What about COBRA?
If your organization is confused about all the changes regarding ACA, you are not alone. Many are questioning if COBRA will become a thing of the past.
Think again. If this function is handled internally and not outsourced to a third party, now might be the time to consider looking to a qualified vendor to manage the liability for remaining compliant.
One might logically deduce that if guaranteed issue health insurance is available via the health exchange, why would an employee need coverage, or why would the employer be required to offer COBRA coverage under an employer plan? Although it seems illogical or conceptually confusing as are many of the requirements under ACA, COBRA is NOT going away. Employers who continue or begin offering group health plans must still comply with COBRA by offering coverage to employees and their family members whenever a “qualifying event” occurs.
Below are the compliance requirements under COBRA.
Who: Employee, Spouse, Dependent child up to 18 months
- Termination of Employment (voluntary or involuntary) — for reasons other than gross misconduct
- Reduction in Hours of Employment (full time to part time)
- Divorce or Legal Separation
- Death of the Covered Employee
Who: Employee, Spouse, Dependent Child up to 36 months
- Employee’s Entitlement to Medicare
- Loss of Dependent Child Status Under the Plan
- Dependent Child Up to 36 months
The plans below are subject to all COBRA requirements.
- Medical, dental, and vision plans
- Prescription drug plans
- Health flexible spending accounts (FSAs)
- Health reimbursement arrangements (HRAs)
- Executive reimbursement plans
The following plans may also be subject to COBRA depending on the design of the plan:
- Employee assistance programs (EAPs)
- Cancer policies
- Employer-sponsored drug and alcohol treatment programs and health clinics
- Wellness programs
NOTE: Even if an employer stops offering medical insurance, their dental, vision, and other group plans are still subject to COBRA.
DOMA and COBRA
In addition, COBRA has new requirements under the repeal of DOMA (Defense of Marriage Act). Prior to the repeal a same-sex spouse was not entitled to COBRA rights as a “spouse”; however, under the new legislation same-sex spouses will now qualify as “qualified beneficiaries” and are independently entitled to COBRA if coverage is lost due to a qualifying event.
Tax Treatment of DOMA
Below are the known tax treatment implications of medical plans regarding same and opposite sex benefits.
A same-sex spouse receives the same federal tax treatment as an opposite-sex spouse, including:
- Employer-provided health coverage for a spouse is excludable from gross income and wages for payroll tax purposes.
- Employees may pay their share of the cost of coverage (e.g., medical, dental, vision) for the spouse with pre-tax salary reductions through a Code Section 125 cafeteria plan.
- Change in status events affecting a spouse will permit an employee to make corresponding mid-year election changes under the cafeteria plan in accordance with Code Section 125.
- Health care benefits provided to a same-sex spouse through a voluntary employees’ beneficiary association (VEBA) will no longer be considered “disqualified benefits” subject to the “de minimis” rule.
- Medical care expenses incurred by a spouse are reimbursable on a tax-free basis through a health FSA, HSA, or HRA.
- Earned income of the spouse is taken into consideration when determining the maximum tax-free benefits available under a dependent care assistance plan. Moreover, the employment status of a spouse will impact the eligibility of child care expenses under a dependent care assistance plan.