Prescription drugs
-Dental care
-Vision care
-Hearing care
-Drug and mental health treatment.

Health flexible spending arrangements are also Health Plans. Some health savings accounts may be considered health plans, but the IRS has indicated that COBRA does not apply to these accounts.

What is a Section 125 plan?

A Section 125 plan allows employees to purchase insurance with pretax dollars. The rules contained in Section 125 of the Internal Revenue Code make this possible. A Section 125 plan is also commonly referred to as a cafeteria plan. The four basic forms of Section 125 plans are: Premium Only Plan, Flexible Spending Account, Full Cafeteria Plan, and Simple Cafeteria Plan

Click here for Section 125 Cafeteria Plan Common Questions

What employers are subject to COBRA?

Employers who employed 20 or more Employees on more than 50% of the business days in the prior calendar year are subject to COBRA. Small-Employer Plans, church plans, and governmental plans are not subject to COBRA. However, state and local governments are required to comply with parallel continuation coverage requirements under the Public Health Service Act. Individuals covered under the Federal Employees Health Benefit Program are provided with similar, but not identical, rights to continue coverage.

What is a COBRA Qualifying Event?

A Qualifying Event is any of a set of specified events that occur while a Health Plan is subject to COBRA and that results (or will result) in a loss of coverage to a covered Employee, covered spouse of a covered Employee, or a covered dependent child of a covered Employee, within the maximum COBRA coverage period. The specified events are:
-Termination of employment or reduction of hours of the covered Employee (other than by reason of gross misconduct)
-Death of a covered Employee
-Divorce or legal separation of a covered Employee from the covered Employee’s spouse
-A covered Employee becoming entitled to Medicare benefits, A dependent child ceasing to be a dependent child under the terms of the Health Plan
-An employer’s filing of bankruptcy under Chapter 11 with respect to a retired covered Employee, or any spouse, surviving spouse or dependent child of a retired covered Employee, if on the day before the bankruptcy, the spouse, surviving spouse or dependent child were covered under the plan.

A Qualifying Event must a) result in a loss of coverage and b) be a result of one of the above specified events.

Under the federal regulations, to lose coverage means to cease to be covered under the same terms and conditions as in effect immediately before the event. A loss of coverage includes an increase in Employee premium or contribution as a result of one of the events listed above. For employer bankruptcy, the term to lose coverage also includes a substantial elimination of coverage that occurs within the 12 months before or after the date on which Chapter 11 bankruptcy proceedings begin.

What is a Premium Only Plan?

A Premium Only Plan is the most basic type of Section 125 plan and the most popular. A Premium Only Plan allows employees to pay their portion of insurance premiums with pretax dollars. Benefits that are typically offered within a Premium Only Plan include: health, dental, vision, accidental death and dismemberment, short and long term disability, and group-term life insurance only on the life of the employee.

What is a Full Cafeteria Plan?

Under a Full Cafeteria Plan, the employer makes a non-elective contribution for each eligible employee. Each employee may spend the employer contribution to purchase any of the benefits offered within the Cafeteria Plan. In addition, the employee may contribute pretax dollars to purchase additional benefits beyond what he or she can purchase with the employer's contributions.

What is a Simple Cafeteria Plan?

Certain small employers’ cafeteria plans may qualify as simple cafeteria plans, under which the applicable nondiscrimination requirements of a classic cafeteria plan are treated as satisfied. A plan qualifies as a simple cafeteria if it meets certain contribution, eligibility and participation requirements.

What is a Flexible Spending Account?

Under the Internal Revenue Code Section 125, employees may make pretax contributions to a Flexible Spending Account. An employee may seek reimbursement from the Flexible Spending Account for expenses paid for child care, deductibles, and eligible medical expenses not otherwise covered under a health insurance plan. A Flexible Spending Account allows an employee to increase his or her spendable income by allowing them to pay these expenses with pretax dollars. There are three types of Flexible Spending Accounts:
Health Flexible Spending Account or Medical Care Reimbursement
Dependent Care Flexible Spending Account
Adoption Assistance

Flexible Spending Accounts are subject to the use-it-or-lose-it rule. Thus, any money remaining in the Flexible Spending Account at the end of the Section 125 plan year (or grace period, if applicable) is forfeited.

What is a Health Flexible Spending Account?

A Health Flexible Spending Account (Health FSA) allows an employee to set aside pretax dollars in order to pay for eligible medical expenses not covered by insurance. Eligible medical expenses must be incurred: During the current Health FSA plan year (or grace period, if applicable), and By the employee, employee's spouse or dependent. The Health FSA is subject to the use-it-or-lose-it rule. Therefore, money remaining in the account at the end of the plan year is forfeited. The Health FSA is also subject to the Uniform Coverage Rule.

What is a Dependent Care Flexible Spending Account?

Dependent Care Assistance(Dependent Care FSA) allows an employee to set aside pretax dollars in order to pay for day care expenses. Expenses for food, education, or medical care may not be reimbursed from a Dependent Care FSA. In order for Dependent Care expenses to be eligible for reimbursement, they must:
Allow the employee or the employee's spouse to be gainfully employed or to attend school
Ensure a qualified dependent's well-being and protection.

A qualified dependent is a child under the age of 13 or a spouse that is incapable of self-care.

There is a statutory limit on the amount of expenses that can be paid pretax under a Dependent Care FSA. The limit is calculated on a calendar-year basis and is equal to the smallest of the following amounts:
$5,000 (if the employee is married and filing a joint return or is a single parent);
$2,500 (if the employee is married but filing separately);
the employee's earned income;
the spouse's earned income (if the employee is married at the end of the taxable year).

If a spouse is not gainfully employed because he or she is a full-time student or is incapable of self-care, then the spouse will be deemed to have an income of $200 per month for one qualifying individual or $400 per month for two or more qualifying individuals.

The Dependent Care FSA is subject to the use-it-or-lose-it rule. Therefore, money remaining in the account at the end of the Section 125 plan year (or grace period, if applicable) is forfeited.

What is Adoption Assistance?

Adoption Assistance allows an employee to set aside up to $5,000 in pretax dollars in order to pay for expenses incurred by the employee for qualified adoption expenses. Amounts paid by an employer (subject to dollar limits and other requirements) for qualified adoption expenses incurred in connection with the adoption (or in certain cases, the attempted adoption) of a child are excludable from an employee's gross income if furnished pursuant to an adoption assistance program of the employer that meets the requirements of Code. Benefits under such a program may be funded by the employer directly, by employees through salary reductions under a Code §125 cafeteria plan, or by a combination of both methods.

However, the irrevocable election and other requirements of Code §125 , as well as the lack of FICA savings, may detract from the appeal of offering adoption assistance benefits through a cafeteria plan.

What is the Family and Medical Leave Act (FMLA)?

The Family and Medical Leave Act of 1993 (FMLA) became law on February 5, 1993. It went into effect on August 5, 1993 and was amended in 2008 and 2009. Final regulations were issued by the Department of Labor and became effective on January 16, 2009. In general, the law requires employers with 50 or more employees to offer eligible employees up to 12 workweeks of unpaid leave for the birth, adoption or foster care of a child, to care for a sick family member, for the employee's own illness, or for any "qualifying exigency" which arises as a result of a family member serving on covered active military duty. The law also requires that eligible employees receive up to 26 workweeks of unpaid leave during a single 12-month period to care for a covered servicemember who is the spouse, son, daughter, parent or next of kin.

However, eligible employees are limited to a total of 26 workweeks of FLMA-protected leave during such 12-month period. For example, an employee cannot take 26 workweeks of FMLA leave to care for a covered servicemember, then also take 12 more weeks for other FMLA qualifying reasons.

What qualifies as a serious health condition under the FMLA?

A serious health condition is an illness, injury, impairment, or physical or mental condition that involves (1) inpatient care and any corresponding period of incapacity or subsequent treatment, or (2) continuing treatment by a health care provider. Continuing treatment may be established under any one of the following sets of circumstances: A period of incapacity that lasts more than three consecutive full calendar days and involves a certain level of treatment (treatment two or more times, within 30 days of the first day of incapacity, unless extenuating circumstances exist, by a health care provider or treatment by a health care provider on at least one occasion which results in a regimen of continuing supervised treatment, including a course of prescription medication or therapy requiring special equipment). The treatment must involve an in-person visit to a health care provider. The first (or only) in-person treatment visit must take place within 7 days of the first day of incapacity;

Any period of incapacity due to pregnancy, or for prenatal care; Any period of incapacity due to a chronic serious health condition (such as asthma, diabetes, or epilepsy);

Permanent or long-term incapacity due to a condition for which treatment may be ineffective if there is continuing supervision by a health care provider (such as for Alzheimer’s, severe stroke, or the terminal stages of disease); or

Any period of absence to receive multiple treatments either for restorative surgery after an accident or other injury or for a condition likely to result in incapacity of more than three full days absent medical intervention (such as radiation or chemotherapy for cancer, physical therapy for severe arthritis, or dialysis for kidney disease).

Periods of incapacity due to pregnancy or chronic serious health conditions are not subject to a three-day minimum duration or to any requirement that treatment be received. Generally, treatment that includes taking over-the-counter medications or bed rest, drinking fluids, exercise and other similar activities that can be initiated without a visit to a health care provider is not, by itself, sufficient to constitute a regimen of continuing treatment.

Substance abuse may qualify as a serious health condition. Leave is available for the treatment of substance abuse, but absence due to an employee’s use of the substance does not qualify for FMLA leave. An employer retains the right to terminate an employee under an established substance abuse policy.

Without complications, the common cold, flu, earaches, upset stomach, minor ulcers, headaches other than migraine, routine dental or orthodontia problems, and periodontal disease ordinarily are not serious health conditions. Allergies or mental illness resulting from stress may be serious health conditions if all other conditions are met. Employees may take FMLA leave for a serious health condition of common-law spouses in states that recognize common-law marriages.

Who is a health care provider under the FMLA?

Health care providers include state authorized doctors of medicine or osteopathy, podiatrists, dentists, clinical psychologists, optometrists, chiropractors in limited circumstances, nurse practitioners, nurse-midwives, clinical social workers, physician assistants and Christian Science practitioners. The FMLA also recognizes any health care provider from whom an employer or the employer's group health plan's benefits manager will accept certification of the existence of a serious health condition to substantiate a claim for benefits. Finally, the FMLA recognizes a health care provider listed above who practices and is authorized to practice in a country other than the United States.

Who does the FMLA affect laws or agreements?

The FMLA does not affect any other federal or state law which prohibits discrimination, nor supersede any state or local law which provides greater family or medical leave protection, nor does it affect an employer’s obligation to provide greater leave rights under a collective bargaining agreement or employee benefit plan. The FMLA also encourages employers to provide more generous leave rights.

Salaried executive, administrative, professional or computer employees of covered employers who meet the Fair Labor Standards Act (FLSA) criteria for exemption from minimum wage and overtime under federal regulations, 29 CFR Part 541, do not lose their FLSA-exempt status by using any unpaid FMLA leave.

What is a covered service member?

A covered servicemember is:

a member of the Armed Forces, including a member of the National Guard or Reserves, who is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness; or

a veteran who is undergoing medical treatment, recuperation, or therapy, for a serious injury or illness and who was a member of the Armed Forces, including a member of the National Guard or Reserves, at any time during the period of 5 years preceding the date on which the veteran undergoes that medical treatment, recuperation or therapy.