Final Regulation

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Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations

milligram monensin per pound of body
weight per day, depending upon the
severity of challenge, up to maximum of
200 milligrams per head per day.
*
*
*
*
*
Dated: January 13, 1999.
Andrew J. Beaulieu,
Acting Director, Office of New Animal Drug
Evaluation, Center for Veterinary Medicine.
[FR Doc. 99–2507 Filed 2–2–99; 8:45 am]
BILLING CODE 4160–01–F

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 54 and 602
[TD 8812]
RIN 1545–AI93

Continuation Coverage Requirements
Applicable to Group Health Plans
Internal Revenue Service (IRS),
Treasury.
ACTION: Final rule.
AGENCY:

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
§ 54.4980B–1.

FOR FURTHER INFORMATION CONTACT:
Yurlinda Mathis, 202–622–4695. This is
not a toll-free number.
SUPPLEMENTARY INFORMATION:

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.
Background
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
Overview
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

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
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
structure.
• 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
purposes.
• 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)
coverage.
• 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
1 The COBRA continuation coverage requirements
have also been affected by an amendment made to

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.
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
requirements.
Organization
The final regulations being published
today follow the structure of the 1987
proposed regulations, with related
questions-and-answers grouped into
topics. Each topic is now in a separate
section, and sections have been added
to the new proposed regulations being
published today for (1) business
reorganizations and employer
withdrawals from multiemployer plans
and (2) the interaction of the Family and
Medical Leave Act of 1993 (FMLA) and
COBRA. The substance of the 1998
proposed regulations has been
integrated into the questions-andanswers of the 1987 proposed
regulations. The ordering of some of the
questions-and-answers has changed,
and all of the questions-and-answers
relating to the original statutory
effective date have been deleted. In
addition, in a few cases, the content of
two separate questions-and-answers in
the 1987 proposed regulations has been
combined into a single question-andanswer; in other cases the content of a
single question-and-answer has been
expanded to two or more questions-andthe 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
International Revenue Code incorporate by
reference.

5161

answers. These changes have resulted in
the renumbering of the questions-andanswers. The new proposed regulations
being published today are designed to
fill gaps designated in the final
regulations as reserved.
Effective Date
The 1987 proposed regulations
provide that they will be effective upon
publication as final regulations. Some
commenters suggested that the final
regulations should have a delayed
effective date. The final regulations
follow this suggestion; they apply with
respect to qualifying events occurring in
plan years beginning on or after January
1, 2000. For any period before the
effective date of the final regulations,
the plan and the employer must operate
in good faith compliance with a
reasonable interpretation of the
requirements in section 4980B. For the
period before the effective date of the
final regulations, the IRS will consider
compliance with the proposed
regulations in § 1.162–26 (the 1987
proposed regulations) and § 54.4980B–1
(the 1998 proposed regulations) to
constitute good faith compliance with a
reasonable interpretation of the
statutory requirements for the topics
that those proposed regulations address,
except to the extent inconsistent with a
statutory amendment adopted after the
dates the proposed regulations were
issued, during the period the
amendment is effective, or with a
decision of the United States Supreme
Court released after the proposed
regulations were issued, during the
period after the decision is released. For
any period beginning on or after the
effective date of the final regulations
with respect to topics not addressed in
the final regulations, such as how to
calculate the applicable premium, the
plan and the employer must operate in
good faith compliance with a reasonable
interpretation of the requirements in
section 4980B.
Compliance with the new proposed
regulations will constitute good faith
compliance with a reasonable
interpretation of the statutory
requirements addressed in the new
proposed regulations until the new
proposed regulations are finalized. In
addition, actions inconsistent with the
terms of the new proposed regulations
will not necessarily constitute a lack of
good faith compliance with a reasonable
interpretation of the statutory
requirements addressed in the new
proposed regulations; whether there has
been good faith compliance with a
reasonable interpretation of the
statutory requirements will depend on

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all the facts and circumstances of each
case.
The IRS will not assess the excise tax
with respect to a plan that operates in
good faith compliance with a reasonable
interpretation of the statutory
requirements, as described in the
preceding two paragraphs. Note,
however, that in the case of lawsuits
brought by qualified beneficiaries to
enforce their COBRA continuation
coverage rights under ERISA or the
Public Health Service Act, the courts
generally have not applied any good
faith compliance standard.
Plans That Must Comply
The final regulations provide rules
regarding which group health plans are
subject to COBRA. These rules are
generally similar to those set forth in the
1987 proposed regulations. However,
the rules for determining, for purposes
of the COBRA continuation coverage
requirements, the number of group
health plans maintained by an employer
have been deleted, and the new
proposed regulations set forth
substantially different rules, which
provide that employers and employee
organizations generally have broad
discretion to determine the number of
group health plans that they maintain.
Other significant changes to the 1987
proposed regulations on this point
(some of which are set forth in the 1998
proposed regulations) include
exceptions for long-term care services
and medical savings accounts and new
rules regarding the small-employer plan
exception.
As in the 1987 proposed regulations,
the final regulations provide that, in
general, all group health plans are
subject to the COBRA continuation
coverage requirements. However, smallemployer plans (discussed below),
church plans (within the meaning of
section 414(e)), and governmental plans
(within the meaning of section 414(d))
are not subject to COBRA. (The final
regulations refer to these as plans
excepted from COBRA.) Plans excepted
from COBRA are generally not subject to
the COBRA continuation coverage
requirements or the COBRA excise tax,
although group health plans maintained
by state or local governments are subject
to parallel continuation coverage
requirements in the Public Health
Service Act (which is administered by
the Department of Health and Human
Services). Also, the Federal Employees
Health Benefit Program is subject to
generally similar, although not parallel,
temporary continuation of coverage
provisions under the Federal Employees
Health Benefits Amendments Act of
1988.

The final regulations define group
health plan in a manner generally
similar to that in the 1987 proposed
regulations. However, certain changes in
terminology have been made to reflect
the statutory cross-reference to section
5000(b)(1) set forth in section
4980B(g)(2) (such as the use of the term
health care and the definition of
employee). Additionally, the final
regulations, in accordance with section
4980B(g)(2), provide that a plan is not
a group health plan if substantially all
the coverage provided under the plan is
for qualified long-term care services (as
defined in section 7702B(c)). The final
regulations allow plans to use any
reasonable method in determining
whether a plan satisfies this exception.
The final regulations also provide, in
accordance with section 106(b)(5), that
amounts contributed by an employer to
a medical savings account (as defined in
section 220(d)) are not considered part
of a group health plan for purposes of
COBRA (although a high-deductible
health plan will not fail to be a group
health plan simply because it covers a
holder of a medical savings account).
Under the final regulations, a group
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. In accordance with section
5000(b)(1), these individuals include
employees, former employees, the
employer, and others associated or
formerly associated with the employer
or employee organization in a business
relationship. The final regulations
generally refer to all individuals covered
under a plan by virtue of the
performance of services or by virtue of
membership in an employee
organization as employees. (As
discussed below, the term employee has
a narrower meaning for purposes of the
small-employer plan exception.) The
final regulations use the term employer
to refer to a person for whom an
individual performs services. Pursuant
to section 414(t), the term employer also
includes, with respect to such a person,
any member of a group described in
section 414(b), (c), (m), or (o) that
includes the person (a controlled group)
as well as any successor of the person
or of a member of the controlled group.
Under the final regulations, as under
the 1987 proposed regulations, a plan
generally 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 a cafeteria
or other flexible benefit arrangement.

Insurance includes group insurance
policies and one or more individual
policies under an arrangement
maintained by the employer or
employee organization to provide health
care to two or more employees. Under
the final regulations, as under the 1987
proposed regulations, in the case of a
cafeteria plan or other flexible benefit
arrangement, the COBRA continuation
coverage requirements apply only to the
health care benefits under the cafeteria
plan or other flexible benefit
arrangement that an employee has
actually chosen to receive.
Many commenters on the 1987
proposed regulations requested
clarification of the application of
COBRA to health care benefits provided
under flexible spending arrangements
(health FSAs). Some commentators
argued that health FSAs should not be
subject to COBRA. Health FSAs satisfy
the definition of group health plan in
section 5000(b)(1) and, accordingly, are
generally subject to the COBRA
continuation coverage requirements.
However, COBRA is intended to ensure
that a qualified beneficiary has
guaranteed access to coverage under a
group health plan and that the cost of
that coverage is no greater than 102
percent of the applicable premium.
The IRS and Treasury believe that the
purposes of COBRA are not furthered by
requiring an employer to offer COBRA
for a plan year if the amount that the
employer could require to be paid for
the COBRA coverage for the plan year
would exceed the maximum benefit that
the qualified beneficiary could receive
under the FSA for that plan year and if
the qualified beneficiary could not
avoid a break in coverage, for purposes
of the HIPAA portability provisions,2 by
electing COBRA coverage under the
FSA. Accordingly, the new proposed
regulations contain a rule limiting the
application of the COBRA continuation
coverage requirements in the case of
health FSAs.
Under this rule, if the health FSA
satisfies two conditions, the health FSA
need not make COBRA continuation
coverage available to a qualified
beneficiary for any plan year after the
plan year in which the qualifying event
occurs. The first condition that the
health FSA must satisfy for this
exception to apply is that the health
FSA is not subject to the HIPAA
portability provisions in sections 9801
2 Under HIPAA, a qualified beneficiary who
maintains coverage after termination of
employment under a group health plan that is
subject to HIPAA can avoid a break in coverage and
thereby avoid becoming subject to a preexisting
condition exclusion upon later becoming covered
by another group health plan.

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
though 9833 because the benefits
provided under the health FSA are
excepted benefits. (See sections 9831
and 9832.) 3 The second condition is
that, in the plan year in which the
qualifying event of a qualified
beneficiary occurs, the maximum
amount that the health FSA could
require to be paid for a full plan year of
COBRA continuation coverage equals or
exceeds the maximum benefit available
under the health FSA for the year. It is
contemplated that this second condition
will be satisfied in most cases.
Moreover, if a third condition is
satisfied, the health FSA need not make
COBRA continuation coverage available
with respect to a qualified beneficiary at
all. This third condition is satisfied if,
as of the date of the qualifying event, the
maximum benefit available to the
qualified beneficiary under the health
FSA for the remainder of the plan year
is not more than the maximum amount
that the plan could require as payment
for the remainder of that year to
maintain coverage under the health
FSA.
A plan is maintained by an employer
or employee organization even if the
employer or employee organization does
not directly or indirectly contribute to it
if coverage under the plan would not be
available to an individual at the same
cost if the individual did not have an
employment-related connection to the
employer or employee organization. The
final regulations, for purposes of the
definition of a group health plan, use
the term health care instead of the term
medical care (which was used in the
1987 proposed regulations). This change
reflects the change in the definition of
group health plan made by OBRA 1989.
However, the final regulations provide
that health care has the same meaning
as the term medical care under section
213(d). Like the 1987 proposed
regulations, the final regulations set
forth a summary of items that do and do
not constitute health care.
The final regulations, generally
following the 1987 proposed
regulations, set forth rules for
determining whether a group health
plan is a small-employer plan. In
general, a group health plan other than
3 The IRS and Treasury, together with the U.S.
Department of Labor and the U.S. Department of
Health and Human Services, have issued a notice
(62 FR 67688) holding that a health FSA is exempt
from HIPAA because the benefits provided under it
are excepted benefits under sections 9831 and 9832
if the employer also provides another group health
plan, the benefits under the other plan are not
limited to excepted benefits, and the maximum
reimbursement under the health FSA is not greater
than two times the employee’s salary reduction
election (or if greater, the employee’s salary
reduction election plus five hundred dollars.)

a multiemployer plan is a smallemployer plan if it is maintained for a
calendar year by an employer that
normally employed fewer than 20
employees during the preceding
calendar year, and a group health plan
that is a multiemployer plan is a smallemployer plan if each of the employers
contributing to the plan for a calendar
year normally employed fewer than 20
employees during the preceding
calendar year. Whether the plan is a
multiemployer plan or not, the term
employer includes all members of a
controlled group. An example in the
final regulations clarifies that the
controlled group includes foreign
members, and thus a U.S. subsidiary
with fewer than 20 employees is subject
to COBRA if the controlled group has 20
or more employees world-wide. The
final regulations set forth additional
rules for the application of the smallemployer plan exception to
multiemployer plans, and the new
proposed regulations contain the same
definition of multiemployer plan that is
in section 414(f).
Under the final regulations, an
employer is considered to have
normally employed fewer than 20
employees during a particular calendar
year if it had fewer than 20 employees
on at least 50 percent of its typical
business days during that year. This rule
differs from the rule in the 1987
proposed regulations in two ways. First,
the 1987 proposed regulations use the
term working days, whereas the final
regulations use the statutory term
typical business days.
The second difference relates to the
term employee. Under the 1987
proposed regulations, self-employed
individuals and independent
contractors are counted as employees
for purposes of the small-employer plan
exception if they are covered under a
plan of the employer. Commenters
argued that only common law
employees should be counted for this
purpose. Unlike the definition of
covered employee (amended by OBRA
1989 to make clear that individuals who
are not common law employees but who
are covered under the group health plan
of an employer or employee
organization by virtue of the
performance of services are still
considered covered employees) and the
definition of group health plan
(amended by OBRA 1993 to make clear
that a health plan covering individuals
who are not common law employees of
the employer or employee organization,
and who are not family members of
common law employees, is still a group
health plan) the reference to employees
for purposes of the small-employer plan

5163

exception have not been amended to
include individuals who are not
common law employees. Consequently,
under the final regulations, only
common law employees are taken into
account for purposes of the smallemployer plan exception; self-employed
individuals, independent contractors,
and directors are not counted.
Although a small-employer plan is
generally excepted from COBRA, a plan
that is not a small-employer plan for a
period remains subject to COBRA for
qualifying events that occurred during
that period, even if it subsequently
becomes a small-employer plan.
In determining whether a plan is
eligible for the small-employer plan
exception, part-time employees, as well
as full-time employees, must be taken
into account. Several commenters on
the 1987 proposed regulations requested
clarification of how to count part-time
employees for the small-employer plan
exception, and the new proposed
regulations provide guidance on this
issue. Under the new proposed
regulations, instead of each part-time
employee counting as a full employee,
each part-time employee counts as a
fraction of an employee, with the
fraction equal to the number of hours
that the part-time employee works for
the employer divided by the number of
hours that an employee must work in
order to be considered a full-time
employee. The number of hours that
must be worked to be considered a fulltime employee is determined in a
manner consistent with the employer’s
general employment practices, although
for this purpose not more than eight
hours a day or 40 hours a week may be
used. An employer may count
employees for each typical business day
or may count employees for a pay
period and attribute the total number of
employees for that pay period to each
typical business day that falls within the
pay period. The employer must use the
same method for all employees and for
the entire year for which the smallemployer plan determination is made.
In determining whether a
multiemployer plan satisfies the
requirements for the small-employer
plan exception, the 1987 proposed
regulations provide a special rule
permitting the multiemployer plan to be
considered a small-employer plan for a
year if any contributing employer that
grew to be too large to qualify for the
exception during the preceding year
ceases to contribute to the plan by
February 1 of the current year.
Questions have been raised about the
need for and the authority for this
special rule, and one commenter
pointed out the uncertainty of how to

5164

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations

deal with a qualified beneficiary
experiencing a qualifying event under
such a plan in January of the current
year if the qualified beneficiary needed
confirmation of coverage for urgent
services before it was clear that the toolarge employer would cease
contributing to the multiemployer plan
by February 1. Based on these concerns,
the final regulations eliminate this
special rule for multiemployer plans.
The new proposed regulations
provide guidance, for purposes of the
COBRA continuation coverage
requirements, on how to determine the
number of group health plans that an
employer or employee organization
maintains. Under these rules, the
employer or employee organization is
generally permitted to establish the
separate identity and number of group
health plans under which it provides
health care benefits to employees. Thus,
if an employer or employee organization
provides a variety of health care benefits
to employees, it generally may aggregate
the benefits into a single group health
plan or disaggregate benefits into
separate group health plans. The status
of health care benefits as part of a single
group health plan or as separate plans
is determined by reference to the
instruments governing those
arrangements. If it is not clear from the
instruments governing an arrangement
or arrangements to provide health care
benefits whether the benefits are
provided under one plan or more than
one plan, or if there are no instruments
governing the arrangement or
arrangements, all such health care
benefits (other than those for qualified
long-term care services) provided by a
single entity (determined without regard
to the controlled group) constitute a
single group health plan.
Under the new proposed regulations,
a multiemployer plan and a plan other
than a multiemployer plan are always
separate plans. In addition, any
treatment of health care benefits as
constituting separate group health plans
will be disregarded if a principal
purpose of the treatment is to evade any
requirement of law. Of course, an
employer’s flexibility to treat benefits as
part of separate plans may be limited by
the operation of other laws, such as the
prohibition in section 9802 on
conditioning eligibility to enroll in a
group health plan on the basis of any
health factor of an individual.
The final regulations modify the rules
set forth in the 1987 proposed
regulations for determining the plan
year of a group health plan under
COBRA. These modifications are made
to be consistent with the rules in the
temporary regulations under HIPAA.

The definition of plan year is important
in applying, for example, the effective
date provisions under the final
regulations and the rules for health
FSAs under the new proposed
regulations. Under the final regulations,
the plan year is the year designated as
such in the plan documents. If the plan
documents do not designate a plan year
(or if there are no plan documents), the
plan year is the deductible/limit year
used by the plan. If the plan does not
impose deductibles or limits on an
annual basis, the plan year is the policy
year. If the plan does not impose
deductibles or limits on an annual basis
and the plan is not insured (or the
insurance policy is not renewed
annually), the plan year is the taxable
year of the employer. In any other case,
the plan year is the calendar year.
The final regulations reflect the
statutory provisions that provide for the
imposition of an excise tax in the event
of a failure by a group health plan to
comply with the COBRA continuation
coverage requirements of section
4980B(f). In the case of a multiemployer
plan, the excise tax is imposed on the
plan; 4 in the case of any other plan, the
excise tax is imposed on the employer
maintaining the plan. In certain
circumstances, the excise tax can be
imposed on other persons involved with
the provision of benefits under the plan,
such as an insurer providing benefits
under the plan or a third party
administrator administering claims
under the plan. Separate, non-tax
remedies may be available in the case of
a plan that fails to comply with the
COBRA continuation coverage
requirements in ERISA.
Qualified Beneficiaries
The rules in the final regulations for
determining who is a qualified
beneficiary generally follow those set
forth in the 1987 proposed regulations,
as well as those set forth in the 1998
proposed regulations regarding the
status of newborn and adopted children
as qualified beneficiaries. However,
certain provisions have been added to
the final regulations to reflect the
special statutory rules that apply in the
case of bankruptcy of the employer as a
qualifying event. Modifications have
also been made to reflect the decision of
the Supreme Court in Geissal v. Moore
Medical Corp., 118 S. Ct. 1869 (1998),
which held that an individual covered
4 In this regard, the U.S. Department of labor has
advised the IRS and Treasury that to the extent a
plan fiduciary subjects a plan to liability for the
COBRA excise tax on account of her or his
imprudent actions, the plan fiduciary may be held
personally liable under Title I of ERISA for the
amount of the tax.

under another group health plan at the
time she or he elects COBRA
continuation coverage cannot be denied
COBRA continuation coverage on the
basis of that other coverage.
Under the final regulations, a
qualified beneficiary is, in general: (1)
any individual who, on the day before
a qualifying event, is covered under a
group health plan either as a covered
employee, the spouse of a covered
employee, or the dependent child of a
covered employee; or (2) any child born
to or placed for adoption with a covered
employee during a period of COBRA
continuation coverage. (The final
regulations retain the definitions of the
terms placement for adoption and being
placed for adoption that were in the
1998 proposed regulations.) For a
qualifying event that is the bankruptcy
of the employer, any covered employee
who retired on or before the date of any
substantial elimination of group health
plan coverage is a qualified beneficiary;
the spouse, surviving spouse, or
dependent child of the retired covered
employee is also a qualified beneficiary
if the spouse, surviving spouse, or
dependent child was a beneficiary
under the plan on the day before the
bankruptcy qualifying event. The final
regulations add a provision clarifying
that if an individual is denied coverage
under a group health plan in violation
of applicable law (including HIPAA)
and experiences an event that would be
a qualifying event if the coverage had
not been wrongfully denied, the
individual is considered a qualified
beneficiary.
A covered employee can be a
qualified beneficiary only in connection
with a qualifying event that is the
termination (or reduction of hours) of
the covered employee’s employment or
the employer’s bankruptcy. As under
the 1987 proposed regulations, the final
regulations provide that a covered
employee is not a qualified beneficiary
if her or his status as a covered
employee is attributable to certain
periods in which she or he was a
nonresident alien (in which case the
covered employee’s spouse and
dependent children are also not
qualified beneficiaries). Although a
child born to or placed for adoption
with a covered employee during a
period of COBRA continuation coverage
is a qualified beneficiary, a child born
to or placed for adoption with a
qualified beneficiary other than the
covered employee after a qualifying
event, or a person who becomes the
spouse of a qualified beneficiary
(regardless of whether the qualified
beneficiary is the covered employee)
after a qualifying event is not a qualified

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
beneficiary. The final regulations retain
the rule of the 1987 proposed
regulations under which an individual
is not a qualified beneficiary if, on the
day before the qualifying event, the
individual is covered under the group
health plan solely because of another
individual’s election of COBRA
continuation coverage. However,
consistent with Geissal, the final
regulations eliminate the rule in the
1987 proposed regulations that an
individual is not a qualified beneficiary
if, on the day before the qualifying
event, the individual was entitled to
Medicare benefits.
An individual ceases to be a qualified
beneficiary if she or he does not elect
COBRA continuation coverage by the
end of the election period (discussed
below). The final regulations clarify that
an individual who elects COBRA
continuation coverage ceases to be a
qualified beneficiary once the plan’s
obligation to provide COBRA
continuation coverage has ended.
The term covered employee is defined
in the final regulations in a manner
substantially the same as in the 1987
proposed regulations. Although some
commenters on the 1987 proposed
regulations objected to the inclusion in
this definition of individuals other than
common law employees, the statutory
definition was amended by OBRA 1989
to include such individuals.
Under the final regulations, a covered
employee generally includes any
individual who is or has been provided
coverage under a group health plan
(other than one excepted from COBRA
as of the date of what would otherwise
be a qualifying event) because of her or
his present or past performance of
services for the employer maintaining
the group health plan (or by reason of
membership in the employee
organization maintaining the plan).
Thus, retirees and former employees
covered by a group health plan are
covered employees if the coverage is
provided in whole or in part because of
the previous employment. Any
individual who performs services for
the employer maintaining the plan or
who is a member of the employee
organization maintaining the plan may
be a covered employee. Thus, common
law employees, self-employed
individuals, independent contractors,
and corporate directors can be covered
employees. Generally, mere eligibility
for coverage—as opposed to actual
coverage—does not make an individual
a covered employee. However, if an
individual who otherwise would be a
covered employee is denied coverage
under a group health plan in violation
of applicable law (including HIPAA),

the individual is considered a covered
employee.
Qualifying Events
The rules regarding qualifying events
under the final regulations generally are
the same as those in the 1987 proposed
regulations. Under the final regulations,
a qualifying event is any of a set of
specified events that occurs while a
group health plan is subject to COBRA
and that causes a covered employee (or
the spouse or dependent child of the
covered employee) to lose coverage
under the plan. These specified events
are: the death of a covered employee;
the termination (other than by reason of
gross misconduct), or reduction of
hours, of a covered employee’s
employment; the divorce or legal
separation of a covered employee from
the covered employee’s spouse; a
covered employee’s becoming entitled
to Medicare benefits under Title XVIII of
the Social Security Act; a dependent
child’s ceasing to be a dependent child
of the covered employee under the plan;
and a proceeding in bankruptcy under
Title 11 of the United States Code with
respect to an employer from whose
employment a covered employee retired
at any time. The addition of employer
bankruptcy as a qualifying event reflects
the amendments made to COBRA by
OBRA 1986.
The reasons for which an employee
has a termination of employment or a
reduction of hours of employment
generally are not relevant in
determining whether the termination or
reduction of hours is a qualifying event.
Thus, a voluntary termination, a strike,
a lockout, a layoff, or an involuntary
discharge each may constitute a
qualifying event. However, if an
employee is discharged for gross
misconduct, the termination of
employment does not constitute a
qualifying event. The final regulations
clarify that a reduction of hours of a
covered employee’s employment
includes any decrease in the number of
hours that a covered employee works or
is required to work that does not
constitute a termination of employment.
Thus, if a covered employee takes a
leave of absence, is laid off, or otherwise
performs no hours of work during a
period, the covered employee has
experienced a reduction in hours that, if
the other applicable requirements are
satisfied, constitutes a qualifying event.
(But see Notice 94–103 (1994–2 C.B.
569) and the new proposed regulations,
described below, for special rules
regarding FMLA leave.) A covered
employee’s loss of coverage by reason of
a failure to work the minimum number
of hours required for coverage

5165

constitutes a reduction of hours of
employment.
Under the final regulations, to lose
coverage means to cease to be covered
under the same terms and conditions as
in effect immediately before the event.
The final regulations clarify that a loss
of coverage includes an increase in an
employee premium or contribution
resulting from one of the events
described above. The loss of coverage
need not be concurrent with the event;
it is enough that the loss of coverage
occur at any time before the end of the
maximum coverage period (described
below). For employer bankruptcies, the
term to lose coverage also includes a
substantial elimination of coverage that
occurs within 12 months before or after
the date on which the bankruptcy
proceeding begins.
Under the final regulations, as under
the 1987 proposed regulations,
reductions or eliminations in coverage
in anticipation of an event are
disregarded in determining whether the
event results in a loss of coverage.
Although several commenters objected
to this rule, the final regulations retain
the provision in order to protect
qualified beneficiaries from being
deprived of their COBRA rights because
an employer or employee organization
transposes a loss or reduction of
coverage to a time before the qualifying
event. This rule also applies in cases
where a covered employee discontinues
the coverage of a spouse in anticipation
of a divorce or legal separation. In such
a case, upon receiving notice of the
divorce or legal separation, a plan is
required to make COBRA continuation
coverage available, effective on the date
of the divorce or legal separation (but
not for any period before the date of the
divorce or legal separation).
Under the final regulations, as under
the 1987 proposed regulations, an event
must occur while the group health plan
is subject to COBRA in order to
constitute a qualifying event. A plan
that is excepted from COBRA (for
example, by reason of the smallemployer plan exception) and that later
becomes subject to COBRA is not
required to provide COBRA
continuation coverage to individuals
who experienced what would otherwise
be a qualifying event during the period
when the plan was not subject to
COBRA.
Finally, in the case of a child born to
or placed for adoption with a covered
employee during a period of COBRA
continuation coverage, the qualifying
event that gives rise to that period of
COBRA continuation coverage is the
qualifying event applicable to that child.
Thus, if a second qualifying event has

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Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations

occurred before such a child is born (for
example, if the covered employee dies),
the second qualifying event also applies
to the newborn child.
COBRA Continuation Coverage
The 1987 proposed regulations
generally refer to the coverage that a
qualified beneficiary is entitled to as the
coverage that was in effect on the day
before the qualifying event. While that
is generally true, the final regulations
have been revised to incorporate the
statutory standard that a qualified
beneficiary is entitled to the coverage
made available to similarly situated
beneficiaries with respect to whom a
qualifying event has not occurred. The
final regulations generally use as a
shorthand for this statutory language the
phrase ‘‘similarly situated nonCOBRA
beneficiaries’’ instead of the phrase
‘‘similarly situated active employees’’
used in the 1987 proposed regulations.
In certain contexts in the final
regulations, though, the phrase
‘‘similarly situated active employees’’ is
still used because in those contexts—
such as the right to make an
independent election for COBRA
continuation coverage—qualified
beneficiaries who are spouses and
dependent children of covered
employees are entitled to the rights that
employees have (and in those contexts,
spouses and dependent children who
are not qualified beneficiaries typically
do not have the rights that employees
have).
The 1987 proposed regulations
address in a separate question-andanswer the type of coverage that must be
made available to qualified beneficiaries
if a change is made in the coverage
provided to similarly situated
nonCOBRA beneficiaries. The final
regulations include this rule in the
question-and-answer that defines
COBRA continuation coverage. In doing
so, the final regulations delete several
specific requirements in the 1987
proposed regulations. For example, if
coverage for the similarly situated
nonCOBRA beneficiaries is changed or
eliminated, the 1987 proposed
regulations require that qualified
beneficiaries be permitted to elect
coverage under any remaining plan
made available to the similarly situated
active employees. Many commenters
objected that in the case of a mere
change in benefits, the requirement to
give qualified beneficiaries an election
among other plans would give them
greater rights than those active
employees might have. The final
regulations follow the suggestion of the
commenters in providing that the
general principle—that qualified

beneficiaries have the same rights as
similarly situated nonCOBRA
beneficiaries—applies in this situation.
The same principle also applies in
determining whether credit for
deductibles must be carried over from a
discontinued plan to a new plan.
Nevertheless, if an employer or
employee organization providing more
than one plan to a group of similarly
situated nonCOBRA beneficiaries
eliminates benefits under one plan
without giving the similarly situated
nonCOBRA beneficiaries the right to
enroll in another plan, that option
would still have to be made available to
qualified beneficiaries if the employer
continued to maintain a group health
plan because of the employer’s
obligation to continue to make COBRA
continuation coverage available.
The 1987 proposed regulations
include detailed rules requiring that
qualified beneficiaries generally be
offered the option of electing only core
coverage or both core and noncore
coverage. These rules were based on a
reference in the conference report to the
Tax Reform Act of 1986. Many
commenters expressed the opinion that
the reference in the conference report is
an insufficient basis for including this
concept in the regulations when nothing
in the statute itself suggests a distinction
between core and noncore coverage.
Commenters also contended that the
core/noncore distinction would create
undue administrative complexity and
promote adverse selection. After careful
consideration, the IRS and Treasury
have decided not to include in either
the final or the new proposed
regulations any such requirement to
offer for core coverage separately.
However, comments are invited on
whether such a requirement should be
adopted.
The 1987 proposed regulations
establish standards for determining the
deductibles and limits that apply to
COBRA continuation coverage in a
period in which an individual or a
group of family members has coverage
that is not COBRA continuation
coverage and then elects COBRA
continuation coverage. (Of course,
during a period in which an individual
or group of family members had only
COBRA continuation coverage, the rules
for deductibles and limits would apply
to them in the same manner as they
would to similarly situated nonCOBRA
beneficiaries.) Some commenters
objected to the provisions of the 1987
proposed regulations for computing
deductibles or limits on a family basis
in the case of a qualifying event (such
as divorce) that splits a family into two
(or more) units. The 1987 proposed

regulations would require that each
resulting family unit be credited with all
the expenses incurred by the entire
family before the qualifying event. The
final regulations revise this rule. Under
the final regulations, in computing
deductibles and limits for the family
unit receiving COBRA coverage, the
plan is required to take into account
only those expenses incurred before the
qualifying event by family members
who are part of the resulting family unit
after the qualifying event.
The 1987 proposed regulations
provide that qualified beneficiaries
moving outside the area served by a
region-specific plan must be given the
right to obtain other coverage from the
employer maintaining the regionspecific plan. The rule conditions the
right to other coverage on the employer
having employees in the area to which
the qualified beneficiary is moving. This
proposed rule unduly limits the
application of the rule in the case of an
employer or employee organization that
could provide other coverage to the
qualified beneficiary without having to
establish a new plan or enter into a new
group insurance contract even though
the employer did not have employees or
the employee organization did not have
members in the area that the qualified
beneficiary was moving to. This might
be the case, for example, if the employer
or employee organization maintained a
self-insured plan or maintained an
insured plan through an insurance
company licensed to provide that same
product in the area that the qualified
beneficiary was moving to. The final
regulations eliminate the condition that
an employer have employees in the area
to which the qualified beneficiary is
moving and instead require that
coverage be made available to the
qualified beneficiary if the employer or
employee organization would be able to
provide coverage to the qualified
beneficiary under one of its existing
plans. Generally the coverage that must
be made available is that made available
to the similarly situated nonCOBRA
beneficiaries. If, however, the coverage
made available to the similarly situated
nonCOBRA beneficiaries cannot be
made available in the area that the
qualified beneficiary is moving to, then
the coverage that must be made
available is coverage provided to other
employees.
The 1987 proposed regulations
require, in the case of a plan providing
open enrollment rights, that open
enrollment rights be extended to
qualified beneficiaries if an employer
maintains two or more plans. Thus, that
rule, by its terms, does not require that
open enrollment rights be given if an

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
employer maintains a single plan and
allows active employees during open
enrollment to switch between categories
of coverage such as single and family or
among categories such as employeeonly, employee-plus-one-dependent, or
employee-plus-two-or-moredependents. The final regulations
eliminate the condition that an
employer or employee organization
maintain two or more plans for a
qualified beneficiary to have open
enrollment rights. Thus, open
enrollment rights must be extended to
qualified beneficiaries in any case in
which they are extended to similarly
situated active employees. (Note that the
open enrollment right of employees to
enroll when not previously enrolled
would not have to be extended to
individuals who previously did not
elect to receive COBRA continuation
coverage because an individual ceases
to be a qualified beneficiary if COBRA
continuation coverage is not elected.)
The 1987 proposed regulations
require that qualified beneficiaries be
given the same right to add new family
members that similarly situated active
employees have. Many commenters
objected to this rule, arguing that it
requires more than a mere continuation
of coverage. However, COBRA
continuation coverage is more than just
a continuation of the coverage a
qualified beneficiary had before the
qualifying event; it includes the same
procedural rights to expand or change
coverage that similarly situated active
employees have. Moreover, the policy
behind the 1987 proposed regulations is
reflected in the HIPAA amendment to
COBRA creating special qualified
beneficiary status for certain newborn
and adopted children as well as in the
HIPAA special enrollment rights in
section 9801(f) for new spouses and for
newborn and adopted children.
Accordingly, the final regulations
provide guidance on the application of
the HIPAA special enrollment rights to
qualified beneficiaries and retain the
rule in the 1987 proposed regulations
regarding the right of qualified
beneficiaries to add new family
members (even though not eligible for
the HIPAA special enrollment rights) to
the same extent that active employees
are permitted to add new family
members.
Electing COBRA Continuation Coverage
The final regulations set forth rules
regarding elections of COBRA
continuation coverage by qualified
beneficiaries. In general, a group health
plan is required to offer a qualified
beneficiary the opportunity to elect
COBRA continuation coverage at any

time during the election period. The
election period begins not later than the
date the qualified beneficiary would
lose coverage by reason of a qualifying
event and ends not earlier than 60 days
after the later of that date or 60 days
after the date on which the qualified
beneficiary is provided notice of her or
his right to elect COBRA continuation
coverage. For purposes of determining
whether a qualified beneficiary’s
election of COBRA continuation
coverage is timely, the election is
deemed to be made on the date it is sent
to the employer or plan administrator.
The final regulations clarify that a
qualified beneficiary need not herself or
himself elect COBRA continuation
coverage; that election can be made on
behalf of the qualified beneficiary by a
third party (including a third party that
is not a qualified beneficiary).
Generally, the employer or plan
administrator must determine when a
qualifying event has occurred, and a
qualified beneficiary is not required to
give notice of the event. However, a
covered employee or qualified
beneficiary is required to notify the plan
administrator of a qualifying event that
is a divorce or legal separation of the
covered employee or a dependent
child’s ceasing to be a dependent child
under the plan terms. The 1987
proposed regulations prescribe that the
notification should be given to the
employer or other plan administrator.
The final regulations simply require that
the notice be provided to the plan
administrator.
The notice must be provided within
60 days after the date of the qualifying
event or the date on which the qualified
beneficiary would lose coverage because
of the qualifying event, whichever is
later. If the notice is not provided, the
group health plan is not required to
make COBRA continuation coverage
available to the qualified beneficiary.5
In the case of the covered employee’s
divorce or legal separation, a single
notice sent by or on behalf of the
covered employee or any one of the
qualified beneficiaries (that is, the
spouse or a dependent child) satisfies
the notice requirement for all those who
5 The U.S. Department of Labor has advised the
IRS and Treasury that, if a covered employee or
qualified beneficiary has not been adequately
informed of the obligation to provide notice in the
case of a qualifying event that is the divorce or legal
separation of the covered employee or that is a
dependent child’s ceasing to be covered under the
generally applicable requirements of the plan, the
covered employee’s or qualified beneficiary’s
failure to provide timely notice to the plan
administrator will not affect the plan’s obligation to
make continuation coverage available upon
receiving notice of such event.

5167

become qualified beneficiaries as a
result of the divorce or legal separation.
The group health plan must make
COBRA continuation coverage available
for the entire election period if the
qualified beneficiary elects coverage
prior to the end of the period (except in
the case of a revoked waiver, as
discussed below). An employer or
employee organization maintaining a
group health plan using an indemnity or
reimbursement arrangement can satisfy
this requirement by continuing the
qualified beneficiary’s coverage during
the election period or by discontinuing
the coverage until the qualified
beneficiary elects COBRA and then
retroactively reinstating the qualified
beneficiary’s coverage. Under the final
regulations, as under the 1987 proposed
regulations, the date of the qualifying
event (and thus, the beginning of the
maximum coverage period) is not
delayed merely because a plan provides
coverage during the election period.
Claims incurred by the qualified
beneficiary during the election period
do not have to be paid until COBRA
continuation coverage is elected and
any payment required for coverage is
made.
For a group health plan providing
health services—including a health
maintenance organization or a walk-in
clinic—a qualified beneficiary who has
not elected and paid for COBRA
continuation coverage can be required
to choose either to elect and to pay for
coverage or to pay a reasonable and
customary charge for plan services (but
only if the qualified beneficiary will be
reimbursed for that charge within 30
days after she or he elects COBRA
continuation coverage and makes any
payment for coverage). Alternatively,
the plan can treat the qualified
beneficiary’s use of the plan’s health
services as a constructive election of
COBRA continuation coverage and, if it
so notifies the qualified beneficiary
prior to the use of services, can require
payment for COBRA continuation
coverage.
The final regulations adopt the
position in Communications Workers of
America v. NYNEX Corp., 898 F.2d 887
(2d Cir. 1989), regarding the responses
that a group health plan must make with
respect to the rights of a qualified
beneficiary during that qualified
beneficiary’s election period.
Specifically, the final regulations
require that the plan make a complete
response to any inquiry from a health
care provider regarding the qualified
beneficiary’s right to coverage under the
plan during the election period. Thus, if
the qualified beneficiary has not yet
elected COBRA continuation coverage

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Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations

but remains covered under the plan
during the election period (subject to
retroactive cancellation if no election is
made), the plan must so inform the
health care provider. Conversely, if the
qualified beneficiary is not covered
during the election period prior to her
or his election, the plan must inform the
health care provider that the qualified
beneficiary does not have current
coverage but will have retroactive
coverage if COBRA continuation
coverage is elected. (The final
regulations also include similar
requirements with respect to inquiries
made by health care providers during
the 30- and 45-day grace periods for
paying for COBRA continuation
coverage.)
A qualified beneficiary who waives
COBRA continuation coverage during
the election period can revoke the
waiver before the end of the election
period, but the group health plan is not
then required to provide coverage as of
any date prior to the revocation.
Although several commenters objected
to the rule in the 1987 proposed
regulations allowing the revocation
during the election period of any
previous waiver, the final regulations
retain this rule. If the rule permitted
irrevocable waivers, plans might induce
qualified beneficiaries to execute
waivers hastily before becoming fully
informed of their rights and having the
opportunity to carefully consider
whether to elect COBRA. As with the
election of COBRA continuation
coverage, a waiver or a revocation of a
waiver is deemed to be made on the
date sent. The employer or employee
organization maintaining the group
health plan is not permitted to withhold
money, benefits, or anything else to
which the qualified beneficiary is
entitled under any law or agreement in
order to induce a qualified beneficiary
to make payment for COBRA
continuation coverage or to surrender
any rights under COBRA. Any waiver of
COBRA continuation coverage rights
obtained through such means will be
invalid. However, the general rules for
coverage during the election period
apply in the case of waivers and
revocations of waivers. Thus, in the case
of an indemnity arrangement, the plan
can deny coverage for claims until
payment for the coverage has been made
(as can also be done with those health
maintenance organizations or walk-in
clinics that adopt this method for
complying with the COBRA
continuation coverage requirements
during the election period).
A group health plan must offer each
qualified beneficiary the opportunity to
make an independent election to receive

COBRA continuation coverage and,
during an open enrollment period, to
choose among any options available to
similarly situated active employees.
This requirement also applies to any
child born to or placed for adoption
with a covered employee during a
period of COBRA continuation
coverage. (An election for a minor child
may be made by the child’s parent or
legal guardian.) If a covered employee or
the spouse of a covered employee elects
COBRA continuation coverage and the
election does not specify whether the
election is for self-only coverage, the
election is deemed to include an
election of COBRA continuation
coverage on behalf of other qualified
beneficiaries with respect to that
qualifying event.
Duration of COBRA Continuation
Coverage
The 1987 proposed regulations
incorporate the statutory bases for
terminating COBRA continuation
coverage except the rule (added by
OBRA 1989 and amended by HIPAA)
that COBRA coverage can be terminated
in the month that is more than 30 days
after a final determination that a
qualified beneficiary is no longer
disabled. The new proposed regulations
add this statutory basis for terminating
COBRA coverage, with two
clarifications. First, the new proposed
regulations clarify that a determination
that a qualified beneficiary is no longer
disabled allows termination of COBRA
continuation coverage for all qualified
beneficiaries who were entitled to the
disability extension by reason of the
disability of the qualified beneficiary
who has been determined to no longer
be disabled. Second, the new proposed
regulations clarify that such a
determination does not allow
termination of the COBRA continuation
coverage of a qualified beneficiary
before the end of the maximum coverage
period that would apply without regard
to the disability extension.
Section 4980B(f)(2)(B)(iv) provides
that a qualified beneficiary’s right to
COBRA continuation coverage may be
terminated when the qualified
beneficiary ‘‘first becomes,’’ after the
date of the COBRA election, covered
under another group health plan
(subject to certain additional conditions)
or entitled to Medicare benefits. The
final regulations add two new
questions-and-answers that provide
guidance on this provision.
The 1987 proposed regulations
substitute ‘‘is’’ for the statutory phrase
‘‘first becomes.’’ The effect of this
substitution was to permit an employer
to cut off a qualified beneficiary’s right

to COBRA continuation coverage based
upon other group health plan coverage
that the qualified beneficiary first
became covered under before she or he
elected COBRA coverage. In the case of
entitlement to Medicare benefits, the
1987 proposed regulations not only shift
the statutory ‘‘becomes’’ to ‘‘is,’’ they
also exclude from the definition of
qualified beneficiary anyone who is
entitled to Medicare benefits on the day
before the qualifying event. After careful
consideration, the IRS and Treasury
concluded that the better interpretation
of the statute is that other group health
plan coverage that a qualified
beneficiary has before the COBRA
election is not a basis for cutting off the
qualified beneficiary’s right to COBRA
continuation coverage. (The same rule
applies for entitlement to Medicare
benefits.)
Based upon the recommendation of
the IRS, the Solicitor General filed an
amicus brief before the Supreme Court
urging this position, which was
unanimously adopted by the Supreme
Court in Geissal v. Moore Medical Corp.,
118 S. Ct. 1869 (1998). The final
regulations adopt the position urged by
the IRS and Treasury and adopted by
the Court in Geissal. They provide that
an employer may cut off the right to
COBRA continuation coverage based
upon other group health plan coverage
or entitlement to Medicare benefits only
if the qualified beneficiary first becomes
covered under the other group health
plan coverage or entitled to the
Medicare benefits after the date of the
COBRA election.
The statutory rule allowing a plan to
discontinue COBRA continuation
coverage on account of coverage under
another group health plan was amended
by OBRA 1989 to prohibit the
discontinuance if the qualified
beneficiary’s other coverage was subject
to a preexisting condition exclusion.
This amendment was further modified
by HIPAA to allow discontinuance of
COBRA continuation coverage if the
preexisting condition exclusion does
not apply or is satisfied by reason of the
limitations on preexisting condition
exclusions in section 9801. The final
regulations reflect this amendment and
clarify that coverage under another
group health plan includes coverage
under a governmental plan.
Many commenters asked whether
mere eligibility for Medicare justifies a
discontinuance of COBRA continuation
coverage. In addition, many inquiries
have been received that ask whether the
qualified beneficiary must be entitled to
both Part A and B of Medicare. The final
regulations clarify that entitlement to
Medicare benefits means being enrolled

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
in Medicare and does not mean merely
being eligible to enroll in Medicare. The
final regulations also clarify that being
entitled to either Part A or B is sufficient
for the plan to discontinue COBRA
continuation coverage (assuming that
the entitlement to Medicare benefits
first arises after COBRA continuation
coverage has been elected).
The 1987 proposed regulations allow
a plan to discontinue providing COBRA
continuation coverage to a qualified
beneficiary for cause on the same basis
that the plan could terminate for cause
the coverage of a similarly situated
active employee (except for payments
that would be untimely if made by a
nonCOBRA beneficiary but that are
made within the grace periods provided
by COBRA). The final regulations
provide that, for example, if a plan
terminates the coverage of similarly
situated active employees for the
submission of a fraudulent claim, then
the COBRA continuation coverage of a
qualified beneficiary can also be
terminated for the submission of a
fraudulent claim.
The 1987 proposed regulations reflect
the statutory rules that were then in
effect for the maximum period that a
plan is required to make COBRA
continuation coverage available. Since
then the statute has been amended to
add the disability extension, to permit
plans to extend the notice period if the
maximum coverage period is also
extended (referred to as the optional
extension of the required periods), and
to add a special rule in the case of
Medicare entitlement preceding a
qualifying event that is the termination
or reduction of hours of employment.
The new proposed regulations reflect
these statutory changes. The maximum
coverage period for a qualifying event
that is the bankruptcy of the employer
has also been added to the new
proposed regulations.
The 1998 proposed regulations set
forth the requirements for a disability
extension to apply to a qualified
beneficiary. Those requirements have
been incorporated into the final
regulations, with one clarification. One
of the conditions for a disability
extension to apply is that the qualified
beneficiary be disabled during the first
60 days of COBRA continuation
coverage. In the case of a qualified
beneficiary who is born to or placed for
adoption with a covered employee
during a period of COBRA continuation
coverage, the final regulations clarify
that the 60-day period is measured from
the date of the child’s birth or
placement for adoption.
The 1987 proposed regulations set
forth standards for expanding the

maximum coverage period in the case of
multiple qualifying events. Since 1987,
the statutory rules for multiple
qualifying events have been affected by
the addition of the disability extension
and the optional extension of required
periods. The final regulations reflect the
statutory changes.
In addition, the final regulations
clarify that a termination of employment
following a qualifying event that is a
reduction of hours of employment does
not expand the maximum coverage
period. Accord, Burgess v. Adams Tool
& Engineering, Inc., 908 F. Supp. 473
(W.D. Mich. 1995); contra, Gibbs v.
Anchorage School District, 1995 U.S.
LEXIS 6290 (D. Ark. 1995). The
underlying pattern in the statute is
generally to require 18 months (or 29
months, in the case of a disability
extension) of coverage for qualifying
events that are the termination or
reduction of hours of a covered
employee’s employment and 36 months
for other qualifying events. The
statutory provision for expansion of the
18-month period to 36 months upon the
occurrence of a second qualifying event
generally follows this pattern by
allowing a qualified beneficiary who
would have been entitled to 36 months
of coverage if the second qualifying
event had occurred first to get a total of
36 months of COBRA continuation
coverage. The statute lists six categories
of qualifying events, and termination of
employment and reduction of hours of
employment are in the same category
(just as divorce and legal separation are
in the same category of qualifying
event). Treating a reduction of hours of
employment and a termination of
employment as variations of a single
qualifying event rather than as two
distinct qualifying events is consistent
with the overall design of the statute.
The 1987 proposed regulations
address situations in which, following a
qualifying event, an employer provides
alternative coverage, rather than COBRA
continuation coverage, to a former
employee and her or his spouse and
dependent children. The 1987 proposed
regulations provide that if the
alternative coverage does not satisfy the
requirements for COBRA continuation
coverage, each qualified beneficiary
must be given the opportunity to elect
COBRA continuation coverage instead
of the alternative coverage. If, however,
the alternative coverage would satisfy
the requirements for COBRA
continuation coverage, the 1987
proposed regulations provide that, at the
time of the original qualifying event, the
employee, spouse, and dependent
children need not be provided with the
opportunity to elect COBRA

5169

continuation coverage. The final
regulations generally retain these rules
but also clarify that if the employer
increases the employee share of
premiums upon the occurrence of a
qualifying event, the qualified
beneficiaries must be offered the
opportunity to elect COBRA
continuation coverage.
The 1987 proposed regulations further
provide that, if the alternative coverage
does not satisfy the requirements for
COBRA continuation coverage and if,
after the original qualifying event, a
qualifying event occurs that would
cause a spouse or dependent child to
lose the alternative coverage, the spouse
or child must be offered COBRA
continuation coverage. However, if the
alternative coverage satisfies the
requirements for COBRA continuation
coverage, and if another qualifying
event that causes the spouse or
dependent child to lose the alternative
coverage occurs more than 18 months
after the original qualifying event, the
1987 proposed regulations provide that
the spouse or dependent child need not
be offered COBRA continuation
coverage. The final regulations modify
the 1987 proposed regulations and
provide that if an event such as the
death of or divorce from the covered
employee would end the right of a
spouse or dependent child to receive the
alternative coverage (whether during or
after the first 18 months of COBRA
continuation coverage), then that event
is a qualifying event, regardless of
whether the alternative coverage would
satisfy the requirements for COBRA
continuation coverage.
The Uniformed Services Employment
and Reemployment Rights Act of 1994
(USERRA) gives certain members of the
military reserves the right to up to 18
months of continuation coverage when
they are called to active duty. Many
people have asked if the USERRA and
COBRA periods of continuation
coverage run concurrently or
consecutively. The final regulations
clarify that USERRA coverage is
alternative coverage. Thus, the periods
run concurrently.
The 1987 proposed regulations
include the statutory rule requiring that
a conversion option otherwise made
available under the plan be made
available within 180 days before the end
of the maximum coverage period. The
final regulations adopt this rule without
change.
Paying for COBRA Continuation
Coverage
The 1987 proposed regulations
identify the qualified beneficiary as the
person that can be required to pay the

5170

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations

applicable premium. Many plans and
employers have asked whether they
must accept payment on behalf of a
qualified beneficiary from third parties,
such as a hospital or a new employer.
Nothing in the statute requires the
qualified beneficiary to pay the amount
required by the plan; the statute merely
permits the plan to require that payment
be made. In order to make clear that any
person may make the required payment
on behalf of a qualified beneficiary, the
final regulations modify the rule in the
1987 proposed regulations to refer to the
payment requirement without
identifying the person who makes the
payment.
The 1998 proposed regulations
address the amount that a plan can
require to be paid for COBRA
continuation coverage during the
disability extension. This amount is 150
percent of the applicable premium
instead of the limit of 102 percent of the
applicable premium that applies for
coverage outside the disability
extension. The 1998 proposed
regulations specifically reserve the issue
of the amount a plan could require to be
paid in a case where only nondisabled
family members of the disabled
individual receive COBRA continuation
coverage during the disability extension.
The preamble to the 1998 proposed
regulations solicited comments on this
issue. Commenters suggested that the
150 percent rate could be required if the
disabled individual was part of the
coverage group but that the limit could
be the 102 percent rate if only
nondisabled qualified beneficiaries were
in the coverage group. The final
regulations adopt this suggestion.
The 1987 proposed regulations
provide that the amount required to be
paid for a qualified beneficiary’s
COBRA continuation coverage must be
fixed in advance for each 12-month
determination period. Many
commenters suggested exceptions that
could be made to this general rule.
Section 4980B(f)(4)(C) explicitly
requires that the determination of the
applicable premium be made for a
period of 12 months and that the
determination be made before the
beginning. Therefore, the final
regulations do not permit an increase in
the applicable premium during the 12month determination period. However,
the final regulations do revise the
general rule from the 1987 proposed
regulations to recognize the difference
between the applicable premium (which
may not be increased during a 12-month
determination period and which is the
basis for calculating the maximum
amount that the plan can require to be
paid for COBRA continuation coverage)

and the maximum amount that the plan
can require to be paid for COBRA
continuation coverage. Thus, the final
regulations permit a plan to increase the
amount it requires to be paid for COBRA
continuation coverage during a
determination period to take into
account the permitted increases during
the disability extension, to explicitly
permit a plan that is requiring payment
of less than the maximum permissible
amount to increase the amount required
to be paid during the 12-month
determination period, and to permit an
increase if a qualified beneficiary
changes to more expensive coverage
(but also to require a reduction if the
qualified beneficiary changes to less
expensive coverage).
The 1987 proposed regulations set
forth the statutory requirement that
qualified beneficiaries be allowed to pay
for COBRA coverage in monthly
installments. The 1987 proposed
regulations add that plans may allow
payment to be made at other intervals,
and specifically mention quarterly or
semiannual payment as examples. The
final regulations adopt the rule in the
1987 proposed regulations, but the final
regulations add weekly payment as an
example to make clear that shorter than
monthly installments are also permitted.
The 1987 proposed regulations
provide that the first payment for
COBRA continuation coverage does not
apply prospectively only. In order to
make clear that a plan is not precluded
from allowing a qualified beneficiary to
apply the first payment prospectively
only, the final regulations provide that
qualified beneficiaries need not be given
the option of having the first payment
for COBRA continuation coverage apply
prospectively only.
The 1987 proposed regulations
address the issue of timely payment for
COBRA continuation coverage,
including an interpretation of the
statutory grace periods of 45 days for the
initial payment and 30 days for all other
payments. Commenters pointed out that
the application of the statutory grace
period rules could produce an
anomalous result in some situations,
such as allowing a plan to require
payment for the third month of COBRA
continuation coverage earlier than the
plan could require payment for the first
two months. OBRA 1989 amended the
45-day grace period rule to prevent this,
and the final regulations conform to the
OBRA 1989 change. The final
regulations also clarify that payment is
considered made on the date it is sent.
The final regulations also add a
requirement (similar to the one
described above for the election period)
relating to the response that a plan must

give when a health care provider, such
as a physician, a hospital, or a
pharmacy, contacts the plan to confirm
coverage of a qualified beneficiary with
respect to whom the required payment
has not been made for the current
period (but for whom any applicable
grace period has not expired). In such a
case, the plan is required to inform the
health care provider of all of the details
of the qualified beneficiary’s right to
coverage during the applicable grace
periods.
Many individuals have inquired about
a plan’s right to discontinue their
COBRA continuation coverage because
the amount of the payment made was
short by an amount that is not
significant. Sometimes the error has
been clearly one of transposed digits on
a check tendered for payment; in other
instances, payment has been short by
such a small amount that it would be
unreasonable to attribute the shortfall to
anything other than mistake. The final
regulations establish a mechanism for
the treatment of payments that are short
by an insignificant amount. Either the
plan must treat the payment as
satisfying the plan’s payment
requirement or it must notify the
qualified beneficiary of the amount of
the deficiency and grant the qualified
beneficiary a reasonable period of time
for the deficiency to be paid. The final
regulations provide that, as a safe
harbor, a period of 30 days is deemed
to be a reasonable period for this
purpose.
Business Reorganizations
The 1987 proposed regulations
provide little direct guidance on the
allocation of responsibility for COBRA
continuation coverage in the event of
corporate transactions, such as a sale of
stock of a subsidiary or a sale of
substantial assets. Commenters on the
1987 proposed regulations requested
further guidance on corporate
transactions, pointing out that the
existing degree of uncertainty tends to
drive up the costs and risks of a
transaction to both buyers and sellers.
The IRS and Treasury share this view
and believe also that greater certainty
helps to protect the rights of qualified
beneficiaries in these transactions. The
IRS has been contacted by many
qualified beneficiaries whose COBRA
continuation coverage has been dropped
or denied in the context of a corporate
transaction. In many cases, these
qualified beneficiaries have been told by
each of the buyer and the seller that the
other party is the one responsible for
providing them with COBRA
continuation coverage.

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
The preamble to the 1998 proposed
regulations requested comments on a
possible approach to allocating
responsibility for COBRA continuation
coverage in corporate transactions.
Commenters suggested that, in a stock
sale, as in an asset sale, it would be
consistent with standard commercial
practice to provide that the seller retains
liability for all existing qualified
beneficiaries, including those formerly
associated with the subsidiary being
sold. The IRS and Treasury have studied
the comments and given consideration
to several alternatives with a view to
establishing rules that will minimize the
administrative burden and transaction
costs for the parties to transactions
while protecting the rights of qualified
beneficiaries and maintaining
consistency with the statute.
Accordingly, the new proposed
regulations make clear that the parties to
a transaction are free to allocate the
responsibility for providing COBRA
continuation coverage by contract, even
if the contract imposes responsibility on
a different party than would the new
proposed regulations. So long as the
party to whom the contract allocates
responsibility performs its obligations,
the other party will have no
responsibility for providing COBRA
continuation coverage. If, however, the
party allocated responsibility under the
contract defaults on its obligation, and
if, under the new proposed regulations,
the other party would have the
obligation to provide COBRA
continuation coverage in the absence of
a contractual provision, then the other
party would retain that obligation. This
approach would avoid prejudicing the
rights of qualified beneficiaries to
COBRA continuation coverage based
upon the provisions of a contract to
which they were not a party and under
which the employer with the underlying
obligation under the regulations to
provide COBRA continuation coverage
could otherwise contract away that
obligation to a party that fails to
perform. Moreover, the party with the
underlying responsibility under the
regulations can insist on appropriate
security and, of course, could pursue
contractual remedies against the
defaulting party.
The new proposed regulations
provide, for both sales of stock and sales
of substantial assets, such as a division
or plant or substantially all the assets of
a trade or business, that the seller
retains the obligation to make COBRA
continuation coverage available to
existing qualified beneficiaries. In
addition, in situations in which the
seller ceases to provide any group
health plan to any employee in

connection with the sale whether such
a cessation is in connection with the
sale is determined on the basis of the
facts and circumstances of each case
and thus is not responsible for
providing COBRA continuation
coverage, the new proposed regulations
provide that the buyer is responsible for
providing COBRA continuation
coverage to existing qualified
beneficiaries. This secondary liability
for the buyer applies in all stock sales
and in all sales of substantial assets in
which the buyer continues the business
operations associated with the assets
without interruption or substantial
change.
A particular type of asset sale raises
issues for which the new proposed
regulations do not provide any special
rules. (Thus, the general rules in the
new proposed regulations for business
reorganizations would apply to this type
of transaction.) This type of asset sale is
one in which, after purchasing a
business as a going concern, the buyer
continues to employ the employees of
that business and continues to provide
those employees exactly the same health
coverage that they had before the sale
(either by providing coverage through
the same insurance contract or by
establishing a plan that mirrors the one
that provided benefits before the sale).
The application of the rules in the new
proposed regulations to this type of
asset sale would require the seller to
make COBRA continuation coverage
available to the employees continuing in
employment with the buyer (and to
other family members who are qualified
beneficiaries). Ordinarily, the
continuing employees (or their family
members) would be very unlikely to
elect COBRA continuation coverage
from the seller when they can receive
the same coverage (usually at much
lower cost) as active employees of the
buyer.
Consideration is being given to
whether, under appropriate
circumstances, such an asset sale would
be considered not to result in a loss of
coverage for those employees who
continue in employment with the buyer
after the sale. A countervailing concern,
however, relates to those qualified
beneficiaries who might have a reason
to elect COBRA continuation coverage
from the seller. An example of such a
qualified beneficiary would be an
employee who continues in
employment with the buyer, whose
family is likely to have medical
expenses that exceed the cost of COBRA
coverage, and who has significant
questions about the solvency of the
buyer or other concerns about how long

5171

the buyer might continue to provide the
same health coverage.
Under one possible approach, a loss
of coverage would be considered not to
have occurred so long as the purchasing
employer in an asset sale continued to
maintain the same group health plan
coverage that the seller maintained
before the sale without charging the
employees any greater percentage of the
total cost of coverage than the seller had
charged before the sale. For this
purpose, the coverage would be
considered unchanged if there was no
obligation to provide a summary of
material modifications within 60 days
after the change due to a material
reduction in covered services or benefits
under the rules that apply under Title
I of ERISA. If these conditions were
satisfied for the maximum coverage
period that would otherwise apply to
the seller’s termination of employment
of the continuing employees (generally
18 months from the date of the sale),
then those terminations of employment
would never be considered qualifying
events. If the conditions were not
satisfied for the full maximum coverage
period, then on the date when they
ceased to be satisfied the seller would
be obligated to make COBRA
continuation coverage available for the
balance of the maximum coverage
period.
Comments are invited on the utility of
such a rule, either in situations in which
the seller retains an ownership interest
in the buyer after the sale (for example,
a sale of assets from a 100-percent
owned subsidiary to a 75-percent owned
subsidiary) or, more generally, in
situations in which the seller and the
buyer are unrelated. Suggestions are
also solicited for other rules that would
protect qualified beneficiaries while
providing relief to employers in these
situations.
Although the new proposed
regulations address how COBRA
obligations are affected by a sale of stock
(and a sale of substantial assets), the
new proposed regulations do not
address how the obligation to make
COBRA continuation coverage available
is affected by the transfer of an
ownership interest in a noncorporate
entity that causes the noncorporate
entity to cease to be a member of a
group of trades or businesses under
common control (whether or not it
becomes a member of a different group
of trades or business under common
control). Comments are invited on this
issue.

5172

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations

Employer Withdrawals From
Multiemployer Plans
The new proposed regulations also
address COBRA obligations in
connection with an employer’s
cessation of contributions to a
multiemployer group health plan. The
new proposed regulations provide that
the multiemployer plan generally
continues to have the obligation to make
COBRA continuation coverage available
to qualified beneficiaries associated
with that employer. (There generally
would not be any obligation to make
COBRA continuation coverage available
to continuing employees in this
situation because a cessation of
contributions is not a qualifying event.)
However, once the employer provides
group health coverage to a significant
number of employees who were
formerly covered under the
multiemployer plan, or starts
contributing to another multiemployer
plan on their behalf, the employer’s
plan (or the new multiemployer plan)
would have the obligation to make
COBRA continuation coverage available
to the existing qualified beneficiaries.
This rule is contrary to the holding in
In re Appletree Markets, Inc., 19 F.3d
969 (5th Cir. 1994), which held that the
multiemployer plan continued to have
the COBRA obligations with respect to
existing qualified beneficiaries after the
withdrawing employer established a
plan for the same class of employees
previously covered under the
multiemployer plan.
Interaction of FMLA and COBRA
The new proposed regulations set
forth rules regarding the interaction of
the COBRA continuation coverage
requirements with the provisions of the
Family and Medical Leave Act of 1993
(FMLA). The rules under the new
proposed regulations are substantially
the same as those set forth in Notice 94–
103. The last two questions-and-answers
in that notice have not been included in
the new proposed regulations because
they relate to general subject matter that
is addressed elsewhere in the
regulations.
Under the new proposed regulations,
the taking of FMLA leave by a covered
employee is not itself a qualifying event.
Instead, a qualifying event occurs when
an employee who is covered under a
group health plan immediately prior to
FMLA leave (or who becomes covered
under a group health plan during FMLA
leave) does not return to work with the
employer at the end of FMLA leave and
would, but for COBRA continuation
coverage, lose coverage under the group
health plan. (As under the general rules

of COBRA, this would also constitute a
qualifying event with respect to the
spouse or any dependent child of the
employee.) The qualifying event is
deemed to occur on the last day of the
employee’s FMLA leave, and the
maximum coverage period generally
begins on that day. (The new proposed
regulations provide a special rule for
cases where coverage is not lost until a
later date and the plan provides for the
optional extension of the required
periods.) In the case of such a qualifying
event, the employer cannot condition
the employee’s rights to COBRA
continuation coverage on the
employee’s reimbursement of any
premiums paid by the employer to
maintain the employee’s group health
plan coverage during the period of
FMLA leave.
Any lapse of coverage under the
group health plan during the period of
FMLA leave and any state or local law
requiring that group health plan
coverage be provided for a period longer
than that required by the FMLA are
disregarded in determining whether the
employee has a qualifying event on the
last day of that leave. However, the
employee’s loss of coverage at the end
of FMLA leave will not constitute a
qualifying event if, prior to the
employee’s return from FMLA leave, the
employer has eliminated group health
plan coverage for the class of employees
to which the employee would have
belonged if she or he had not taken
FMLA leave.
Special Analyses.
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
is hereby certified that the collections of
information in these regulations will not
have a significant economic impact on
a substantial number of small entities.
This certification is based upon the fact
that employers with fewer than 20
employees are not subject to the
requirements set forth in the final
regulations and, thus, the very smallest
employers are not affected by the
collection of information requirements.
Moreover, even for small entities with
20 or more employees who maintain
group health plans and who, thus, are
subject to the requirements of COBRA,
the collections of information will not
impose a substantial economic impact.
The only collections of information
imposed on small entities by the
regulations are (1) to notify qualified
beneficiaries of their right to elect
COBRA continuation coverage upon the
occurrence of a qualifying event and (2)

to notify certain qualified beneficiaries
that make insignificant payment errors
of those errors. With respect to this first
notice requirement, it is estimated that,
on average, in a given year, qualifying
events will occur with respect to
approximately 10 percent of all covered
employees. Thus, an employer with 100
employees would be required to send 10
notices to qualified beneficiaries each
year. The average cost of sending such
a notice is estimated to be $.50. Thus,
the total estimated cost for 10 notices is
$5.00, which is the estimated annual
average burden on an employer with
100 employees. With respect to the
second notice requirement, it is
estimated that, on average, at any time,
the number of qualified beneficiaries is
approximately equal to two percent of
an employer’s workforce. Of that
number, approximately 1 in 10 will
make an insignificant error in payment
each year that requires the employer to
send such a notice. For example, an
employer with 100 employees will have
an average of two qualified beneficiaries
at any time. Thus, the employer will
receive an insignificant underpayment
about once every five years. Even if the
employer chose to send out a notice
each time such an insignificant
underpayment occurred, this would
amount to only one notice every five
years. The average cost of sending such
a notice is estimated to be $5.00,
resulting in an average annual burden of
$1.00 for an employer with 100
employees. Thus, the total annual cost
of these two notice requirements for an
employer with 100 employees is $6.00,
which is not a significant economic
impact. Therefore, a Regulatory
Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. It has also
been determined that section 553(b) of
the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these
regulations. Pursuant to section 7805(f)
of the Internal Revenue Code, the 1998
notice of proposed rulemaking
preceding these final regulations was
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small business.
Drafting information. The principal
author of these regulations is Russ
Weinheimer, Office of the Associate
Chief Counsel (Employee Benefits and
Exempt Organizations), IRS. However,
other personnel from the IRS and
Treasury Department participated in
their development.

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
List of Subjects
26 CFR Part 54
Excise taxes, Health care, Health
insurance, Pensions, Reporting and
recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping
requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 54 and 602
are amended as follows:
PART 54—PENSION EXCISE TAXES
Paragraph 1. The authority citation
for part 54 is amended by adding the
following entries in numerical order to
read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 54.4980B–1 also issued under 26
U.S.C. 4980B.
Section 54.4980B–2 also issued under 26
U.S.C. 4980B.
Section 54.4980B–3 also issued under 26
U.S.C. 4980B.
Section 54.4980B–4 also issued under 26
U.S.C. 4980B.
Section 54.4980B–5 also issued under 26
U.S.C. 4980B.
Section 54.4980B–6 also issued under 26
U.S.C. 4980B.
Section 54.4980B–7 also issued under 26
U.S.C. 4980B.
Section 54.4980B–8 also issued under 26
U.S.C. 4980B. * * *

Par. 2. Sections 54.4980B–0,
54.4980B–1, 54.4980B–2, 54.4980B–3,
54.4980B–4, 54.4980B–5, 54.4980B–6,
54.4980B–7, and 54.4980B–8 are added
to read as follows:
§ 54.4980B–0

Table of contents.

This section contains first a list of the
section headings and then a list of the
questions in each section in
§§ 54.4980B–1 through 54.4980B–8.
List of Sections
§ 54.4980B–1 COBRA in general.
§ 54.4980B–2 Plans that must comply.
§ 54.4980B–3 Qualified beneficiaries.
§ 54.4980B–4 Qualifying events.
§ 54.4980B–5 COBRA continuation
coverage.
§ 54.4980B–6 Electing COBRA continuation
coverage.
§ 54.4980B–7 Duration of COBRA
continuation coverage.
§ 54.4980B–8 Paying for COBRA
continuation coverage.
List of Questions
§ 54.4980B–1 COBRA in general.
Q–1: What are the health care continuation
coverage requirements contained in section
4980B of the Internal Revenue Code and in
ERISA?

Q–2: What is the effective date of
§§ 54.4980B–1 through 54.4980B–8?
§ 54.4980B–2 Plans that must comply.
Q–1: For purposes of section 4980B, what
is a group health plan?
Q–2: For purposes of section 4980B, what
is the employer?
Q–3: [Reserved]
Q–4: What group health plans are subject
to COBRA?
Q–5: What is a small-employer plan?
Q–6: [Reserved]
Q–7: What is the plan year?
Q–8: How do the COBRA continuation
coverage requirements apply to cafeteria
plans and other flexible benefit
arrangements?
Q–9: What is the effect of a group health
plan’s failure to comply with the
requirements of section 4980B(f)?
Q–10: Who is liable for the excise tax if a
group health plan fails to comply with the
requirements of section 4980B(f)?
§ 54.4980B–3 Qualified beneficiaries.
Q–1: Who is a qualified beneficiary?
Q–2: Who is an employee and who is a
covered employee?
Q–3: Who are the similarly situated
nonCOBRA beneficiaries?
§ 54.4980B–4 Qualifying events.
Q–1: What is a qualifying event?
Q–2: Are the facts surrounding a
termination of employment (such as whether
it was voluntary or involuntary) relevant in
determining whether the termination of
employment is a qualifying event?
§ 54.4980B–5 COBRA continuation
coverage.
Q–1: What is COBRA continuation
coverage?
Q–2: What deductibles apply if COBRA
continuation coverage is elected?
Q–3: How do a plan’s limits apply to
COBRA continuation coverage?
Q–4: Can a qualified beneficiary who elects
COBRA continuation coverage ever change
from the coverage received by that individual
immediately before the qualifying event?
Q–5: Aside from open enrollment periods,
can a qualified beneficiary who has elected
COBRA continuation coverage choose to
cover individuals (such as newborn children,
adopted children, or new spouses) who join
the qualified beneficiary’s family on or after
the date of the qualifying event?
4.4980B–6 Electing COBRA continuation
coverage.
Q–1: What is the election period and how
long must it last?
Q–2: Is a covered employee or qualified
beneficiary responsible for informing the
plan administrator of the occurrence of a
qualifying event?
Q–3: During the election period and before
the qualified beneficiary has made an
election, must coverage be provided?
Q–4: Is a waiver before the end of the
election period effective to end a qualified
beneficiary’s election rights?
Q–5: Can an employer or employee
organization withhold money or other
benefits owed to a qualified beneficiary until
the qualified beneficiary either waives
COBRA continuation coverage, elects and

5173

pays for such coverage, or allows the election
period to expire?
Q–6: Can each qualified beneficiary make
an independent election under COBRA?
54.4980B–7 Duration of COBRA
continuation coverage.
Q–1: How long must COBRA continuation
coverage be made available to a qualified
beneficiary?
Q–2: When may a plan terminate a
qualified beneficiary’s COBRA continuation
coverage due to coverage under another
group health plan?
Q–3: When may a plan terminate a
qualified beneficiary’s COBRA continuation
coverage due to the qualified beneficiary’s
entitlement to Medicare benefits?
Q–4: [Reserved]
Q–5: How does a qualified beneficiary
become entitled to a disability extension?
Q–6: Under what circumstances can the
maximum coverage period be expanded?
Q–7: If health coverage is provided to a
qualified beneficiary after a qualifying event
without regard to COBRA continuation
coverage (for example, as a result of state or
local law, the Uniformed Services
Employment and Reemployment Rights Act
of 1994 (38 U.S.C. 4315), industry practice,
a collective bargaining agreement, severance
agreement, or plan procedure), will such
alternative coverage extend the maximum
coverage period?
Q–8: Must a qualified beneficiary be given
the right to enroll in a conversion health plan
at the end of the maximum coverage period
for COBRA continuation coverage?
54.4980B–8 Paying for COBRA continuation
coverage.
Q–1: Can a group health plan require
payment for COBRA continuation coverage?
Q–2: When is the applicable premium
determined and when can a group health
plan increase the amount it requires to be
paid for COBRA continuation coverage?
Q–3: Must a plan allow payment for
COBRA continuation coverage to be made in
monthly installments?
Q–4: Is a plan required to allow a qualified
beneficiary to choose to have the first
payment for COBRA continuation coverage
applied prospectively only?
Q–5: What is timely payment for COBRA
continuation coverage?
§ 54.4980B–1

COBRA in general.

The COBRA continuation coverage
requirements are described in general in
the following questions-and-answers:
Q–1: What are the health care
continuation coverage requirements
contained in section 4980B of the
Internal Revenue Code and in ERISA?
A–1: (a) Section 4980B provides
generally that a group health plan must
offer each qualified beneficiary who
would otherwise lose coverage under
the plan as a result of a qualifying event
an opportunity to elect, within the
election period, continuation coverage
under the plan. The continuation
coverage requirements were added to
section 162 by the Consolidated

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Omnibus Budget Reconciliation Act of
1985 (COBRA), Public Law 99–272 (100
Stat. 222), and moved to section 4980B
by the Technical and Miscellaneous
Revenue Act of 1988, Public Law 100–
647 (102 Stat. 3342). Continuation
coverage required under section 4980B
is referred to in §§ 54.4980B–1 through
54.4980B–8 as COBRA continuation
coverage.
(b) COBRA also added parallel
continuation coverage requirements to
Part 6 of Subtitle B of Title I of the
Employee Retirement Income Security
Act of 1974 (ERISA) (29 U.S.C. 1161–
1168), which is administered by the
U.S. Department of Labor. If a plan does
not comply with the COBRA
continuation coverage requirements, the
Internal Revenue Code imposes an
excise tax on the employer maintaining
the plan (or on the plan itself), whereas
ERISA gives certain parties—including
qualified beneficiaries who are
participants or beneficiaries within the
meaning of Title I of ERISA, as well as
the Department of Labor—the right to
file a lawsuit to redress the
noncompliance. The rules in
§§ 54.4980B–1 through 54.4980B–8
apply for purposes of section 4980B and
generally also for purposes of the
COBRA continuation coverage
requirements in Title I of ERISA.
However, certain provisions of the
COBRA continuation coverage
requirements (such as the definitions of
group health plan, employee, and
employer) are not identical in the
Internal Revenue Code and Title I of
ERISA. In those cases in which the
statutory language is not identical, the
rules in §§ 54.4980B–1 though
54.4980B–8 nonetheless apply to the
COBRA continuation coverage
requirements of Title I of ERISA, except
to the extent those rules are inconsistent
with the statutory language of Title I of
ERISA.
(c) A group health plan that is subject
to section 4980B (or the parallel
provisions under ERISA) is referred to
as being subject to COBRA. (See Q&A–
4 of § 54.4980B–2). A qualified
beneficiary can be required to pay for
COBRA continuation coverage. The
term qualified beneficiary is defined in
Q&A–1 of § 54.4980B–3. The term
qualifying event is defined in Q&A–1 of
§ 54.4980B–4. COBRA continuation
coverage is described in § 54.4980B–5.
The election procedures are described
in § 54.4980B–6. Duration of COBRA
continuation coverage is addressed in
§ 54.4980B–7, and payment for COBRA
continuation coverage is addressed in
§ 54.4980B–8. Unless the context
indicates otherwise, any reference in
§§ 54.4980B–1 through 54.4980B–8 to

COBRA refers to section 4980B (as
amended) and to the parallel provisions
of ERISA.
Q–2: What is the effective date of
§§ 54.4980B–1 through 54.4980B–8?
A–2: Sections 54.4980B–1 through
54.4980B–8 apply with respect to
qualifying events occurring in plan
years beginning on or after January 1,
2000. For purposes of section 4980B,
with respect to qualifying events that
occur in plan years beginning before
that date, and with respect to qualifying
events that occur in plan years
beginning on or after that date for topics
relating to the COBRA continuation
coverage requirements of section 4980B
that are not addressed in §§ 54.4980B–
1 through 54.4980B–8 (such as methods
for calculating the applicable premium),
plans and employers must operate in
good faith compliance with a reasonable
interpretation of the statutory
requirements in section 4980B.
§ 54.4980B–2

Plans that must comply.

The following questions-and-answers
apply in determining which plans must
comply with the COBRA continuation
coverage requirements:
Q–1: For purposes of section 4980B,
what is a group health plan?
A–1: (a) For purposes of section
4980B, a group health plan is a plan
maintained by an employer or employee
organization to provide health care to
individuals who have an employmentrelated connection to the employer or
employee organization or to their
families. Individuals who have an
employment-related connection to the
employer or employee organization
consist of employees, former employees,
the employer, and others associated or
formerly associated with the employer
or employee organization in a business
relationship (including members of a
union who are not currently
employees). Health care is provided
under a plan whether provided directly
or through insurance, reimbursement, or
otherwise, and whether or not provided
through an on-site facility (except as set
forth in paragraph (d) of this Q&A–1), or
through a cafeteria plan (as defined in
section 125) or other flexible benefit
arrangement. For purposes of this Q&A–
1, insurance includes not only group
insurance policies but also one or more
individual insurance policies in any
arrangement that involves the provision
of health care to two or more employees.
A plan maintained by an employer or
employee organization is any plan of, or
contributed to (directly or indirectly) by,
an employer or employee organization.
Thus, a group health plan is maintained
by an employer or employee
organization even if the employer or

employee organization does not
contribute to it if coverage under the
plan would not be available at the same
cost to an individual but for the
individual’s employment-related
connection to the employer or employee
organization. These rules are further
explained in paragraphs (b) through (d)
of this Q&A–1. An exception for
qualified long-term care services is set
forth in paragraph (e) of this Q&A–1,
and for medical savings accounts in
paragraph (f) of this Q&A–1.
(b) For purposes of §§ 54.4980B–1
through 54.4980B–8, health care has the
same meaning as medical care under
section 213(d). Thus, health care
generally includes the diagnosis, cure,
mitigation, treatment, or prevention of
disease, and any other undertaking for
the purpose of affecting any structure or
function of the body. Health care also
includes transportation primarily for
and essential to health care as described
in the preceding sentence. However,
health care does not include anything
that is merely beneficial to the general
health of an individual, such as a
vacation. Thus, if an employer or
employee organization maintains a
program that furthers general good
health, but the program does not relate
to the relief or alleviation of health or
medical problems and is generally
accessible to and used by employees
without regard to their physical
condition or state of health, that
program is not considered a program
that provides health care and so is not
a group health plan. For example, if an
employer maintains a spa, swimming
pool, gymnasium, or other exercise/
fitness program or facility that is
normally accessible to and used by
employees for reasons other than relief
of health or medical problems, such a
facility does not constitute a program
that provides health care and thus is not
a group health plan. In contrast, if an
employer maintains a drug or alcohol
treatment program or a health clinic, or
any other facility or program that is
intended to relieve or alleviate a
physical condition or health problem,
the facility or program is considered to
be the provision of health care and so
is considered a group health plan.
(c) Whether a benefit provided to
employees constitutes health care is not
affected by whether the benefit is
excludable from income under section
132 (relating to certain fringe benefits).
For example, if a department store
provides its employees discounted
prices on all merchandise, including
health care items such as drugs or
eyeglasses, the mere fact that the
discounted prices also apply to health
care items will not cause the program to

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
be a plan providing health care, so long
as the discount program would
normally be accessible to and used by
employees without regard to health
needs or physical condition. If,
however, the employer maintaining the
discount program is a health clinic, so
that the program is used exclusively by
employees with health or medical
needs, the program is considered to be
a plan providing health care and so is
considered to be a group health plan.
(d) The provision of health care at a
facility that is located on the premises
of an employer or employee
organization does not constitute a group
health plan if—
(1) The health care consists primarily
of first aid that is provided during the
employer’s working hours for treatment
of a health condition, illness, or injury
that occurs during those working hours;
(2) The health care is available only
to current employees; and
(3) Employees are not charged for the
use of the facility.
(e) A plan does not constitute a group
health plan subject to COBRA if
substantially all of the coverage
provided under the plan is for qualified
long-term care services (as defined in
section 7702B(c)). For this purpose, a
plan is permitted to use any reasonable
method in determining whether
substantially all of the coverage
provided under the plan is for qualified
long-term care services.
(f) Under section 106(b)(5), amounts
contributed by an employer to a medical
savings account (as defined in section
220(d)) are not considered part of a
group health plan subject to COBRA.
Thus, a plan is not required to make
COBRA continuation coverage available
with respect to amounts contributed by
an employer to a medical savings
account. A high deductible health plan
does not fail to be a group health plan
subject to COBRA merely because it
covers a medical savings account
holder.
Q–2: For purposes of section 4980B,
what is the employer?
A–2: For purposes of section 4980B,
employer refers to—
(a) A person for whom services are
performed;
(b) Any other person that is a member
of a group described in section 414(b),
(c), (m), or (o) that includes a person
described in paragraph (a) of this Q&A–
2; and
(c) Any successor of a person
described in paragraph (a) or (b) of this
Q&A–2.
Q–3: [Reserved]
A–3: [Reserved]
Q–4: What group health plans are
subject to COBRA?

A–4: (a) All group health plans are
subject to COBRA except group health
plans described in paragraph (b) of this
Q&A–4. Group health plans described in
paragraph (b) of this Q&A–4 are referred
to in §§ 54.4980B–1 through 54.4980B–
8 as excepted from COBRA.
(b) The following group health plans
are excepted from COBRA—
(1) Small-employer plans (see Q&A–5
of this section);
(2) Church plans (within the meaning
of section 414(e)); and
(3) Governmental plans (within the
meaning of section 414(d)).
(c) The COBRA continuation coverage
requirements generally do not apply to
group health plans that are excepted
from COBRA. However, a smallemployer plan otherwise excepted from
COBRA is nonetheless subject to
COBRA with respect to qualified
beneficiaries who experience a
qualifying event during a period when
the plan is not a small-employer plan
(see paragraph (g) of Q&A–5 of this
section).
(d) Although governmental plans are
not subject to the COBRA continuation
coverage requirements, group health
plans maintained by state or local
governments are generally subject to
parallel continuation coverage
requirements that were added by section
10003 of COBRA to the Public Health
Service Act (42 U.S.C. 300bb–1 through
300bb–8), which is administered by the
U.S. Department of Health and Human
Services. Federal employees and their
family members covered under the
Federal Employees Health Benefit
Program are covered by generally
similar, but not parallel, temporary
continuation of coverage provisions
enacted by the Federal Employees
Health Benefits Amendments Act of
1988. See 5 U.S.C. 8905a.
Q–5: What is a small-employer plan?
A–5: (a) Except in the case of a
multiemployer plan, a small-employer
plan is a group health plan maintained
by an employer (within the meaning of
Q&A–2 of this section) that normally
employed fewer than 20 employees
(within the meaning of paragraph (c) of
this Q&A–5) during the preceding
calendar year. 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. The
rules of this paragraph (a) are illustrated
in the following example:
Example. (i) Corporation S employs 12
employees, all of whom work and reside in
the United States. S maintains a group health
plan for its employees and their families. S

5175

is a wholly-owned subsidiary of P. In the
previous calendar year, the controlled group
of corporations including P and S employed
more than 19 employees, although the only
employees in the United States of the
controlled group that includes P and S are
the 12 employees of S.
(ii) Under § 1.414(b)-1 of this chapter,
foreign corporations are not excluded from
membership in a controlled group of
corporations. Consequently, the group health
plan maintained by S is not a small-employer
plan during the current calendar year
because the controlled group including S
normally employed at least 20 employees in
the preceding calendar year.

(b) An employer is considered to have
normally employed fewer than 20
employees during a particular calendar
year if, and only if, it had fewer than 20
employees on at least 50 percent of its
typical business days during that year.
(c) All full-time and part-time
common law employees of an employer
are taken into account in determining
whether an employer had fewer than 20
employees; however, an individual who
is not a common law employee of the
employer is not taken into account.
Thus, the following individuals are not
counted as employees for purposes of
this Q&A–5 even though they are
referred to as employees for all other
purposes of §§ 54.4980B–1 through
54.4980B–8—
(1) Self-employed individuals (within
the meaning of section 401(c)(1));
(2) Independent contractors (and their
employees and independent
contractors); and
(3) Directors (in the case of a
corporation).
(d) [Reserved]
(e) [Reserved]
(f) [Reserved]
(g) A small-employer plan is generally
excepted from COBRA. If, however, a
plan that has been subject to COBRA
(that is, was not a small-employer plan)
becomes a small-employer plan, the
plan remains subject to COBRA for
qualifying events that occurred during
the period when the plan was subject to
COBRA. The rules of this paragraph (g)
are illustrated by the following
examples:
Example 1. An employer maintains a group
health plan. The employer employed 20
employees on more than 50 percent of its
working days during 2001, and consequently
the plan is not excepted from COBRA during
2002. Employee E resigns and does not work
for the employer after January 31, 2002.
Under the terms of the plan, E is no longer
eligible for coverage upon the effective date
of the resignation, that is, February 1, 2002.
The employer does not hire a replacement for
E. E timely elects and pays for COBRA
continuation coverage. The employer

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employs 19 employees for the remainder of
2002, and consequently the plan is not
subject to COBRA in 2003. The plan must
nevertheless continue to make COBRA
continuation coverage available to E during
2003 until the obligation to make COBRA
continuation coverage available ceases under
the rules of § 54.4980B–7. The obligation
could continue until August 1, 2003, the date
that is 18 months after the date of E’s
qualifying event, or longer if E is eligible for
a disability extension.
Example 2. The facts are the same as in
Example 1. The employer continues to
employ 19 employees throughout 2003 and
2004 and consequently the plan continues to
be excepted from COBRA during 2004 and
2005. Spouse S is covered under the plan
because S is married to one of the employer’s
employees. On April 1, 2002, S is divorced
from that employee and ceases to be eligible
for coverage under the plan. The plan is
subject to COBRA during 2002 because X
normally employed 20 employees during
2001. S timely notifies the plan administrator
of the divorce and timely elects and pays for
COBRA continuation coverage. Even though
the plan is generally excepted from COBRA
during 2003, 2004, and 2005, it must
nevertheless continue to make COBRA
continuation coverage available to S during
those years until the obligation to make
COBRA continuation coverage available
ceases under the rules of § 54.4980B–7. The
obligation could continue until April 1, 2005,
the date that is 36 months after the date of
S’s qualifying event.
Example 3. The facts are the same as in
Example 2. C is a dependent child of one of
the employer’s employees and is covered
under the plan. A dependent child is no
longer eligible for coverage under the plan
upon the attainment of age 23. C attains age
23 on November 16, 2005. The plan is
excepted from COBRA with respect to C
during 2005 because the employer normally
employed fewer than 20 employees during
2004. Consequently, the plan is not obligated
to make COBRA continuation coverage
available to C (and would not be obligated to
make COBRA continuation coverage
available to C even if the plan later became
subject to COBRA again).

Q–6: [Reserved]
A–6: [Reserved]
Q–7: What is the plan year?
A–7: (a) The plan year is the year that
is designated as the plan year in the
plan documents.
(b) If the plan documents do not
designate a plan year (or if there are no
plan documents), then the plan year is
determined in accordance with this
paragraph (b).
(1) The plan year is the deductible/
limit year used under the plan.
(2) If the plan does not impose
deductibles or limits on an annual basis,
then the plan year is the policy year.
(3) If the plan does not impose
deductibles or limits on an annual basis,
and either the plan is not insured or the
insurance policy is not renewed on an

annual basis, then the plan year is the
employer’s taxable year.
(4) In any other case, the plan year is
the calendar year.
Q–8: How do the COBRA
continuation coverage requirements
apply to cafeteria plans and other
flexible benefit arrangements?
A–8: The provision of health care
benefits does not fail to be a group
health plan merely because those
benefits are offered under a cafeteria
plan (as defined in section 125) or under
any other arrangement under which an
employee is offered a choice between
health care benefits and other taxable or
nontaxable benefits. However, the
COBRA continuation coverage
requirements apply only to the type and
level of coverage under the cafeteria
plan or other flexible benefit
arrangement that a qualified beneficiary
is actually receiving on the day before
the qualifying event. The rules of this
Q&A–8 are illustrated by the following
example:
Example: (i) Under the terms of a cafeteria
plan, employees can choose among life
insurance coverage, membership in a health
maintenance organization (HMO), coverage
for medical expenses under an indemnity
arrangement, and cash compensation. Of
these available choices, the HMO and the
indemnity arrangement are the arrangements
providing health care. The instruments
governing the HMO and indemnity
arrangements indicate that they are separate
group health plans. These group health plans
are subject to COBRA. The employer does not
provide any group health plan outside of the
cafeteria plan. B and C are unmarried
employees. B has chosen the life insurance
coverage, and C has chosen the indemnity
arrangement.
(ii) B does not have to be offered COBRA
continuation coverage upon terminating
employment, nor is a subsequent open
enrollment period for active employees
required to be made available to B. However,
if C terminates employment and the
termination constitutes a qualifying event, C
must be offered an opportunity to elect
COBRA continuation coverage under the
indemnity arrangement. If C makes such an
election and an open enrollment period for
active employees occurs while C is still
receiving the COBRA continuation coverage,
C must be offered the opportunity to switch
from the indemnity arrangement to the HMO
(but not to the life insurance coverage
because that does not constitute coverage
provided under a group health plan).

Q–9: What is the effect of a group
health plan’s failure to comply with the
requirements of section 4980B(f)?
A–9: Under section 4980B(a), if a
group health plan subject to COBRA
fails to comply with section 4980B(f), an
excise tax is imposed. Moreover, nontax remedies may be available if the
plan fails to comply with the parallel

requirements in ERISA, which are
administered by the Department of
Labor.
Q–10: Who is liable for the excise tax
if a group health plan fails to comply
with the requirements of section
4980B(f)?
A–10: (a) In general, the excise tax is
imposed on the employer maintaining
the plan, except that in the case of a
multiemployer plan the excise tax is
imposed on the plan.
(b) In certain circumstances, the
excise tax is also imposed on a person
involved with the provision of benefits
under the plan (other than in the
capacity of an employee), such as an
insurer providing benefits under the
plan or a third party administrator
administering claims under the plan. In
general, such a person will be liable for
the excise tax if the person assumes,
under a legally enforceable written
agreement, the responsibility for
performing the act to which the failure
to comply with the COBRA
continuation coverage requirements
relates. Such a person will be liable for
the excise tax notwithstanding the
absence of a written agreement
assuming responsibility for complying
with COBRA if the person provides
coverage under the plan to a similarly
situated nonCOBRA beneficiary (see
Q&A–3 of § 54.4980B–3 for a definition
of similarly situated nonCOBRA
beneficiaries) and the employer or plan
administrator submits a written request
to the person to provide to a qualified
beneficiary the same coverage that the
person provides to the similarly situated
nonCOBRA beneficiary. If the person
providing coverage under the plan to a
similarly situated nonCOBRA
beneficiary is the plan administrator
and the qualifying event is a divorce or
legal separation or a dependent child’s
ceasing to be covered under the
generally applicable requirements of the
plan, the plan administrator will also be
liable for the excise tax if the qualified
beneficiary submits a written request for
coverage.
§ 54.4980B–3

Qualified beneficiaries.

The determination of who is a
qualified beneficiary, an employee, or a
covered employee, and of who are the
similarly situated nonCOBRA
beneficiaries is addressed in the
following questions-and-answers:
Q–1: Who is a qualified beneficiary?
A–1: (a)(1) Except as set forth in
paragraphs (c) through (f) of this Q&A–
1, a qualified beneficiary is—
(i) Any individual who, on the day
before a qualifying event, is covered
under a group health plan by virtue of
being on that day either a covered

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
employee, the spouse of a covered
employee, or a dependent child of the
covered employee; or
(ii) Any child who is born to or placed
for adoption with a covered employee
during a period of COBRA continuation
coverage.
(2) In the case of a qualifying event
that is the bankruptcy of the employer,
a covered employee who had retired on
or before the date of substantial
elimination of group health plan
coverage is also a qualified beneficiary,
as is any spouse, surviving spouse, or
dependent child of such a covered
employee if, on the day before the
bankruptcy qualifying event, the spouse,
surviving spouse, or dependent child is
a beneficiary under the plan.
(3) In general, an individual (other
than a child who is born to or placed for
adoption with a covered employee
during a period of COBRA continuation
coverage) who is not covered under a
plan on the day before the qualifying
event cannot be a qualified beneficiary
with respect to that qualifying event,
and the reason for the individual’s lack
of actual coverage (such as the
individual’s having declined
participation in the plan or failed to
satisfy the plan’s conditions for
participation) is not relevant for this
purpose. However, if the individual is
denied or not offered coverage under a
plan under circumstances in which the
denial or failure to offer constitutes a
violation of applicable law (such as the
Americans with Disabilities Act, 42
U.S.C. 12101–12213, the special
enrollment rules of section 9801, or the
requirements of section 9802
prohibiting discrimination in eligibility
to enroll in a group health plan based
on health status), then, for purposes of
§§ 54.4980B–1 through 54.4980B–8, the
individual will be considered to have
had the coverage that was wrongfully
denied or not offered.
(4) Paragraph (b) of this Q&A–1
describes how certain family members
are not qualified beneficiaries even if
they become covered under the plan;
paragraphs (c), (d), and (e) of this Q&A–
1 place limits on the general rules of
this paragraph (a) concerning who is a
qualified beneficiary; paragraph (f) of
this Q&A–1 provides when an
individual who has been a qualified
beneficiary ceases to be a qualified
beneficiary; paragraph (g) of this Q&A–
1 defines placed for adoption; and
paragraph (h) of this Q&A–1 contains
examples.
(b) In contrast to a child who is born
to or placed for adoption with a covered
employee during a period of COBRA
continuation coverage, an individual
who marries any qualified beneficiary

on or after the date of the qualifying
event and a newborn or adopted child
(other than one born to or placed for
adoption with a covered employee) are
not qualified beneficiaries by virtue of
the marriage, birth, or placement for
adoption or by virtue of the individual’s
status as the spouse or the child’s status
as a dependent of the qualified
beneficiary. These new family members
do not themselves become qualified
beneficiaries even if they become
covered under the plan. (For situations
in which a plan is required to make
coverage available to new family
members of a qualified beneficiary who
is receiving COBRA continuation
coverage, see Q&A–5 of § 54.4980B–5,
paragraph (c) in Q&A–4 of § 54.4980B–
5, section 9801(f)(2), and § 54.9801–
6T(b).)
(c) An individual is not a qualified
beneficiary if, on the day before the
qualifying event referred to in paragraph
(a) of this Q&A–1, the individual is
covered under the group health plan by
reason of another individual’s election
of COBRA continuation coverage and is
not already a qualified beneficiary by
reason of a prior qualifying event.
(d) A covered employee can be a
qualified beneficiary only in connection
with a qualifying event that is the
termination, or reduction of hours, of
the covered employee’s employment, or
that is the bankruptcy of the employer.
(e) An individual is not a qualified
beneficiary if the individual’s status as
a covered employee is attributable to a
period in which the individual was a
nonresident alien who received from the
individual’s employer no earned income
(within the meaning of section
911(d)(2)) that constituted income from
sources within the United States (within
the meaning of section 861(a)(3)). If,
pursuant to the preceding sentence, an
individual is not a qualified beneficiary,
then a spouse or dependent child of the
individual is not considered a qualified
beneficiary by virtue of the relationship
to the individual.
(f) A qualified beneficiary who does
not elect COBRA continuation coverage
in connection with a qualifying event
ceases to be a qualified beneficiary at
the end of the election period (see Q&A–
1 of § 54.4980B–6). Thus, for example,
if such a former qualified beneficiary is
later added to a covered employee’s
coverage (e.g., during an open
enrollment period) and then another
qualifying event occurs with respect to
the covered employee, the former
qualified beneficiary does not become a
qualified beneficiary by reason of the
second qualifying event. If a covered
employee who is a qualified beneficiary
does not elect COBRA continuation

5177

coverage during the election period,
then any child born to or placed for
adoption with the covered employee on
or after the date of the qualifying event
is not a qualified beneficiary. Once a
plan’s obligation to make COBRA
continuation coverage available to an
individual who has been a qualified
beneficiary ceases under the rules of
§ 54.4980B–7, the individual ceases to
be a qualified beneficiary.
(g) For purposes of §§ 54.4980B–1
through 54.4980B–8, placement for
adoption or being placed for adoption
means the assumption and retention by
the covered employee of a legal
obligation for total or partial support of
a child in anticipation of the adoption
of the child. The child’s placement for
adoption with the covered employee
terminates upon the termination of the
legal obligation for total or partial
support. A child who is immediately
adopted by the covered employee
without a preceding placement for
adoption is considered to be placed for
adoption on the date of the adoption.
(h) The rules of this Q&A–1 are
illustrated by the following examples:
Example 1. (i) B is a single employee who
voluntarily terminates employment and
elects COBRA continuation coverage under a
group health plan. To comply with the
requirements of section 9801(f) and
§ 54.9801–6T(b), the plan permits a covered
employee who marries to have her or his
spouse covered under the plan. One month
after electing COBRA continuation coverage,
B marries and chooses to have B’s spouse
covered under the plan.
(ii) B’s spouse is not a qualified
beneficiary. Thus, if B dies during the period
of COBRA continuation coverage, the plan
does not have to offer B’s surviving spouse
an opportunity to elect COBRA continuation
coverage.
Example 2. (i) C is a married employee
who terminates employment. C elects
COBRA continuation coverage for C but not
C’s spouse, and C’s spouse declines to elect
such coverage. C’s spouse thus ceases to be
a qualified beneficiary. At the next open
enrollment period, C adds the spouse as a
beneficiary under the plan.
(ii) The addition of the spouse during the
open enrollment period does not make the
spouse a qualified beneficiary. The plan thus
will not have to offer the spouse an
opportunity to elect COBRA continuation
coverage upon a later divorce from or death
of C.
Example 3. (i) Under the terms of a group
health plan, a covered employee’s child,
upon attaining age 19, ceases to be a
dependent eligible for coverage.
(ii) At that time, the child must be offered
an opportunity to elect COBRA continuation
coverage. If the child elects COBRA
continuation coverage, the child marries
during the period of the COBRA continuation
coverage, and the child’s spouse becomes
covered under the group health plan, the
child’s spouse is not a qualified beneficiary.

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Example 4. (i) D is a single employee who,
upon retirement, is given the opportunity to
elect COBRA continuation coverage but
declines it in favor of an alternative offer of
12 months of employer-paid retiree health
benefits. At the end of the election period, D
ceases to be a qualified beneficiary and will
not have to be given another opportunity to
elect COBRA continuation coverage (at the
end of those 12 months or at any other time).
D marries E during the period of retiree
health coverage and, under the terms of that
coverage, E becomes covered under the plan.
(ii) If a divorce from or death of D will
result in E’s losing coverage, E will be a
qualified beneficiary because E’s coverage
under the plan on the day before the
qualifying event (that is, the divorce or death)
will have been by reason of D’s acceptance
of 12 months of employer-paid coverage after
the prior qualifying event (D’s retirement)
rather than by reason of an election of
COBRA continuation coverage.
Example 5. (i) The facts are the same as in
Example 4, except that, under the terms of
the plan, the divorce or death does not cause
E to lose coverage so that E continues to be
covered for the balance of the original 12month period.
(ii) E does not have to be allowed to elect
COBRA continuation coverage because the
loss of coverage at the end of the 12-month
period is not caused by the divorce or death,
and thus the divorce or death does not
constitute a qualifying event. See Q&A–1 of
§ 54.4980B–4.

Q–2: Who is an employee and who is
a covered employee?
A–2: (a)(1) For purposes of
§§ 54.4980B–1 through 54.4980B–8
(except for purposes of Q&A–5 in
§ 54.4980B–2, relating to the exception
from COBRA for plans maintained by an
employer with fewer than 20
employees), an employee is any
individual who is eligible to be covered
under a group health plan by virtue of
the performance of services for the
employer maintaining the plan or by
virtue of membership in the employee
organization maintaining the plan.
Thus, for purposes of §§ 54.4980B–1
through 54.4980B–8 (except for
purposes of Q&A–5 in § 54.4980B–2),
the following individuals are employees
if their relationship to the employer
maintaining the plan makes them
eligible to be covered under the plan—
(i) Self-employed individuals (within
the meaning of section 401(c)(1));
(ii) Independent contractors (and their
employees and independent
contractors); and
(iii) Directors (in the case of a
corporation).
(2) Similarly, whenever reference is
made in §§ 54.4980B–1 through
54.4980B–8 (except in Q&A–5 of
§ 54.4980B–2) to an employment
relationship (such as by referring to the
termination of employment of an
employee or to an employee’s being

employed by an employer), the
reference includes the relationship of
those individuals who are employees
within the meaning of this paragraph
(a). See paragraph (c) in Q&A–5 of
§ 54.4980B–2 for a narrower meaning of
employee solely for purposes of Q&A–
5 of § 54.4980B–2.
(b) For purposes of §§ 54.4980B–1
through 54.4980B–8, a covered
employee is any individual who is (or
was) provided coverage under a group
health plan (other than a plan that is
excepted from COBRA on the date of the
qualifying event; see Q&A–4 of
§ 54.4980B–2) by virtue of being or
having been an employee. For example,
a retiree or former employee who is
covered by a group health plan is a
covered employee if the coverage results
in whole or in part from her or his
previous employment. An employee (or
former employee) who is merely eligible
for coverage under a group health plan
is generally not a covered employee if
the employee (or former employee) is
not actually covered under the plan. In
general, the reason for the employee’s
(or former employee’s) lack of actual
coverage (such as having declined
participation in the plan or having
failed to satisfy the plan’s conditions for
participation) is not relevant for this
purpose. However, if the employee (or
former employee) is denied or not
offered coverage under circumstances in
which the denial or failure to offer
constitutes a violation of applicable law
(such as the Americans with Disabilities
Act, 42 U.S.C. 12101 through 12213, the
special enrollment rules of section 9801,
or the requirements of section 9802
prohibiting discrimination in eligibility
to enroll in a group health plan based
on health status), then, for purposes of
§§ 54.4980B–1 through 54.4980B–8, the
employee (or former employee) will be
considered to have had the coverage
that was wrongfully denied or not
offered.
Q–3: Who are the similarly situated
non-COBRA beneficiaries?
A–3: For purposes of §§ 54.4980B–1
through 54.4980B–8, similarly situated
non-COBRA beneficiaries means the
group of covered employees, spouses of
covered employees, or dependent
children of covered employees receiving
coverage under a group health plan
maintained by the employer or
employee organization who are
receiving that coverage for a reason
other than the rights provided under the
COBRA continuation coverage
requirements and who, based on all of
the facts and circumstances, are most
similarly situated to the situation of the
qualified beneficiary immediately before
the qualifying event.

§ 54.4980B–4

Qualifying events.

The determination of what constitutes
a qualifying event is addressed in the
following questions and answers:
Q–1: What is a qualifying event?
A–1: (a) A qualifying event is an event
that satisfies paragraphs (b), (c), and (d)
of this Q&A–1. Paragraph (e) of this
Q&A–1 further explains a reduction of
hours of employment, paragraph (f) of
this Q&A–1 describes the treatment of
children born to or placed for adoption
with a covered employee during a
period of COBRA continuation
coverage, and paragraph (g) of this
Q&A–1 contains examples.
(b) An event satisfies this paragraph
(b) if the event is any of the following—
(1) The death of a covered employee;
(2) The termination (other than by
reason of the employee’s gross
misconduct), or reduction of hours, of a
covered employee’s employment;
(3) The divorce or legal separation of
a covered employee from the
employee’s spouse;
(4) A covered employee’s becoming
entitled to Medicare benefits under Title
XVIII of the Social Security Act (42
U.S.C. 1395–1395ggg);
(5) A dependent child’s ceasing to be
a dependent child of a covered
employee under the generally
applicable requirements of the plan; or
(6) A proceeding in bankruptcy under
Title 11 of the United States Code with
respect to an employer from whose
employment a covered employee retired
at any time.
(c) An event satisfies this paragraph
(c) if, under the terms of the group
health plan, the event causes the
covered employee, or the spouse or a
dependent child of the covered
employee, to lose coverage under the
plan. For this purpose, to lose coverage
means to cease to be covered under the
same terms and conditions as in effect
immediately before the qualifying event.
Any increase in the premium or
contribution that must be paid by a
covered employee (or the spouse or
dependent child of a covered employee)
for coverage under a group health plan
that results from the occurrence of one
of the events listed in paragraph (b) of
this Q&A–1 is a loss of coverage. In the
case of an event that is the bankruptcy
of the employer, lose coverage also
means any substantial elimination of
coverage under the plan, occurring
within 12 months before or after the
date the bankruptcy proceeding
commences, for a covered employee
who had retired on or before the date of
the substantial elimination of group
health plan coverage or for any spouse,
surviving spouse, or dependent child of
such a covered employee if, on the day

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
before the bankruptcy qualifying event,
the spouse, surviving spouse, or
dependent child is a beneficiary under
the plan. For purposes of this paragraph
(c), a loss of coverage need not occur
immediately after the event, so long as
the loss of coverage occurs before the
end of the maximum coverage period
(see Q&A–1 and Q&A–6 of § 54.4980B–
7). However, if neither the covered
employee nor the spouse or a dependent
child of the covered employee loses
coverage before the end of what would
be the maximum coverage period, the
event does not satisfy this paragraph (c).
If coverage is reduced or eliminated in
anticipation of an event (for example, an
employer’s eliminating an employee’s
coverage in anticipation of the
termination of the employee’s
employment, or an employee’s
eliminating the coverage of the
employee’s spouse in anticipation of a
divorce or legal separation), the
reduction or elimination is disregarded
in determining whether the event causes
a loss of coverage.
(d) An event satisfies this paragraph
(d) if it occurs while the plan is subject
to COBRA. Thus, an event will not
satisfy this paragraph (d) if it occurs
while the plan is excepted from COBRA
(see Q&A–4 of § 54.4980B–2). Even if
the plan later becomes subject to
COBRA, it is not required to make
COBRA continuation coverage available
to anyone whose coverage ends as a
result of an event during a year in which
the plan is excepted from COBRA. For
example, if a group health plan is
excepted from COBRA as a smallemployer plan during the year 2001 (see
Q&A–5 of § 54.4980B–2) and an
employee terminates employment on
December 31, 2001, the termination is
not a qualifying event and the plan is
not required to permit the employee to
elect COBRA continuation coverage.
This is the case even if the plan ceases
to be a small-employer plan as of
January 1, 2002. Also, the same result
will follow even if the employee is
given three months of coverage beyond
December 31 (that is, through March of
2002), because there will be no
qualifying event as of the termination of
coverage in March. However, if the
employee’s spouse is initially provided
with the three-month coverage through
March 2002, but the spouse divorces the
employee before the end of the three
months and loses coverage as a result of
the divorce, the divorce will constitute
a qualifying event during 2002 and so
entitle the spouse to elect COBRA
continuation coverage. See Q&A–7 of
§ 54.4980B–7 regarding the maximum
coverage period in such a case.

(e) A reduction of hours of a covered
employee’s employment occurs
whenever there is a decrease in the
hours that a covered employee is
required to work or actually works, but
only if the decrease is not accompanied
by an immediate termination of
employment. This is true regardless of
whether the covered employee
continues to perform services following
the reduction of hours of employment.
For example, an absence from work due
to disability, a temporary layoff, or any
other reason is a reduction of hours of
a covered employee’s employment if
there is not an immediate termination of
employment. If a group health plan
measures eligibility for the coverage of
employees by the number of hours
worked in a given time period, such as
the preceding month or quarter, and an
employee covered under the plan fails
to work the minimum number of hours
during that time period, the failure to
work the minimum number of required
hours is a reduction of hours of that
covered employee’s employment.
(f) The qualifying event of a qualified
beneficiary who is a child born to or
placed for adoption with a covered
employee during a period of COBRA
continuation coverage is the qualifying
event giving rise to the period of
COBRA continuation coverage during
which the child is born or placed for
adoption. If a second qualifying event
has occurred before the child is born or
placed for adoption (such as the death
of the covered employee), then the
second qualifying event also applies to
the newborn or adopted child. See
Q&A–6 of § 54.4980B–7.
(g) The rules of this Q&A–1 are
illustrated by the following examples, in
each of which the group health plan is
subject to COBRA:
Example 1. (i) An employee who is
covered by a group health plan terminates
employment (other than by reason of the
employee’s gross misconduct) and, beginning
with the day after the last day of
employment, is given 3 months of employerpaid coverage under the same terms and
conditions as before that date. At the end of
the three months, the coverage terminates.
(ii) The loss of coverage at the end of the
three months results from the termination of
employment and, thus, the termination of
employment is a qualifying event.
Example 2. (i) An employee who is
covered by a group health plan retires (which
is a termination of employment other than by
reason of the employee’s gross misconduct)
and, upon retirement, is required to pay an
increased amount for the same group health
coverage that the employee had before
retirement.
(ii) The increase in the premium or
contribution required for coverage is a loss of
coverage under paragraph (c) of this Q&A–1

5179

and, thus, the retirement is a qualifying
event.
Example 3. (i) An employee and the
employee’s spouse are covered under an
employer’s group health plan. The employee
retires and is given identical coverage for life.
However, the plan provides that the spousal
coverage will not be continued beyond six
months unless a higher premium for the
spouse is paid to the plan.
(ii) The requirement for the spouse to pay
a higher premium at the end of the six
months is a loss of coverage under paragraph
(c) of this Q&A–1. Thus, the retirement is a
qualifying event and the spouse must be
given an opportunity to elect COBRA
continuation coverage.
Example 4. (i) F is a covered employee who
is married to G, and both are covered under
a group health plan maintained by F’s
employer. F and G are divorced. Under the
terms of the plan, the divorce causes G to
lose coverage. The divorce is a qualifying
event, and G elects COBRA continuation
coverage, remarries during the period of
COBRA continuation coverage, and G’s new
spouse becomes covered under the plan. (See
Q&A–5 in § 54.4980B–5, paragraph (c) in
Q&A–4 of § 54.4980B–5, section 9801(f)(2),
and § 54.9801–6T(b).) G dies. Under the
terms of the plan, the death causes G’s new
spouse to lose coverage under the plan.
(ii) G’s death is not a qualifying event
because G is not a covered employee.
Example 5. (i) An employer maintains a
group health plan for both active employees
and retired employees (and their families).
The coverage for active employees and
retired employees is identical, and the
employer does not require retirees to pay
more for coverage than active employees. The
plan does not make COBRA continuation
coverage available when an employee retires
(and is not required to because the retired
employee has not lost coverage under the
plan). The employer amends the plan to
eliminate coverage for retired employees
effective January 1, 2002. On that date,
several retired employees (and their spouses
and dependent children) have been covered
under the plan since their retirement for less
than the maximum coverage period that
would apply to them in connection with
their retirement.
(ii) The elimination of retiree coverage
under these circumstances is a deferred loss
of coverage for those retirees (and their
spouses and dependent children) under
paragraph (c) of this Q&A–1 and, thus, the
retirement is a qualifying event. The plan
must make COBRA continuation coverage
available to them for the balance of the
maximum coverage period that applies to
them in connection with the retirement.

Q–2: Are the facts surrounding a
termination of employment (such as
whether it was voluntary or
involuntary) relevant in determining
whether the termination of employment
is a qualifying event?
A–2: Apart from facts constituting
gross misconduct, the facts surrounding
the termination or reduction of hours
are irrelevant in determining whether a
qualifying event has occurred. Thus, it

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does not matter whether the employee
voluntarily terminated or was
discharged. For example, a strike or a
lockout is a termination or reduction of
hours that constitutes a qualifying event
if the strike or lockout results in a loss
of coverage as described in paragraph (c)
of Q&A–1 of this section. Similarly, a
layoff that results in such a loss of
coverage is a qualifying event.
§ 54.4980B–5
coverage.

COBRA continuation

The following questions-and-answers
address the requirements for coverage to
constitute COBRA continuation
coverage:
Q–1: What is COBRA continuation
coverage?
A–1: (a) If a qualifying event occurs,
each qualified beneficiary (other than a
qualified beneficiary for whom the
qualifying event will not result in any
immediate or deferred loss of coverage)
must be offered an opportunity to elect
to receive the group health plan
coverage that is provided to similarly
situated nonCOBRA beneficiaries
(ordinarily, the same coverage that the
qualified beneficiary had on the day
before the qualifying event). See Q&A–
3 of § 54.4980B–3 for the definition of
similarly situated nonCOBRA
beneficiaries. This coverage is COBRA
continuation coverage. If coverage under
the plan is modified for similarly
situated nonCOBRA beneficiaries, then
the coverage made available to qualified
beneficiaries is modified in the same
way. If the continuation coverage
offered differs in any way from the
coverage made available to similarly
situated nonCOBRA beneficiaries, the
coverage offered does not constitute
COBRA continuation coverage and the
group health plan is not in compliance
with COBRA unless other coverage that
does constitute COBRA continuation
coverage is also offered. Any
elimination or reduction of coverage in
anticipation of an event described in
paragraph (b) of Q&A–1 of § 54.4980B–
4 is disregarded for purposes of this
Q&A–1 and for purposes of any other
reference in §§ 54.4980B–1 through
54.4980B–8 to coverage in effect
immediately before (or on the day
before) a qualifying event. COBRA
continuation coverage must not be
conditioned upon, or discriminate on
the basis of lack of, evidence of
insurability.
(b) In the case of a qualified
beneficiary who is a child born to or
placed for adoption with a covered
employee during a period of COBRA
continuation coverage, the child is
generally entitled to elect immediately
to have the same coverage that

dependent children of active employees
receive under the benefit packages
under which the covered employee has
coverage at the time of the birth or
placement for adoption. Such a child
would be entitled to elect coverage
different from that elected by the
covered employee during the next
available open enrollment period under
the plan. See Q&A–4 of this section.
Q–2: What deductibles apply if
COBRA continuation coverage is
elected?
A–2: (a) Qualified beneficiaries
electing COBRA continuation coverage
generally are subject to the same
deductibles as similarly situated
nonCOBRA beneficiaries. If a qualified
beneficiary’s COBRA continuation
coverage begins before the end of a
period prescribed for accumulating
amounts toward deductibles, the
qualified beneficiary must retain credit
for expenses incurred toward those
deductibles before the beginning of
COBRA continuation coverage as
though the qualifying event had not
occurred. The specific application of
this rule depends on the type of
deductible, as set forth in paragraphs (b)
through (d) of this Q&A–2. Special rules
are set forth in paragraph (e) of this
Q&A–2, and examples appear in
paragraph (f) of this Q&A–2.
(b) If a deductible is computed
separately for each individual receiving
coverage under the plan, each
individual’s remaining deductible
amount (if any) on the date COBRA
continuation coverage begins is equal to
that individual’s remaining deductible
amount immediately before that date.
(c) If a deductible is computed on a
family basis, the remaining deductible
for the family on the date that COBRA
continuation coverage begins depends
on the members of the family electing
COBRA continuation coverage. In
computing the family deductible that
remains on the date COBRA
continuation coverage begins, only the
expenses of those family members
receiving COBRA continuation coverage
need be taken into account. If the
qualifying event results in there being
more than one family unit (for example,
because of a divorce), the family
deductible may be computed separately
for each resulting family unit based on
the members in each unit. These rules
apply regardless of whether the plan
provides that the family deductible is an
alternative to individual deductibles or
an additional requirement.
(d) Deductibles that are not described
in paragraph (b) or (c) of this Q&A–2
must be treated in a manner consistent
with the principles set forth in those
paragraphs.

(e) If a deductible is computed on the
basis of a covered employee’s
compensation instead of being a fixed
dollar amount and the employee
remains employed during the period of
COBRA continuation coverage, the plan
is permitted to choose whether to apply
the deductible by treating the
employee’s compensation as continuing
without change for the duration of the
COBRA continuation coverage at the
level that was used to compute the
deductible in effect immediately before
the COBRA continuation coverage
began, or to apply the deductible by
taking the employee’s actual
compensation into account. In applying
a deductible that is computed on the
basis of the covered employee’s
compensation instead of being a fixed
dollar amount, for periods of COBRA
continuation coverage in which the
employee is not employed by the
employer, the plan is required to
compute the deductible by treating the
employee’s compensation as continuing
without change for the duration of the
COBRA continuation coverage either at
the level that was used to compute the
deductible in effect immediately before
the COBRA continuation coverage began
or at the level that was used to compute
the deductible in effect immediately
before the employee’s employment was
terminated.
(f) The rules of this Q&A–2 are
illustrated by the following examples; in
each example, deductibles under the
plan are determined on a calendar year
basis:
Example 1. (i) A group health plan applies
a separate $100 annual deductible to each
individual it covers. The plan provides that
the spouse and dependent children of a
covered employee will lose coverage on the
last day of the month after the month of the
covered employee’s death. A covered
employee dies on June 11, 2001. The spouse
and the two dependent children elect
COBRA continuation coverage, which will
begin on August 1, 2001. As of July 31, 2001,
the spouse has incurred $80 of covered
expenses, the older child has incurred no
covered expenses, and the younger one has
incurred $120 of covered expenses (and
therefore has already satisfied the
deductible).
(ii) At the beginning of COBRA
continuation coverage on August 1, the
spouse has a remaining deductible of $20, the
older child still has the full $100 deductible,
and the younger one has no further
deductible.
Example 2. (i) A group health plan applies
a separate $200 annual deductible to each
individual it covers, except that each family
member is treated as having satisfied the
individual deductible once the family has
incurred $500 of covered expenses during the
year. The plan provides that upon the
divorce of a covered employee, coverage will

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
end immediately for the employee’s spouse
and any children who do not remain in the
employee’s custody. A covered employee
with four dependent children is divorced, the
spouse obtains custody of the two oldest
children, and the spouse and those children
all elect COBRA continuation coverage to
begin immediately. The family had
accumulated $420 of covered expenses before
the divorce, as follows: $70 by each parent,
$200 by the oldest child, $80 by the youngest
child, and none by the other two children.
(ii) The resulting family consisting of the
spouse and the two oldest children
accumulated a total of $270 of covered
expenses, and thus the remaining deductible
for that family could be as high as $230
(because the plan would not have to count
the incurred expenses of the covered
employee and the youngest child). The
remaining deductible for the resulting family
consisting of the covered employee and the
two youngest children is not subject to the
rules of this Q&A–2 because their coverage is
not COBRA continuation coverage.
Example 3. Each year a group health plan
pays 70 percent of the cost of an individual’s
psychotherapy after that individual’s first
three visits during the year. A qualified
beneficiary whose election of COBRA
continuation coverage takes effect beginning
August 1, 2001 and who has already made
two visits as of that date need only pay for
one more visit before the plan must begin to
pay 70 percent of the cost of the remaining
visits during 2001.
Example 4. (i) A group health plan has a
$250 annual deductible per covered
individual. The plan provides that if the
deductible is not satisfied in a particular
year, expenses incurred during October
through December of that year are credited
toward satisfaction of the deductible in the
next year. A qualified beneficiary who has
incurred covered expenses of $150 from
January through September of 2001 and $40
during October elects COBRA continuation
coverage beginning November 1, 2001.
(ii) The remaining deductible amount for
this qualified beneficiary is $60 at the
beginning of the COBRA continuation
coverage. If this individual incurs covered
expenses of $50 in November and December
of 2001 combined (so that the $250
deductible for 2001 is not satisfied), the $90
incurred from October through December of
2001 are credited toward satisfaction of the
deductible amount for 2002.

Q–3: How do a plan’s limits apply to
COBRA continuation coverage?
A–3: (a) Limits are treated in the same
way as deductibles (see Q&A–2 of this
section).
This rule applies both to limits on
plan benefits (such as a maximum
number of hospital days or dollar
amount of reimbursable expenses) and
limits on out-of-pocket expenses (such
as a limit on copayments, a limit on
deductibles plus copayments, or a
catastrophic limit). This rule applies
equally to annual and lifetime limits
and applies equally to limits on specific
benefits and limits on benefits in the
aggregate under the plan.

(b) The rule of this Q&A–3 is
illustrated by the following examples; in
each example limits are determined on
a calendar year basis:
Example 1. (i) A group health plan pays for
a maximum of 150 days of hospital
confinement per individual per year. A
covered employee who has had 20 days of
hospital confinement as of May 1, 2001
terminates employment and elects COBRA
continuation coverage as of that date.
(ii) During the remainder of the year 2001
the plan need only pay for a maximum of 130
days of hospital confinement for this
individual.
Example 2. (i) A group health plan
reimburses a maximum of $20,000 of covered
expenses per family per year, and the same
$20,000 limit applies to unmarried covered
employees. A covered employee and spouse
who have no children divorce on May 1,
2001, and the spouse elects COBRA
continuation coverage as of that date. In
2001, the employee had incurred $5,000 of
expenses and the spouse had incurred $8,000
before May 1.
(ii) The plan can limit its reimbursement
of the amount of expenses incurred by the
spouse on and after May 1 for the remainder
of the year to $12,000 ($20,000¥$8,000 =
$12,000). The remaining limit for the
employee is not subject to the rules of this
Q&A–3 because the employee’s coverage is
not COBRA continuation coverage.
Example 3. (i) A group health plan pays for
80 percent of covered expenses after
satisfaction of a $100-per-individual
deductible, and the plan pays for 100 percent
of covered expenses after a family has
incurred out-of-pocket costs of $2,000. The
plan provides that upon the divorce of a
covered employee, coverage will end
immediately for the employee’s spouse and
any children who do not remain in the
employee’s custody. An employee and
spouse with three dependent children
divorce on June 1, 2001, and one of the
children remains with the employee. The
spouse elects COBRA continuation coverage
as of that date for the spouse and the other
two children. During January through May of
2001, the spouse incurred $600 of covered
expenses and each of the two children in the
spouse’s custody after the divorce incurred
covered expenses of $1,100. This resulted in
total out-of-pocket costs for these three
individuals of $800 ($300 total for the three
deductibles, plus $500 for 20 percent of the
other $2,500 in incurred expenses [$600 +
$1,100 + $1,100 = $2,800; $2,800¥$300 =
$2,500]).
(ii) For the remainder of 2001, the resulting
family consisting of the spouse and two
children has an out-of-pocket limit of $1,200
($2,000¥$800 = $1,200) . The remaining outof-pocket limit for the resulting family
consisting of the employee and one child is
not subject to the rules of this Q&A–3
because their coverage is not COBRA
continuation coverage.

Q–4: Can a qualified beneficiary who
elects COBRA continuation coverage
ever change from the coverage received
by that individual immediately before
the qualifying event?
A–4: (a) In general, a qualified
beneficiary need only be given an

5181

opportunity to continue the coverage
that she or he was receiving
immediately before the qualifying event.
This is true regardless of whether the
coverage received by the qualified
beneficiary before the qualifying event
ceases to be of value to the qualified
beneficiary, such as in the case of a
qualified beneficiary covered under a
region-specific health maintenance
organization (HMO) who leaves the
HMO’s service region. The only
situations in which a qualified
beneficiary must be allowed to change
from the coverage received immediately
before the qualifying event are as set
forth in paragraphs (b) and (c) of this
Q&A–4 and in Q&A–1 of this section
(regarding changes to or elimination of
the coverage provided to similarly
situated nonCOBRA beneficiaries).
(b) If a qualified beneficiary
participates in a region-specific benefit
package (such as an HMO or an on-site
clinic) that will not service her or his
health needs in the area to which she or
he is relocating (regardless of the reason
for the relocation), the qualified
beneficiary must be given an
opportunity to elect alternative coverage
that the employer or employee
organization makes available to active
employees. If the employer or employee
organization makes group health plan
coverage available to similarly situated
nonCOBRA beneficiaries that can be
extended in the area to which the
qualified beneficiary is relocating, then
that coverage is the alternative coverage
that must be made available to the
relocating qualified beneficiary. If the
employer or employee organization does
not make group health plan coverage
available to similarly situated
nonCOBRA beneficiaries that can be
extended in the area to which the
qualified beneficiary is relocating but
makes coverage available to other
employees that can be extended in that
area, then the coverage made available
to those other employees must be made
available to the relocating qualified
beneficiary. However, the employer or
employee organization is not required to
make any other coverage available to the
relocating qualified beneficiary if the
only coverage the employer or employee
organization makes available to active
employees is not available in the area to
which the qualified beneficiary
relocates (because all such coverage is
region-specific and does not service
individuals in that area).
(c) If an employer or employee
organization makes an open enrollment
period available to similarly situated
active employees with respect to whom
a qualifying event has not occurred, the
same open enrollment period rights

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must be made available to each
qualified beneficiary receiving COBRA
continuation coverage. An open
enrollment period means a period
during which an employee covered
under a plan can choose to be covered
under another group health plan or
under another benefit package within
the same plan, or to add or eliminate
coverage of family members.
(d) The rules of this Q&A–4 are
illustrated by the following examples:
Example 1. (i) E is an employee who works
for an employer that maintains several group
health plans. Under the terms of the plans,
if an employee chooses to cover any family
members under a plan, all family members
must be covered by the same plan and that
plan must be the same as the plan covering
the employee. Immediately before E’s
termination of employment (for reasons other
than gross misconduct), E is covered along
with E’s spouse and children by a plan. The
coverage under that plan will end as a result
of the termination of employment.
(ii) Upon E’s termination of employment,
each of the four family members is a
qualified beneficiary. Even though the
employer maintains various other plans and
options, it is not necessary for the qualified
beneficiaries to be allowed to switch to a new
plan when E terminates employment.
(iii) COBRA continuation coverage is
elected for each of the four family members.
Three months after E’s termination of
employment there is an open enrollment
period during which similarly situated active
employees are offered an opportunity to
choose to be covered under a new plan or to
add or eliminate family coverage.
(iv) During the open enrollment period,
each of the four qualified beneficiaries must
be offered the opportunity to switch to
another plan (as though each qualified
beneficiary were an individual employee).
For example, each member of E’s family
could choose coverage under a separate plan,
even though the family members of
employed individuals could not choose
coverage under separate plans. Of course, if
each family member chooses COBRA
continuation coverage under a separate plan,
the plan can require payment for each family
member that is based on the applicable
premium for individual coverage under that
separate plan. See Q&A–1 of § 54.4980B–8.
Example 2. (i) The facts are the same as in
Example 1, except that E’s family members
are not covered under E’s group health plan
when E terminates employment.
(ii) Although the family members do not
have to be given an opportunity to elect
COBRA continuation coverage, E must be
allowed to add them to E’s COBRA
continuation coverage during the open
enrollment period. This is true even though
the family members are not, and cannot
become, qualified beneficiaries (see Q&A–1
of § 54.4980B–3).

Q–5: Aside from open enrollment
periods, can a qualified beneficiary who
has elected COBRA continuation
coverage choose to cover individuals
(such as newborn children, adopted

children, or new spouses) who join the
qualified beneficiary’s family on or after
the date of the qualifying event?
A–5: (a) Yes. Under section 9801 and
§ 54.9801–6T, employees eligible to
participate in a group health plan
(whether or not participating), as well as
former employees participating in a
plan (referred to in those rules as
participants), are entitled to special
enrollment rights for certain family
members upon the loss of other group
health plan coverage or upon the
acquisition by the employee or
participant of a new spouse or of a new
dependent through birth, adoption, or
placement for adoption, if certain
requirements are satisfied. Employees
not participating in the plan also can
obtain rights for self-enrollment under
those rules. Once a qualified beneficiary
is receiving COBRA continuation
coverage (that is, has timely elected and
made timely payment for COBRA
continuation coverage), the qualified
beneficiary has the same right to enroll
family members under those special
enrollment rules as if the qualified
beneficiary were an employee or
participant within the meaning of those
rules. However, neither a qualified
beneficiary who is not receiving COBRA
continuation coverage nor a former
qualified beneficiary has any special
enrollment rights under those rules.
(b) In addition to the special
enrollment rights described in
paragraph (a) of this Q&A–5, if the plan
covering the qualified beneficiary
provides that new family members of
active employees can become covered
(either automatically or upon an
appropriate election) before the next
open enrollment period, then the same
right must be extended to the new
family members of a qualified
beneficiary.
(c) If the addition of a new family
member will result in a higher
applicable premium (for example, if the
qualified beneficiary was previously
receiving COBRA continuation coverage
as an individual, or if the applicable
premium for family coverage depends
on family size), the plan can require the
payment of a correspondingly higher
amount for the COBRA continuation
coverage. See Q&A–1 of § 54.4980B–8.
(d) The right to add new family
members under this Q&A–5 is in
addition to the rights that newborn and
adopted children of covered employees
may have as qualified beneficiaries; see
Q&A–1 in § 54.4980B–3.

§ 54.4980B–6 Electing COBRA
continuation coverage.

The following questions-and-answers
address the manner in which COBRA
continuation coverage is elected:
Q–1: What is the election period and
how long must it last?
A–1: (a) A group health plan can
condition the availability of COBRA
continuation coverage upon the timely
election of such coverage. An election of
COBRA continuation coverage is a
timely election if it is made during the
election period. The election period
must begin not later than the date the
qualified beneficiary would lose
coverage on account of the qualifying
event. (See paragraph (c) of Q&A–1 of
§ 54.4980B–4 for the meaning of lose
coverage.) The election period must not
end before the date that is 60 days after
the later of—
(1) The date the qualified beneficiary
would lose coverage on account of the
qualifying event; or
(2) The date notice is provided to the
qualified beneficiary of her or his right
to elect COBRA continuation coverage.
(b) An election is considered to be
made on the date it is sent to the plan
administrator.
(c) The rules of this Q&A–1 are
illustrated by the following example:
Example. (i) An unmarried employee
without children who is receiving employerpaid coverage under a group health plan
voluntarily terminates employment on June
1, 2001. The employee is not disabled at the
time of the termination of employment nor at
any time thereafter, and the plan does not
provide for the extension of the required
periods (as is permitted under section
4980B(f)(8)).
(ii) Case 1: If the plan provides that the
employer-paid coverage ends immediately
upon the termination of employment, the
election period must begin not later than
June 1, 2001, and must not end earlier than
July 31, 2001. If notice of the right to elect
COBRA continuation coverage is not
provided to the employee until June 15,
2001, the election period must not end earlier
than August 14, 2001.
(iii) Case 2: If the plan provides that the
employer-paid coverage does not end until 6
months after the termination of employment,
the employee does not lose coverage until
December 1, 2001. The election period can
therefore begin as late as December 1, 2001,
and must not end before January 30, 2002.
(iv) Case 3: If employer-paid coverage for
6 months after the termination of
employment is offered only to those qualified
beneficiaries who waive COBRA
continuation coverage, the employee loses
coverage on June 1, 2001, so the election
period is the same as in Case 1. The
difference between Case 2 and Case 3 is that
in Case 2 the employee can receive 6 months
of employer-paid coverage and then elect to
pay for up to an additional 12 months of
COBRA continuation coverage, while in Case

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
3 the employee must choose between 6
months of employer-paid coverage and
paying for up to 18 months of COBRA
continuation coverage. In all three cases,
COBRA continuation coverage need not be
provided for more than 18 months after the
termination of employment, and in certain
circumstances might be provided for a
shorter period (see Q&A–1 of § 54.4980B–7).

Q–2: Is a covered employee or
qualified beneficiary responsible for
informing the plan administrator of the
occurrence of a qualifying event?
A–2: (a) In general, the employer or
plan administrator must determine
when a qualifying event has occurred.
However, each covered employee or
qualified beneficiary is responsible for
notifying the plan administrator of the
occurrence of a qualifying event that is
either a dependent child’s ceasing to be
a dependent child under the generally
applicable requirements of the plan or a
divorce or legal separation of a covered
employee. The group health plan is not
required to offer the qualified
beneficiary an opportunity to elect
COBRA continuation coverage if the
notice is not provided to the plan
administrator within 60 days after the
later of—
(1) The date of the qualifying event;
or
(2) The date the qualified beneficiary
would lose coverage on account of the
qualifying event.
(b) For purposes of this Q&A–2, if
more than one qualified beneficiary
would lose coverage on account of a
divorce or legal separation of a covered
employee, a timely notice of the divorce
or legal separation that is provided by
the covered employee or any one of
those qualified beneficiaries will be
sufficient to preserve the election rights
of all of the qualified beneficiaries.
Q–3: During the election period and
before the qualified beneficiary has
made an election, must coverage be
provided?
A–3: (a) In general, each qualified
beneficiary has until 60 days after the
later of the date the qualifying event
would cause her or him to lose coverage
or the date notice is provided to the
qualified beneficiary of her or his right
to elect COBRA continuation coverage
to decide whether to elect COBRA
continuation coverage. If the election is
made during that period, coverage must
be provided from the date that coverage
would otherwise have been lost (but see
Q&A–4 of this section). This can be
accomplished as described in paragraph
(b) or (c) of this Q&A–3.
(b) In the case of an indemnity or
reimbursement arrangement, the
employer or employee organization can
provide for plan coverage during the

election period or, if the plan allows
retroactive reinstatement, the employer
or employee organization can terminate
the coverage of the qualified beneficiary
and reinstate her or him when the
election is made. Claims incurred by a
qualified beneficiary during the election
period do not have to be paid before the
election (and, if applicable, payment for
the coverage) is made. If a provider of
health care (such as a physician,
hospital, or pharmacy) contacts the plan
to confirm coverage of a qualified
beneficiary during the election period,
the plan must give a complete response
to the health care provider about the
qualified beneficiary’s COBRA
continuation coverage rights during the
election period. For example, if the plan
provides coverage during the election
period but cancels coverage
retroactively if COBRA continuation
coverage is not elected, then the plan
must inform a provider that a qualified
beneficiary for whom coverage has not
been elected is covered but that the
coverage is subject to retroactive
termination. Similarly, if the plan
cancels coverage but then retroactively
reinstates it once COBRA continuation
coverage is elected, then the plan must
inform the provider that the qualified
beneficiary currently does not have
coverage but will have coverage
retroactively to the date coverage was
lost if COBRA continuation coverage is
elected. (See paragraph (c) of Q&A–5 in
§ 54.4980B–8 for similar rules that a
plan must follow in confirming coverage
during a period when the plan has not
received payment but that is still within
the grace period for a qualified
beneficiary for whom COBRA
continuation coverage has been elected.)
(c)(1) In the case of a group health
plan that provides health services (such
as a health maintenance organization or
a walk-in clinic), the plan can require
with respect to a qualified beneficiary
who has not elected and paid for
COBRA continuation coverage that the
qualified beneficiary choose between—
(i) Electing and paying for the
coverage; or
(ii) Paying the reasonable and
customary charge for the plan’s services,
but only if a qualified beneficiary who
chooses to pay for the services will be
reimbursed for that payment within 30
days after the election of COBRA
continuation coverage (and, if
applicable, the payment of any balance
due for the coverage).
(2) In the alternative, the plan can
provide continued coverage and treat
the qualified beneficiary’s use of the
facility as a constructive election. In
such a case, the qualified beneficiary is
obligated to pay any applicable charge

5183

for the coverage, but only if the
qualified beneficiary is informed that
use of the facility will be a constructive
election before using the facility.
Q–4: Is a waiver before the end of the
election period effective to end a
qualified beneficiary’s election rights?
A–4: If, during the election period, a
qualified beneficiary waives COBRA
continuation coverage, the waiver can
be revoked at any time before the end
of the election period. Revocation of the
waiver is an election of COBRA
continuation coverage. However, if a
waiver of COBRA continuation coverage
is later revoked, coverage need not be
provided retroactively (that is, from the
date of the loss of coverage until the
waiver is revoked). Waivers and
revocations of waivers are considered
made on the date they are sent to the
employer, employee organization, or
plan administrator, as applicable.
Q–5: Can an employer or employee
organization withhold money or other
benefits owed to a qualified beneficiary
until the qualified beneficiary either
waives COBRA continuation coverage,
elects and pays for such coverage, or
allows the election period to expire?
A–5: No. An employer, and an
employee organization, must not
withhold anything to which a qualified
beneficiary is otherwise entitled (by
operation of law or other agreement) in
order to compel payment for COBRA
continuation coverage or to coerce the
qualified beneficiary to give up rights to
COBRA continuation coverage
(including the right to use the full
election period to decide whether to
elect such coverage). Such a
withholding constitutes a failure to
comply with the COBRA continuation
coverage requirements. Furthermore,
any purported waiver obtained by
means of such a withholding is invalid.
Q–6: Can each qualified beneficiary
make an independent election under
COBRA?
A–6: Yes. Each qualified beneficiary
(including a child who is born to or
placed for adoption with a covered
employee during a period of COBRA
continuation coverage) must be offered
the opportunity to make an independent
election to receive COBRA continuation
coverage. If the plan allows similarly
situated active employees with respect
to whom a qualifying event has not
occurred to choose among several
options during an open enrollment
period (for example, to switch to
another group health plan or to another
benefit package under the same group
health plan), then each qualified
beneficiary must also be offered an
independent election to choose during
an open enrollment period among the

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options made available to similarly
situated active employees with respect
to whom a qualifying event has not
occurred. If a qualified beneficiary who
is either a covered employee or the
spouse of a covered employee elects
COBRA continuation coverage and the
election does not specify whether the
election is for self-only coverage, the
election is deemed to include an
election of COBRA continuation
coverage on behalf of all other qualified
beneficiaries with respect to that
qualifying event. An election on behalf
of a minor child can be made by the
child’s parent or legal guardian. An
election on behalf of a qualified
beneficiary who is incapacitated or dies
can be made by the legal representative
of the qualified beneficiary or the
qualified beneficiary’s estate, as
determined under applicable state law,
or by the spouse of the qualified
beneficiary. (See also Q&A–5 of
§ 54.4980B–7 relating to the
independent right of each qualified
beneficiary with respect to the same
qualifying event to receive COBRA
continuation coverage during the
disability extension.) The rules of this
Q&A–6 are illustrated by the following
examples; in each example each group
health plan is subject to COBRA:
Example 1. (i) Employee H and H ’s spouse
are covered under a group health plan
immediately before H ’s termination of
employment (for reasons other than gross
misconduct). Coverage under the plan will
end as a result of the termination of
employment.
(ii) Upon H ’s termination of employment,
both H and H ’s spouse are qualified
beneficiaries and each must be allowed to
elect COBRA continuation coverage. Thus, H
might elect COBRA continuation coverage
while the spouse declines to elect such
coverage, or H might elect COBRA
continuation coverage for both of them. In
contrast, H cannot decline COBRA
continuation coverage on behalf of H ’s
spouse. Thus, if H does not elect COBRA
continuation coverage on behalf of the
spouse, the spouse must still be allowed to
elect COBRA continuation coverage.
Example 2. (i) An employer maintains a
group health plan under which all employees
receive employer-paid coverage. Employees
can arrange to cover their families by paying
an additional amount. The employer also
maintains a cafeteria plan, under which one
of the options is to pay part or all of the
employee share of the cost for family
coverage under the group health plan. Thus,
an employee might pay for family coverage
under the group health plan partly with
before-tax dollars and partly with after-tax
dollars.
(ii) If an employee’s family is receiving
coverage under the group health plan when
a qualifying event occurs, each of the
qualified beneficiaries must be offered an
opportunity to elect COBRA continuation

coverage, regardless of how that qualified
beneficiary’s coverage was paid for before the
qualifying event.
§ 54.4980B–7 Duration of COBRA
continuation coverage.

The following questions-and-answers
address the duration of COBRA
continuation coverage:
Q–1: How long must COBRA
continuation coverage be made available
to a qualified beneficiary?
A–1: (a) Except for an interruption of
coverage in connection with a waiver, as
described in Q&A–4 of § 54.4980B–6,
COBRA continuation coverage that has
been elected for a qualified beneficiary
must extend for at least the period
beginning on the date of the qualifying
event and ending not before the earliest
of the following dates—
(1) The last day of the maximum
required period under section
4980B(f)(2)(B)(i) (the maximum
coverage period) and, if applicable,
section 4980B(f)(8) (relating to the
optional extension of required periods
in a case where coverage is lost after the
date of, instead of on the date of, the
qualifying event);
(2) The first day for which timely
payment is not made to the plan with
respect to the qualified beneficiary (see
Q&A–5 in § 54.4980B–8);
(3) The date upon which the employer
or employee organization ceases to
provide any group health plan
(including successor plans) to any
employee;
(4) The date, after the date of the
election, upon which the qualified
beneficiary first becomes covered under
any other group health plan, as
described in Q&A–2 of this section; and
(5) The date, after the date of the
election, upon which the qualified
beneficiary first becomes entitled to
Medicare benefits, as described in Q&A–
3 of this section.
(b) However, a group health plan can
terminate for cause the coverage of a
qualified beneficiary receiving COBRA
continuation coverage on the same basis
that the plan terminates for cause the
coverage of similarly situated
nonCOBRA beneficiaries. For example,
if a group health plan terminates the
coverage of active employees for the
submission of a fraudulent claim, then
the coverage of a qualified beneficiary
can also be terminated for the
submission of a fraudulent claim.
Notwithstanding the preceding two
sentences, the coverage of a qualified
beneficiary can be terminated for failure
to make timely payment to the plan only
if payment is not timely under the rules
of Q&A–5 in § 54.4980B–8.
(c) In the case of an individual who
is not a qualified beneficiary and who

is receiving coverage under a group
health plan solely because of the
individual’s relationship to a qualified
beneficiary, if the plan’s obligation to
make COBRA continuation coverage
available to the qualified beneficiary
ceases under this section, the plan is not
obligated to make coverage available to
the individual who is not a qualified
beneficiary.
Q–2: When may a plan terminate a
qualified beneficiary’s COBRA
continuation coverage due to coverage
under another group health plan?
A–2: (a) If a qualified beneficiary first
becomes covered under another group
health plan (including for this purpose
any group health plan of a governmental
employer or employee organization)
after the date on which COBRA
continuation coverage is elected for the
qualified beneficiary and the other
coverage satisfies the requirements of
paragraphs (b), (c), and (d) of this Q&A–
2, then the plan may terminate the
qualified beneficiary’s COBRA
continuation coverage upon the date on
which the qualified beneficiary first
becomes covered under the other group
health plan (even if the other coverage
is less valuable to the qualified
beneficiary). By contrast, if a qualified
beneficiary first becomes covered under
another group health plan on or before
the date on which COBRA continuation
coverage is elected, then the other
coverage cannot be a basis for
terminating the qualified beneficiary’s
COBRA continuation coverage.
(b) The requirement of this paragraph
(b) is satisfied if the qualified
beneficiary is actually covered, rather
than merely eligible to be covered,
under the other group health plan.
(c) The requirement of this paragraph
(c) is satisfied if the other group health
plan is a plan that is not maintained by
the employer or employee organization
that maintains the plan under which
COBRA continuation coverage must
otherwise be made available.
(d) The requirement of this paragraph
(d) is satisfied if the other group health
plan does not contain any exclusion or
limitation with respect to any
preexisting condition of the qualified
beneficiary (other than such an
exclusion or limitation that does not
apply to, or is satisfied by, the qualified
beneficiary by reason of the provisions
in section 9801 (relating to limitations
on preexisting condition exclusion
periods in group health plans)).
(e) The rules of this Q&A–2 are
illustrated by the following examples:
Example 1. (i) Employer X maintains a
group health plan subject to COBRA. C is an
employee covered under the plan. C is also
covered under a group health plan

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
maintained by Employer Y, the employer of
C ’s spouse. C terminates employment (for
reasons other than gross misconduct), and
the termination of employment causes C to
lose coverage under X ’s plan (and, thus, is
a qualifying event). C elects to receive
COBRA continuation coverage under X ’s
plan.
(ii) Under these facts, X ’s plan cannot
terminate C ’s COBRA continuation coverage
on the basis of C ’s coverage under Y ’s plan.
Example 2. (i) Employer W maintains a
group health plan subject to COBRA. D is an
employee covered under the plan. D
terminates employment (for reasons other
than gross misconduct), and the termination
of employment causes D to lose coverage
under W ’s plan (and, thus, is a qualifying
event). D elects to receive COBRA
continuation coverage under W ’s plan. Later
D becomes employed by Employer V and is
covered under V ’s group health plan. D ’s
coverage under V ’s plan is not subject to any
exclusion or limitation with respect to any
preexisting condition of D.
(ii) Under these facts, W can terminate D ’s
COBRA continuation coverage on the date D
becomes covered under V ’s plan.
Example 3. (i) The facts are the same as in
Example 2, except that D becomes employed
by V and becomes covered under V ’s group
health plan before D elects COBRA
continuation coverage under W ’s plan.
(ii) Because the termination of employment
is a qualifying event, D must be offered
COBRA continuation coverage under W ’s
plan, and W is not permitted to terminate D ’s
COBRA continuation coverage on account of
D ’s coverage under V ’s plan because D first
became covered under V ’s plan before
COBRA continuation coverage was elected
for D.

Q–3: When may a plan terminate a
qualified beneficiary’s COBRA
continuation coverage due to the
qualified beneficiary’s entitlement to
Medicare benefits?
A–3: (a) If a qualified beneficiary first
becomes entitled to Medicare benefits
under Title XVIII of the Social Security
Act (42 U.S.C. 1395–1395ggg) after the
date on which COBRA continuation
coverage is elected for the qualified
beneficiary, then the plan may terminate
the qualified beneficiary’s COBRA
continuation coverage upon the date on
which the qualified beneficiary becomes
so entitled. By contrast, if a qualified
beneficiary first becomes entitled to
Medicare benefits on or before the date
that COBRA continuation coverage is
elected, then the qualified beneficiary’s
entitlement to Medicare benefits cannot
be a basis for terminating the qualified
beneficiary’s COBRA continuation
coverage.
(b) A qualified beneficiary becomes
entitled to Medicare benefits upon the
effective date of enrollment in either
part A or B, whichever occurs earlier.
Thus, merely being eligible to enroll in
Medicare does not constitute being
entitled to Medicare benefits.

Q–4: [Reserved]
A–4: [Reserved]
Q–5: How does a qualified beneficiary
become entitled to a disability
extension?
A–5: (a) A qualified beneficiary
becomes entitled to a disability
extension if the requirements of
paragraphs (b), (c), and (d) of this Q&A–
5 are satisfied with respect to the
qualified beneficiary. If the disability
extension applies with respect to a
qualifying event, it applies with respect
to each qualified beneficiary entitled to
COBRA continuation coverage because
of that qualifying event. Thus, for
example, the 29-month maximum
coverage period applies to each
qualified beneficiary who is not
disabled as well as to the qualified
beneficiary who is disabled, and it
applies independently with respect to
each of the qualified beneficiaries. See
Q&A–1 in § 54.4980B–8, which permits
a plan to require payment of an
increased amount during the disability
extension.
(b) The requirement of this paragraph
(b) is satisfied if a qualifying event
occurs that is a termination, or
reduction of hours, of a covered
employee’s employment.
(c) The requirement of this paragraph
(c) is satisfied if an individual (whether
or not the covered employee) who is a
qualified beneficiary in connection with
the qualifying event described in
paragraph (b) of this Q&A–5 is
determined under Title II or XVI of the
Social Security Act (42 U.S.C. 401–433
or 1381–1385) to have been disabled at
any time during the first 60 days of
COBRA continuation coverage. For this
purpose, the period of the first 60 days
of COBRA continuation coverage is
measured from the date of the qualifying
event described in paragraph (b) of this
Q&A–5 (except that if a loss of coverage
would occur at a later date in the
absence of an election for COBRA
continuation coverage and if the plan
provides for the extension of the
required periods in accordance with
section 4980B(f)(8), then the period of
the first 60 days of COBRA continuation
coverage is measured from the date on
which the coverage would be lost).
However, in the case of a qualified
beneficiary who is a child born to or
placed for adoption with a covered
employee during a period of COBRA
continuation coverage, the period of the
first 60 days of COBRA continuation
coverage is measured from the date of
birth or placement for adoption. For
purposes of this paragraph (c), an
individual is determined to be disabled
within the first 60 days of COBRA
continuation coverage if the individual

5185

has been determined under Title II or
XVI of the Social Security Act to have
been disabled before the first day of
COBRA continuation coverage and has
not been determined to be no longer
disabled at any time between the date of
that disability determination and the
first day of COBRA continuation
coverage.
(d) The requirement of this paragraph
(d) is satisfied if any of the qualified
beneficiaries affected by the qualifying
event described in paragraph (b) of this
Q&A–5 provides notice to the plan
administrator of the disability
determination on a date that is both
within 60 days after the date the
determination is issued and before the
end of the original 18-month maximum
coverage period that applies to the
qualifying event.
Q–6: Under what circumstances can
the maximum coverage period be
expanded?
A–6: (a) The maximum coverage
period can be expanded if the
requirements of Q&A–5 of this section
(relating to the disability extension) or
paragraph (b) of this Q&A–6 are
satisfied.
(b) The requirements of this paragraph
(b) are satisfied if a qualifying event that
gives rise to an 18-month maximum
coverage period (or a 29-month
maximum coverage period in the case of
a disability extension) is followed,
within that 18-month period (or within
that 29-month period, in the case of a
disability extension), by a second
qualifying event (for example, a death or
a divorce) that gives rise to a 36-month
maximum coverage period. (Thus, a
termination of employment following a
qualifying event that is a reduction of
hours of employment cannot be a
second qualifying event that expands
the maximum coverage period; the
bankruptcy of the employer also cannot
be a second qualifying event that
expands the maximum coverage period.)
In such a case, the original 18-month
period (or 29-month period, in the case
of a disability extension) is expanded to
36 months, but only for those
individuals who were qualified
beneficiaries under the group health
plan in connection with the first
qualifying event and who are still
qualified beneficiaries at the time of the
second qualifying event. No qualifying
event (other than a qualifying event that
is the bankruptcy of the employer) can
give rise to a maximum coverage period
that ends more than 36 months after the
date of the first qualifying event (or
more than 36 months after the date of
the loss of coverage, in the case of a plan
that provides for the extension of the
required periods). For example, if an

5186

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations

employee covered by a group health
plan that is subject to COBRA
terminates employment (for reasons
other than gross misconduct) on
December 31, 2000, the termination is a
qualifying event giving rise to a
maximum coverage period that extends
for 18 months to June 30, 2002. If the
employee dies after the employee and
the employee’s spouse and dependent
children have elected COBRA
continuation coverage and on or before
June 30, 2002, the spouse and
dependent children (except anyone
among them whose COBRA
continuation coverage had already
ended for some other reason) will be
able to receive COBRA continuation
coverage through December 31, 2003.
Q–7: If health coverage is provided to
a qualified beneficiary after a qualifying
event without regard to COBRA
continuation coverage (for example, as a
result of state or local law, the
Uniformed Services Employment and
Reemployment Rights Act of 1994 (38
U.S.C. 4315), industry practice, a
collective bargaining agreement,
severance agreement, or plan
procedure), will such alternative
coverage extend the maximum coverage
period?
A–7: (a) No. The end of the maximum
coverage period is measured solely as
described in Q&A–1 and Q&A–6 of this
section, which is generally from the date
of the qualifying event.
(b) If the alternative coverage does not
satisfy all the requirements for COBRA
continuation coverage, or if the amount
that the group health plan requires to be
paid for the alternative coverage is
greater than the amount required to be
paid by similarly situated nonCOBRA
beneficiaries for the coverage that the
qualified beneficiary can elect to receive
as COBRA continuation coverage, the
plan covering the qualified beneficiary
immediately before the qualifying event
must offer the qualified beneficiary
receiving the alternative coverage the
opportunity to elect COBRA
continuation coverage. See Q&A–1 of
§ 54.4980B–6.
(c) If an individual rejects COBRA
continuation coverage in favor of
alternative coverage, then, at the
expiration of the alternative coverage
period, the individual need not be
offered a COBRA election. However, if
the individual receiving alternative
coverage is a covered employee and the
spouse or a dependent child of the
individual would lose that alternative
coverage as a result of a qualifying event
(such as the death of the covered
employee), the spouse or dependent
child must be given an opportunity to
elect to continue that alternative

coverage, with a maximum coverage
period of 36 months measured from the
date of that qualifying event.
Q–8: Must a qualified beneficiary be
given the right to enroll in a conversion
health plan at the end of the maximum
coverage period for COBRA
continuation coverage?
A–8: If a qualified beneficiary’s
COBRA continuation coverage under a
group health plan ends as a result of the
expiration of the maximum coverage
period, the group health plan must,
during the 180-day period that ends on
that expiration date, provide the
qualified beneficiary the option of
enrolling under a conversion health
plan if such an option is otherwise
generally available to similarly situated
nonCOBRA beneficiaries under the
group health plan. If such a conversion
option is not otherwise generally
available, it need not be made available
to qualified beneficiaries.
§ 54.4980B–8 Paying for COBRA
continuation coverage.

The following questions-and-answers
address paying for COBRA continuation
coverage:
Q–1: Can a group health plan require
payment for COBRA continuation
coverage?
A–1: (a) Yes. For any period of
COBRA continuation coverage, a group
health plan can require the payment of
an amount that does not exceed 102
percent of the applicable premium for
that period. (See paragraph (b) of this
Q&A–1 for a rule permitting a plan to
require payment of an increased amount
due to the disability extension.) The
applicable premium is defined in
section 4980B(f)(4). A group health plan
can terminate a qualified beneficiary’s
COBRA continuation coverage as of the
first day of any period for which timely
payment is not made to the plan with
respect to that qualified beneficiary (see
Q&A–1 of § 54.4980B–7). For the
meaning of timely payment, see Q&A–
5 of this section.
(b) A group health plan is permitted
to require the payment of an amount
that does not exceed 150 percent of the
applicable premium for any period of
COBRA continuation coverage covering
a disabled qualified beneficiary (for
example, whether single or family
coverage) if the coverage would not be
required to be made available in the
absence of a disability extension. (See
Q&A–5 of § 54.4980B–7 for rules to
determine whether a qualified
beneficiary is entitled to a disability
extension.) A plan is not permitted to
require the payment of an amount that
exceeds 102 percent of the applicable
premium for any period of COBRA

continuation coverage to which a
qualified beneficiary is entitled without
regard to the disability extension. Thus,
if a qualified beneficiary entitled to a
disability extension experiences a
second qualifying event within the
original 18-month maximum coverage
period, then the plan is not permitted to
require the payment of an amount that
exceeds 102 percent of the applicable
premium for any period of COBRA
continuation coverage. By contrast, if a
qualified beneficiary entitled to a
disability extension experiences a
second qualifying event after the end of
the original 18-month maximum
coverage period, then the plan may
require the payment of an amount that
is up to 150 percent of the applicable
premium for the remainder of the period
of COBRA continuation coverage (that
is, from the beginning of the 19th month
through the end of the 36th month) as
long as the disabled qualified
beneficiary is included in that coverage.
The rules of this paragraph (b) are
illustrated by the following examples; in
each example the group health plan is
subject to COBRA:
Example 1. (i) An employer maintains a
group health plan. The plan determines the
cost of covering individuals under the plan
by reference to two categories, individual
coverage and family coverage, and the
applicable premium is determined for those
two categories. An employee and members of
the employee’s family are covered under the
plan. The employee experiences a qualifying
event that is the termination of the
employee’s employment. The employee’s
family qualifies for the disability extension
because of the disability of the employee’s
spouse. (Timely notice of the disability is
provided to the plan administrator.) Timely
payment of the amount required by the plan
for COBRA continuation coverage for the
family (which does not exceed 102 percent
of the cost of family coverage under the plan)
was made to the plan with respect to the
employee’s family for the first 18 months of
COBRA continuation coverage, and the
disabled spouse and the rest of the family
continue to receive COBRA continuation
coverage through the 29th month.
(ii) Under these facts, the plan may require
payment of up to 150 percent of the
applicable premium for family coverage in
order for the family to receive COBRA
continuation coverage from the 19th month
through the 29th month. If the plan
determined the cost of coverage by reference
to three categories (such as employee,
employee-plus-one-dependent, employeeplus-two-or-more-dependents) or more than
three categories, instead of two categories,
the plan could still require, from the 19th
month through the 29th month of COBRA
continuation coverage, the payment of 150
percent of the cost of coverage for the
category of coverage that included the
disabled spouse.
Example 2. (i) The facts are the same as in
Example 1, except that only the covered

Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations
employee elects and pays for the first 18
months of COBRA continuation coverage.
(ii) Even though the employee’s disabled
spouse does not elect or pay for COBRA
continuation coverage, the employee satisfies
the requirements for the disability extension
to apply with respect to the employee’s
qualifying event. Under these facts, the plan
may not require the payment of more than
102 percent of the applicable premium for
individual coverage for the entire period of
the employee’s COBRA continuation
coverage, including the period from the 19th
month through the 29th month. If COBRA
continuation coverage had been elected and
paid for with respect to other nondisabled
members of the employee’s family, then the
plan could not require the payment of more
than 102 percent of the applicable premium
for family coverage (or for any other
appropriate category of coverage that might
apply to that group of qualified beneficiaries
under the plan, such as employee-plus-onedependent or employee-plus-two-or-moredependents) for those family members to
continue their coverage from the 19th month
through the 29th month.

(c) A group health plan does not fail
to comply with section 9802(b) and
§ 54.9802–1T(b) (which generally
prohibit an individual from being
charged, on the basis of health status, a
higher premium than that charged for
similarly situated individuals enrolled
in the plan) with respect to a qualified
beneficiary entitled to the disability
extension merely because the plan
requires payment of an amount
permitted under paragraph (b) of this
Q&A–1.
Q–2: When is the applicable premium
determined and when can a group
health plan increase the amount it
requires to be paid for COBRA
continuation coverage?
A–2: (a) The applicable premium for
each determination period must be
computed and fixed by a group health
plan before the determination period
begins. A determination period is any
12-month period selected by the plan,
but it must be applied consistently from
year to year. The determination period
is a single period for any benefit
package. Thus, each qualified
beneficiary does not have a separate
determination period beginning on the
date (or anniversaries of the date) that
COBRA continuation coverage begins
for that qualified beneficiary.
(b) During a determination period, a
plan can increase the amount it requires
to be paid for a qualified beneficiary’s
COBRA continuation coverage only in
the following three cases:
(1) The plan has previously charged
less than the maximum amount
permitted under Q&A–1 of this section
and the increased amount required to be
paid does not exceed the maximum

amount permitted under Q&A–1 of this
section;
(2) The increase occurs during the
disability extension and the increased
amount required to be paid does not
exceed the maximum amount permitted
under paragraph (b) of Q&A–1 of this
section; or
(3) A qualified beneficiary changes
the coverage being received (see
paragraph (c) of this Q&A–2 for rules on
how the amount the plan requires to be
paid may or must change when a
qualified beneficiary changes the
coverage being received).
(c) If a plan allows similarly situated
active employees who have not
experienced a qualifying event to
change the coverage they are receiving,
then the plan must also allow each
qualified beneficiary to change the
coverage being received on the same
terms as the similarly situated active
employees. (See Q&A–4 in § 54.4980B–
5.) If a qualified beneficiary changes
coverage from one benefit package (or a
group of benefit packages) to another
benefit package (or another group of
benefit packages), or adds or eliminates
coverage for family members, then the
following rules apply. If the change in
coverage is to a benefit package, group
of benefit packages, or coverage unit
(such as family coverage, self-plus-onedependent, or self-plus-two-or-moredependents) for which the applicable
premium is higher, then the plan may
increase the amount that it requires to
be paid for COBRA continuation
coverage to an amount that does not
exceed the amount permitted under
Q&A–1 of this section as applied to the
new coverage. If the change in coverage
is to a benefit package, group of benefit
packages, or coverage unit (such as
individual or self-plus-one-dependent)
for which the applicable premium is
lower, then the plan cannot require the
payment of an amount that exceeds the
amount permitted under Q&A–1 of this
section as applied to the new coverage.
Q–3: Must a plan allow payment for
COBRA continuation coverage to be
made in monthly installments?
A–3: Yes. A group health plan must
allow payment for COBRA continuation
coverage to be made in monthly
installments. A group health plan is
permitted to also allow the alternative of
payment for COBRA continuation
coverage being made at other intervals
(for example, weekly, quarterly, or
semiannually).
Q–4: Is a plan required to allow a
qualified beneficiary to choose to have
the first payment for COBRA
continuation coverage applied
prospectively only?

5187

A–4: No. A plan is permitted to apply
the first payment for COBRA
continuation coverage to the period of
coverage beginning immediately after
the date on which coverage under the
plan would have been lost on account
of the qualifying event. Of course, if the
group health plan allows a qualified
beneficiary to waive COBRA
continuation coverage for any period
before electing to receive COBRA
continuation coverage, the first payment
is not applied to the period of the
waiver.
Q–5: What is timely payment for
COBRA continuation coverage?
A–5: (a) Except as provided in this
paragraph (a) or in paragraph (b) or (d)
of this Q&A–5, timely payment for a
period of COBRA continuation coverage
under a group health plan means
payment that is made to the plan by the
date that is 30 days after the first day of
that period. Payment that is made to the
plan by a later date is also considered
timely payment if either—
(1) Under the terms of the plan,
covered employees or qualified
beneficiaries are allowed until that later
date to pay for their coverage for the
period; or
(2) Under the terms of an arrangement
between the employer or employee
organization and an insurance company,
health maintenance organization, or
other entity that provides plan benefits
on the employer’s or employee
organization’s behalf, the employer or
employee organization is allowed until
that later date to pay for coverage of
similarly situated nonCOBRA
beneficiaries for the period.
(b) Notwithstanding paragraph (a) of
this Q&A–5, a plan cannot require
payment for any period of COBRA
continuation coverage for a qualified
beneficiary earlier than 45 days after the
date on which the election of COBRA
continuation coverage is made for that
qualified beneficiary.
(c) If, after COBRA continuation
coverage has been elected for a qualified
beneficiary, a provider of health care
(such as a physician, hospital, or
pharmacy) contacts the plan to confirm
coverage of a qualified beneficiary for a
period for which the plan has not yet
received payment, the plan must give a
complete response to the health care
provider about the qualified
beneficiary’s COBRA continuation
coverage rights, if any, described in
paragraphs (a), (b), and (d) of this Q&A–
5. For example, if the plan provides
coverage during the 30- and 45-day
grace periods described in paragraphs
(a) and (b) of this Q&A–5 but cancels
coverage retroactively if payment is not
made by the end of the applicable grace

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Federal Register / Vol. 64, No. 22 / Wednesday, February 3, 1999 / Rules and Regulations

period, then the plan must inform a
provider with respect to a qualified
beneficiary for whom payment has not
been received that the qualified
beneficiary is covered but that the
coverage is subject to retroactive
termination if timely payment is not
made. Similarly, if the plan cancels
coverage if it has not received payment
by the first day of a period of coverage
but retroactively reinstates coverage if
payment is made by the end of the grace
period for that period of coverage, then
the plan must inform the provider that
the qualified beneficiary currently does
not have coverage but will have
coverage retroactively to the first date of
the period if timely payment is made.
(See paragraph (b) of Q&A–3 in
§ 54.4980B–6 for similar rules that the
plan must follow in confirming coverage
during the election period.)
(d) If timely payment is made to the
plan in an amount that is not
significantly less than the amount the
plan requires to be paid for a period of
coverage, then the amount paid is
deemed to satisfy the plan’s requirement
for the amount that must be paid, unless
the plan notifies the qualified
beneficiary of the amount of the
deficiency and grants a reasonable
period of time for payment of the
deficiency to be made. For this purpose,
as a safe harbor, 30 days after the date
the notice is provided is deemed to be
a reasonable period of time.
(e) Payment is considered made on
the date on which it is sent to the plan.
PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
PAR. 3. The authority citation for part
602 continues to read as follows:

Authority: 26 U.S.C. 7805.
PAR. 4. In § 602.101, paragraph (c) is
amended by adding entries in numerical
order to the table to read as follows:

§ 602.101

*

OMB Control numbers.

*
*
(c) * * *

*

*

Current
OMB control No.

CFR part or section where
identified and described

*
54.4980B–6
54.4980B–7
54.4980B–8
*

*
*
*
*
...............................
1545–1581
...............................
1545–1581
...............................
1545–1581
*

*

*

*

Approved: December 28, 1998.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
Donald C. Lubick,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 99–1520 Filed 2–2–99; 8:45 am]
BILLING CODE 4830–01–P

ENVIRONMENTAL PROTECTION
AGENCY
Recommended Test Methods for State
Implementation Plans
40 CFR Part 51
CFR Correction
In Title 40 of the Code of Federal
Regulations, parts 50 to 51, revised as of
July 1, 1998, the text appearing on page
345 duplicates the text on page 344 and
should be removed. As corrected the
text on page 345 should read as follows:
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high level of precision and accuracy for the
purposes of this test. This method is not
meant to replace the calibration requirements
of test methods. In addition to the
requirements in this method, all the
calibration requirements of the applicable
test method must also be met.
3.2.1 Prepare the gas dilution system
according to the manufacturer’s instructions.
Using the high-level supply gas, prepare, at
a minimum, two dilutions within the range
of each dilution device utilized in the
dilution system (unless, as in critical orifice
systems, each dilution device is used to make
only one dilution; in that case, prepare one
dilution for each dilution device). Dilution
device in this method refers to each mass
flow controller, critical orifice, capillary tube,
positive displacement pump, or any other
device which is used to achieve gas dilution.
3.2.2 Calculate the predicted concentration
for each of the dilutions based on the flow
rates through the gas dilution system (or the
dilution ratios) and the certified
concentration of the high-level supply gas.
3.2.3 Introduce each of the dilutions from
Section 3.2.1 into the analyzer or monitor
one at a time and determine the instrument
response for each of the dilutions.
3.2.4 Repeat the procedure in Section 3.2.3
two times, i.e., until three injections are
made at each dilution level. Calculate the
average instrument response for each
triplicate injection at each dilution level. No
single injection shall differ by more than ±2
percent from the average instrument response
for that dilution.
3.2.5 For each level of dilution, calculate
the difference between the average
concentration output recorded by the
analyzer and the predicted concentration
calculated in Section 3.2.2. The average
concentration output from the analyzer shall
be within ±2 percent of the predicted value.
3.2.6 Introduce the mid-level supply gas
directly into the analyzer, bypassing the gas

dilution system. Repeat the procedure twice
more, for a total of three mid-level supply gas
injections. Calculate the average analyzer
output concentration for the mid-level
supply gas. The difference between the
certified concentration of the mid-level
supply gas and the average instrument
response shall be within ±2 percent.
3.3 If the gas dilution system meets the
criteria listed in Section 3.2, the gas dilution
system may be used throughout that field
test. If the gas dilution system fails any of the
criteria listed in Section 3.2, and the tester
corrects the problem with the gas dilution
system, the procedure in Section 3.2 must be
repeated in its entirety and all the criteria in
Section 3.2 must be met in order for the gas
dilution system to be utilized in the test.
4. References
1. ‘‘EPA Traceability Protocol for Assay
and Certification of Gaseous Calibration
Standards,’’ EPA–600/R93/224, Revised
September 1993.
[55 FR 14249, Apr. 17, 1990; 55 FR 24687,
June 18, 1990, as amended at 55 FR 37606,
Sept. 12, 1990; 56 FR 6278, Feb. 15, 1991; 56
FR 65435, Dec. 17, 1991; 60 FR 28054, May
30, 1995; 62 FR 32502, June 16, 1997]
Appendixes N–O [Reserved]
Appendix P to Part 51—Minimum Emission
Monitoring Requirements
1.0 Purpose. This appendix P sets forth the
minimum requirements for continuous
emission monitoring and recording that each
State Implementation Plan must include in
order to be approved under the provisions of
40 CFR 51.165(b). These requirements
include the source categories to be affected;
emission monitoring, recording, and
reporting requirements for those sources;
performance specifications for accuracy,
reliability, and durability of acceptable
monitoring systems; and techniques to
convert emission data to units of the
applicable State emission standard. Such
data must be reported to the State as an
indication of whether proper maintenance
and operating procedures are being utilized
by source operators to maintain emission
levels at or below emission standards. Such
data may be used directly or indirectly for
compliance determination or any other
purpose deemed appropriate by the State.
Though the monitoring requirements are
specified in detail, States are given some
flexibility to resolve difficulties that may
arise during the implementation of these
regulations.
1.1 Applicability. The State plan shall
require the owner or operator of an emission
source in a category listed in this appendix
to: (1) Install, calibrate, operate, and maintain
all monitoring equipment necessary for
continuously monitoring the pollutants
specified in this appendix for the applicable
source category; and (2) complete the
installation and performance tests of such
equipment and begin monitoring and
recording within 18 months of plan approval
or promulgation. The source categories and
the respective monitoring requirements are
listed below.
1.1.1 Fossil fuel-fired steam generators, as
specified in paragraph 2.1 of this appendix,