Final Regulation (1999)
COBRA Continuation Coverage Requirements
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 54 and 602
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final rule.
SUMMARY: The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)
added health care continuation requirements that apply to group health plans.
Coverage required to be provided under those requirements is referred to as
COBRA continuation coverage. Proposed regulations interpreting the COBRA
continuation coverage requirements were published in the Federal Register of
June 15, 1987 and of January 7, 1998. This document contains final
regulations based on these two sets of proposed regulations. The final
regulations also reflect statutory amendments to the COBRA continuation
coverage requirements since COBRA was enacted. A new set of proposed
regulations addressing additional issues under the COBRA continuation
coverage provisions is being published elsewhere in this issue of the Federal
Register. The regulations will generally affect sponsors of and participants
in group health plans, and they provide plan sponsors and plan administrators
with guidance necessary to comply with the law.
DATES: Effective Date: These regulations are effective February 3, 1999.
Applicability Dates: Sections 54.4980B-1 through 54.4980B- 8 apply to group
health plans with respect to qualifying events occurring in plan years
beginning on or after January 1, 2000. See the Effective Date portion of this
preamble and Q & A-2 of section 54.4980B-1.
FOR FURTHER INFORMATION CONTACT: Yurlinda Mathis, 202-622- 4695. This is not
a toll-free number.
Paperwork Reduction Act
The collections of information contained in these final regulations have been
reviewed and approved by the Office of Management and Budget in accordance
with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) under control
number 1545-1581. Responses to these collections of information are mandatory
in some cases and required in order to obtain a benefit in other cases. Group
health plans are required to provide certain individuals a notice of their
COBRA continuation coverage rights when certain qualifying events occur and
are required to inform health care providers who contact the plan to confirm
the coverage of certain individuals of the individuals' complete rights to
coverage. To obtain COBRA continuation coverage or extended coverage, certain
individuals are required to notify the plan administrator of certain events
or that they are electing COBRA continuation coverage, and plans are required
to notify certain individuals of insignificant underpayments if the plan
wishes to require the individuals to pay the deficiency. This information
will be used to advise employers and plan administrators of their obligation
to offer COBRA continuation coverage, or an extended period of such coverage;
to advise qualified beneficiaries of their right to elect COBRA continuation
coverage and of insignificant errors in payment; and to inform health care
providers of individuals' rights to COBRA continuation coverage.
An agency may not conduct or sponsor, and a person is not required to respond
to, a collection of information unless the collection of information displays
a valid control number.
The estimated average annual burden per respondent varies from 30 seconds to
330 hours, depending on individual circumstances, with an estimated average
of 14 minutes.
Comments concerning the accuracy of this burden estimate and suggestions for
reducing this burden should be sent to the Internal Revenue Service, Attn:
IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224, and to the
Office of Management and Budget, Attn: Desk Officer for the Department of the
Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.
Books or records relating to these collections of information must be
retained as long as their contents may become material in the administration
of any internal revenue law. Generally, tax returns and tax return
information are confidential, as required by 26 U.S.C. 6103.
On June 15, 1987, proposed regulations (EE-143-86) relating to continuation
coverage requirements applicable to group health plans were published in the
Federal Register (52 FR 22716). A public hearing was held on November 4,
1987. Written comments were also received. A supplemental set of proposed
regulations (REG- 209485-86) was published in the Federal Register of January
7, 1998 (63 FR 708). No public hearing was requested or held after the
publication of the supplemental proposed regulations; written comments were
received. After consideration of these comments, after review of the reported
court decisions under the parallel COBRA continuation coverage provisions of
the Employee Retirement Income Security Act of 1974 (ERISA) and the Public
Health Service Act, and based on the experience of the IRS in administering
the COBRA continuation coverage requirements, a portion of the regulations
proposed by EE-143-86 and REG-209485-86 is adopted as revised by this
Treasury decision. The revisions are summarized in the explanation below.
Also being published elsewhere in this issue of the Federal Register is a new
set of proposed regulations, which addresses additional issues.
Explanation of Provisions
The regulations are intended to provide clear, administrable rules regarding
COBRA continuation coverage. The regulations give comprehensive guidance on
many questions under COBRA, with a view to enhancing the certainty and
reliance available to all parties -- including employees, qualified
beneficiaries, employers, employee organizations, and group health plans --
in determining their COBRA rights and obligations. The guidance is designed
to further the protective purposes of COBRA without undue administrative
burdens or costs on employers, employee organizations, or group health plans.
For example, the regulations:
Prevent group health plans from terminating COBRA continuation coverage on
the basis of other coverage that a qualified beneficiary had prior to
electing COBRA continuation coverage, in accordance with the Supreme Court's
decision in Geissal v. Moore Medical Corp.
Give employers and employee organizations significant flexibility in
determining, for purposes of COBRA, the number of group health plans they
maintain. This will reduce burdens on employers and employee organizations by
permitting them to structure their group health plans in an efficient and
cost- effective manner and to satisfy their COBRA obligations based upon that
Provide baseline rules for determining the COBRA liabilities of buyers and
sellers of corporate stock and corporate assets and permit buyers and sellers
to reallocate and carry out those liabilities by agreement. This will
significantly enhance employers' ability to negotiate and to plan
appropriately for the treatment of qualified beneficiaries in connection with
mergers and acquisitions, while protecting the rights of qualified
beneficiaries affected by the transactions.
Limit the application of COBRA for most health flexible spending
arrangements. This will ensure that COBRA continuation coverage under health
flexible spending arrangements is available in appropriate cases without
requiring continuation coverage where that would not serve the statutory
Eliminate the requirement that group health plans offer qualified
beneficiaries the option to elect only core (health) coverage under a group
health plan that otherwise provides both core and noncore (vision and dental)
Give employers, in determining whether the small-employer plan exception
applies, the option of counting by pay period rather than by every business
day, and provide, for that exception, for the consistent treatment of
part-time employees through the use of full-time equivalents.
The COBRA continuation coverage requirements enacted on April 7, 1986 have
been amended by the Omnibus Budget Reconciliation Act of 1986 (OBRA 1986),
the Tax Reform Act of 1986 (TRA 1986), the Technical and Miscellaneous
Revenue Act of 1988 (TAMRA), the Omnibus Budget Reconciliation Act of 1989
(OBRA 1989), the Omnibus Budget Reconciliation Act of 1990 (OBRA 1990), the
Small Business Job Protection Act of 1996 (SBJPA), and the Health Insurance
Portability and Accountability Act of 1996 (HIPAA). /1/ These amendments made
numerous clarifications and modifications to the COBRA continuation coverage
requirements, moved the requirements from section 162(k) to section 4980B,
added various other features, such as the disability extension to the
required period of coverage, and significantly altered the sanctions imposed
on employers and plans for failing to comply with the requirements. The
specific changes made by these amendments are discussed below in connection
with the provisions of the regulations that relate to them.
/1/ The COBRA continuation coverage requirements have also been affected by
an amendment made to the definition of group health plan by the Omnibus
Budget Reconciliation Act of 1993 (OBRA 1993). OBRA 1993 amended the
definition of group health plan in section 5000(b)(1), which the COBRA
continuation coverage provisions of the Internal Revenue Code incorporate by
The legislative history of COBRA provides that the Department of the Treasury
has the authority to interpret the coverage and tax sanction provisions of
COBRA and that the Department of Labor has the authority to interpret the
reporting and disclosure provisions. Accordingly, these regulations apply in
interpreting the coverage provisions of COBRA in Title I of ERISA, as well as
those in the Internal Revenue Code. With minor exceptions, the final
regulations and the new proposed regulations being published today do not
address the notice provisions of the COBRA continuation coverage