The COBRA requirements with respect to termination of active employee group health coverage and the coincident availability of retiree medical coverage are complex and not intuitive. In short, if retiree coverage will not continue under the same terms and conditions under which active employees are covered, then the active group health plan must offer the retiree and related qualified beneficiaries a COBRA election at the time the employee terminates employment (retires). Keep in mind that COBRA defines “terms and conditions” very narrowly; for example, if the cost of the premium is different for a retired participant than that of an active participant, that difference would constitute a loss of coverage and require an offer of COBRA.

If COBRA must be offered at the time an active employee terminates employment, even if he or she is eligible for retiree health care benefits, this means retirees are offered a choice between:

1. continuing COBRA coverage under the active plan (subject to the 18-month limit on COBRA coverage and possible multiple qualifying event extensions); or

2. continued coverage under the retiree health plan as an alternative to COBRA coverage.

If the retiree health coverage is a promise of “lifetime” coverage versus 18 months of COBRA, the retiree is choosing between 18 months of coverage that is identical to the active employee health coverage, or coverage under the retiree health plan subject to its terms for lifetime coverage. Although this choice might appear to be a no-brainer, there still could be reasons why a terminating employee might elect active group COBRA coverage over retiree-health coverage. That is why we always recommend that retirees be provided with a letter explaining the alternative coverage options. The letter should explain that the retiree needs to evaluate the alternatives for coverage, including the impact of Medicare on either choice.

Note also that if a covered retiree elects retiree plan coverage in lieu of COBRA on the active group health plan, and brings along a spouse and/or dependent children, then the retiree-only plan is subject to COBRA for future qualifying events. This means if a covered retiree dies or is divorced, and that event causes a loss of coverage for the spouse and/or dependent children, that event triggers a COBRA obligation for the retiree plan. In some instances, this COBRA right might extend the retiree health coverage for divorced spouses or dependent children longer than otherwise anticipated.

COBRA failures can result in excessive penalties.