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Transcript of 27899129 March 21, 2012 Stacy H. Barrow [email protected] © 2012 Proskauer. All Rights...
27899129
March 21, 2012
Stacy H. [email protected]
© 2012 Proskauer. All Rights Reserved.
COBRA Fundamentals:Understanding COBRA’s Basic Requirements
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Latest Health Care Reform News
Supreme Court Oral Arguments March 26, 27 & 28
Three Main Questions: Are the 2014 Individual Mandates Constitutional?
If the Individual Mandates are not Constitutional, is the Entire Law Unconstitutional?
Is the Issue Ripe for Review?
Expect a decision this summer
© 2012 Proskauer. All Rights Reserved.
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Recent Developments
12/16/11 Essential Health Benefits Bulletin
01/03/12 IRS Notice on Form W-2 Reporting
02/09/12 Final Rule on Summary of Benefits and Coverage
02/09/12 IRS Notice 2012-17 (FAQ re: auto enroll, pay-or-play)
02/15/12 Final Rule on Preventive Care (contraceptives)
02/17/12 Additional Guidance on Essential Benefits (FAQs)
03/12/12 Interim Final Rules for Health Insurance Exchanges
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals
• COBRA in a Nutshell COBRA requires that certain plan sponsors of group health plans offer
certain people the right to elect and pay for certain continued medical coverage for a certain period of time after certain events occur which would cause them to otherwise lose their coverage. Those who are eligible to elect (qualified beneficiaries) must be provided with a certain type of notice within a certain period of time. They have a certain period within which to elect COBRA coverage. If they don’t, they lose their rights. If they do, they can continue their coverage for up to a certain period of time (if they pay a certain premium) unless certain other events (COBRA cut-off events) happen first. If a plan sponsor fails to provide certain of these rights, the sponsor could be liable for certain penalties and/or damages under the Code and ERISA. Sometimes, the sponsor might also be subject to certain state law versions of COBRA that have certain different rights and obligations.
The only thing “certain” is that nothing of COBRA is certain – exceptions and special rules abound.
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Understanding the Legal Framework
• What Law Applies? Applicable law includes:
Federal tax code section 4980B; Treas. Reg. §54.4980B-1, et. seq. ERISA sections 601-608 (private employers); DOL Reg. §2590.606-1, et. seq. Public Health Service Act (essentially for state and local governments) Federal government plan has similar mandate by a separate law
Regulatory Jurisdiction is Split IRS regulates substantive rules DOL regulates notice issues CMS/HHS regulates state & local government plans
State “Mini-COBRA” Laws Many states have “mini-COBRA” laws applicable to insured plans Cover smaller employers as well as possibly large employers with insured plans
after federal COBRA expires
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Understanding the Legal Framework
• Plans and Employers Covered COBRA applies to “group health plans”
Medical, dental, vision coverage Includes flexible spending arrangements (FSAs) as well as health care
reimbursement accounts (HRAs), including on-site clinics Other types of benefits/coverage, including collection of individual policies Not coverage for general welfare/certain on-site first-aid facilities; not for life
insurance or disability insurance Employee Assistance Programs (EAPs) – depend on nature of services
provided Must be “maintained” by an employer or employee organization
Need employment-related connection Includes plans covering current and/or former employees as well as
independent contractors
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Who is the “Employer” for COBRA Purposes?
• Person for whom services are performed, including controlled group members AND successors (due to consolidation, merger, restructuring, or a mere continuation of the employer)
Treas. Reg. §54.4980B-1, Q&A-2
• Certain employers are not covered by COBRA Church plans Federal governmental plans
Federal government plan has its own COBRA-like right State and local governments covered by Public Health Service Act COBRA
rules
Plans covering non-resident aliens (NRAs) Not covered by ERISA if substantially all are NRAs Code exclusion is for individual NRAs not for plans
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Who is the “Employer” for COBRA Purposes?
• Small Employer Exception Single Employer Plans:
Group health plan maintained by an employer (including controlled group) that normally employed fewer than 20 employees during the preceding calendar year
Note – Based on number of employees, not plan participants Multiple Employer Welfare Arrangements (MEWAs):
Each employer maintaining the plan is looked at separately from a COBRA perspective
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Who is the “Employer” for COBRA Purposes?
• Counting Employees for “Small Employer” Test Controlled group rules apply
Foreign affiliates count in determining whether an employer is a small employer plan; not based on covered employees
Employed fewer than 20 employees during preceding year Fewer than 20 on at least 50% of typical business days during the
year New employer of any size not subject to COBRA – no employees last
year
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Who is the “Employer” for COBRA Purposes?
• Counting Employees for “Small Employer” Test Non-common law employees DO NOT count (exclude self-employed
individuals, directors, independent contractors) But they get COBRA if covered by plan subject to COBRA
Full-time and part-time employees count Part-timers can be determined based on fractions of full time employees
and on a per-day or per-pay period basis
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Who is the “Employer” for COBRA Purposes?
• Counting Employees for “Small Employer” Test Multiemployer plans – Special rules:
Group health plan under which each of the employers normally employed fewer than 20 employees during the preceding calendar year
If one employer in the plan fails the under 20 employee test, the entire multiemployer plan is subject to COBRA
If a new “large” employer is added to a small employer multiemployer plan, the plan is subject to COBRA immediately upon the addition of the new employer
If a contributing employer’s workforce increases during the year, and that causes the employer to go over 19 employees, the plan is subject to COBRA on the January 1 immediately following the calendar year in which the employer’s workforce increased
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Who is the “Employer” for COBRA Purposes?
• COBRA’s “Small Employer” Test – Other Special Rules M&A Rule (Rev. Rul. 2003-70)
If stock sale, group health plan maintained by combined entity will cease to be excepted from COBRA as of date of stock transfer
If asset sale and plan is maintained by acquiring company, plan continues to be excepted as small employer plan for at least remainder of year of asset acquisition
Large Employer Becomes Small If a plan that was subject to COBRA becomes a small-employer plan,
the plan remains subject to COBRA for qualifying events that occurred before it was excepted
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Identifying Qualified Beneficiaries
• Who is a “Qualified Beneficiary”? Covered employees, spouses, dependent children Special rule for bankruptcies
• Who is covered by a plan but not a Qualified Beneficiary? Newly-acquired dependents Domestic partners
• Significance of status as qualified beneficiary Only qualified beneficiaries have COBRA rights Each qualified beneficiary has a separate COBRA right from each other
qualified beneficiary
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Identifying Qualified Beneficiaries
• Who is a qualified beneficiary? Any individual who, immediately before a qualifying event was covered under a
group health plan as a covered employee, spouse or dependent child Includes child born to or placed for adoption with a covered employee during
COBRA coverage Does not include newly acquired dependents
E.g., employee quits, elects COBRA, gets married during the 18-month period and then gets divorced; spouse is not a qualified beneficiary for COBRA purposes
Consider “in anticipation” rule Drop coverage “in anticipation” of divorce; later divorce is still a qualifying
event and divorced spouse may have rights as qualified beneficiary
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Identifying Qualified Beneficiaries
EE
Child #1
EE & SP
Child #1
Child #2
Child #2
SP
During Active Status; One Family Unit
COBRA
=
▪ Significance of Status as Qualified Beneficiary▪And EACH Qualified Beneficiary Has a Separate Right
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Identifying Qualifying Events
• Defining COBRA Qualifying Events
Qualifying Event = EVENT + LOSS OF COVERAGE
Event without a “loss of coverage” – not a qualifying event E.g., retire without losing coverage is not a qualifying event
“Loss of coverage” without an “Event” – not a qualifying event E.g., Change of insurer; change from union to non-union;
termination of one plan out of several; failure to pay premiums -- not alone qualifying events
Must all occur when plan is subject to COBRA
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Identifying Qualifying Events
• COBRA Qualifying Events
Six qualifying events:
1. Death of covered employee
2. Termination (other than by gross misconduct) or reduction in hours of covered employee’s employment
3. Divorce or legal separation of covered employee
4. Covered employee’s entitlement to Medicare
5. Cessation of dependent child status
6. Certain bankruptcy filings
Only #2 and #6 can affect covered employees
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Identifying Qualifying Events
• Defining COBRA Qualifying Events “Loss of Coverage” Defined
cease to be covered under the same terms and conditions as in effect immediately before the qualifying event
Loss need not occur immediately upon the event Example 1: Lose coverage at end of month following the event; event is
qualifying Example 2: Retirees continue coverage for life with no change in terms of
coverage. If employer terminates retiree coverage, it’s a QE for any QBs who did not benefit from their maximum period of COBRA coverage
Allowed to measure COBRA coverage from loss of coverage date instead of event Typical for plans that cover to end of month of event
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Identifying Qualifying Events
• Defining COBRA Qualifying Events –“Loss of Coverage” Defined
“In Anticipation” Rule – Event is still a qualifying event if coverage loss is in anticipation of event E.g., Terminate plan in advance of plant closing; closing is still a
COBRA qualifying event E.g., Terminate coverage “in anticipation” of a divorce; divorce is
still a qualifying event
Gap in coverage exists between loss of coverage and event COBRA does not fill that gap
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Identifying Qualifying Events
• COBRA Qualifying Events – Special Rule Gross Misconduct Exception
Defining “gross misconduct” No statute or regulation defining it; strictly case law Involves more than negligence or incompetence or unsatisfactory
performance Includes misconduct that is intentional, wanton, willful, deliberate, reckless
or in deliberate indifference to an employer's interest; see Boudreaux v. Rice Palace, Inc., 2007 WL 1670419 (W.D.La., 6/11/2007) for a good discussion of the standard
Consider mitigating circumstances and possible ERISA appeal issues
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Identifying Qualifying Events
• COBRA Qualifying Events – Special RuleBusiness Sales
Termination of employment can include certain types of business transactions Sale of assets of trade or business = termination of employment
(COBRA required) Sale of stock in subsidiary ≠ termination of employment (no
COBRA)
Need to consider acquisition issues carefully to make sure COBRA issues and liabilities are properly allocated among the parties in the transaction documents
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –What is “COBRA Coverage”?
• “Identical Coverage” COBRA coverage is supposed to be identical to the coverage in effect
immediately before the qualifying event This right means:
Qualified beneficiaries have same open enrollment rights Allowed to change plan/coverage under plan/add or eliminate
family member coverage Newly acquired dependents can be added; special enrollment
rights apply; premiums can be adjusted Deductibles/plan limits carry over to COBRA coverage Changes in cost/coverage generally get passed through to
qualified beneficiaries
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –What is “COBRA Coverage”?
• Identical coverage applies even if coverage is not of the same value to qualified beneficiary e.g., move out of service area of HMO Special HMO rule applies If other coverage available, QB must have the opportunity to elect the
alternative
• But each qualified beneficiary has a separate right to elect COBRA coverage Qualified beneficiary who is a child may add a new spouse and child to
COBRA coverage even though child of active employees may not
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –The COBRA Notice and Election Rules
• COBRA’s Timeline for Notices and Elections1. General Notice provides at the time employee and spouse first become covered2. Employer notifies plan administrator of event within 30 days of termination or
reduction of hours of employment or death3. Qualified beneficiaries responsible to notify plan administrator within 60 days (for
divorce, legal separation, cessation of dependent child status)4. Plan administrator has 14 days to notify qualified beneficiaries of COBRA rights after
notice in 2. or 3. above5. Qualified beneficiaries generally have 60 days from notice in 4. above within which to
elect COBRA coverage6. Qualified beneficiaries have 45 days after electing within which to pay initial COBRA
premium7. Qualified beneficiaries have 30 days within which to pay regular monthly COBRA
premium
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –The COBRA Notice and Election Rules
COBRA’s Timeline for Notices and Elections
▪ Election is retroactive to qualifying event ▪ Leads to adverse selection risk
▪ Notice periods can be managed to speed up the time line and reduce adverse selection risk
Retroactive Premium
Notice to Plan Administrator Notice to QBs Election Period Payment Period
30/60 days
14 days
60 days
45 days
These periods can be reduced These periods are fixed by statute. through administration.
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –The COBRA Notice and Election Rules
• Notices Required by COBRA and DOL Regulations General COBRA notice to covered employees and spouses Notice from employers to plan administrators Notices from QBs/covered employees to plan administrators
Notice of qualifying event Notice of disability determinations Notice of multiple qualifying event
Election notice from plan administrators to QBs Two (relatively) new notices from plan administrator to QBs
Notice of unavailability of COBRA coverage Notice of COBRA coverage termination
Other special notices from time to time (e.g., ARRA subsidy notices) Don’t forget about updating the summary plan description
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –The COBRA Notice and Election Rules
• Content of General Notice Six items must be covered, including:
Identity of party with more information on COBRA Description of COBRA (qualifying events, qualified
beneficiaries, plan election procedures, etc.) Explanation of qualified beneficiary responsibilities Explanation that more information is available
DOL has issued model notices for use by plan administrators; but must be modified for specific plan procedures
http://www.dol.gov/ebsa/COBRAmodelnotice.html
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –The COBRA Notice and Election Rules
• Timing and Delivery of General Notice Statute:
General notice provided “at the time of commencement of coverage under the plan”
Regulations: Within 90 days of becoming covered, or if later Within 90 days plan is subject to COBRA If QE occurs within 90 days, accelerated general notice required
QE notice can serve as general notice Timing tracks SPD delivery requirement
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –The COBRA Notice and Election Rules
• Timing and Delivery of General Notice Delivery of General Notice
First class mail, last known address Hand delivery OK for employees, not necessarily for spouse and children Key is to be able to prove notice was provided – ”Mailbox Rule” applies
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –The COBRA Notice and Election Rules
• Content of Qualifying Event Notice Required content standard
“Written in a manner calculated to be understood by the average plan participant”
Required details
Must include fourteen topics to be compliant
Must include a fifteenth topic on ARRA subsidy issues
Plus a possible sixteenth topic on special TAA election period and/or HCTC tax credit
Refer to DOL website for models
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –The COBRA Notice and Election Rules
• Timing and Delivery of Qualifying Event Notice General rule – 14 days from receipt of notice of qualifying event Exception #1 – multi-employer plans can apply special rules Exception #2 – if a plan is employer-administered, notice of
termination/reduction of hours of employment must be not later than: 44 days from loss of coverage (if COBRA measured from that date)
OR
44 days from qualifying event date
Employer-administered plans still have 44 days for notice
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –The COBRA Notice and Election Rules
• Qualified beneficiaries have 60 days within which to elect COBRA coverage 60 days is a minimum period
Measured from later of loss of coverage due to event or notice of the event
Failure to give notice means open-ended election period
Each qualified beneficiary has a separate election
Employee or spouse generally may elect for family
Waivers allowed; but must have right to revoke waiver during 60-day election period
Coverage after revocation may be limited to be prospective only
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Duration of COBRA Coverage
• Duration of COBRA Coverage 18, 29, 36 months depending on the qualifying event
Lifetime coverage for certain bankruptcy qualifying events
Special rules for certain PBGC eligible or TAA eligible individuals
Special multiple qualifying event rules will extend the 18 or 29 month periods
“Reverse” multiple qualifying event rule if Medicare entitlement occurs before termination/reduction of hours of employment
Greater of 18 months from termination/reduction of hours or 36 months from earlier Medicare entitlement
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Duration of COBRA Coverage
• Duration of COBRA Coverage Special Disability Rule
SSA disability within first 60 days of COBRA coverage due to a termination or reduction of hours of employment
Timing of disability determination notices
60 days from Social Security Administration determination
OR 60 days from QE/loss of coverage date if SSA determination is before QE/loss of coverage date
AND before end of original 18-month period
BUT not before QB learns of notice requirement
Need to check SPDs for these rules
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Duration of COBRA Coverage
Qualifying Event Eligible Qualified Beneficiaries
Duration
Termination/reduction of hours of employment
Employee, spouse, dependent children
Up to 18 months
Termination/reduction of hours with SSA disability
Employee, spouse, dependent children
Up to 29 months
Divorce/legal separation, death Spouse, dependent children Up to 36 months
Cessation of dependent child status
Dependent child Up to 36 months
Termination or reduction of hours and employee is entitled to PBGC pension
Employee, spouse, dependent children
Until covered employee dies, plus up to 24 months, but not after 12/31/2010
Termination or reduction of hours and employee is entitled to TAA benefits
Employee, spouse, dependent children
Until covered employee not eligible for TAA, but not after 12/31/2010
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Duration of COBRA Coverage
• Early Termination of COBRA Coverage Premiums not paid in full and on time
Employer (including controlled group) ceases to provide any group health plan
Qualified beneficiary “first becomes, after the date of the COBRA election,” entitled to Medicare or covered by other group health plan coverage
Timing is key
Other coverage does not disqualify if it imposes a preexisting condition exclusion or limitation of the qualified beneficiary
Termination of coverage “for cause”
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –How Much Does COBRA Cost?
• COBRA Premium Cost Plan may require payment of up to 102% of full cost (employer and employee
for coverage for similarly situated individuals Up to 150% for SSA disabilities during months 19-29 Premium fixed for 12-month determination period
Premiums may be paid on a monthly basis
If premium not paid in full and on time, COBRA coverage is lost
But if shortfall is not significantly less than full amount, must give reasonable period (generally 30 days) to make it up
Not significant is lesser of 10% of premium or $50
ARRA premium subsidy could apply to pay for 65% of applicable COBRA premium
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –How Much Does COBRA Cost?
• COBRA Premium Cost ARRA premium subsidy could apply to pay for 65% of applicable
COBRA premium
Applies if involuntarily terminated by May 31, 2010 (and after Sept. 1, 2008)
Also applies if hours are reduced and then involuntary termination occurs between March 2, 2010 and May 31, 2010
Required modified notices and special election rights for affected individuals
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Penalties for Non-Compliance
• Excise Tax Penalties Self-reported on Form 8928 Basic Excise Tax Structure
$100/day during the “noncompliance period” No more than $100/day/QB; $200/day for same qualifying event Subject to certain minimum/maximum tax rules 30-Day Rule – No tax owed if due to reasonable cause and not willful
neglect and corrected within 30 days of when liable party knew of or, being diligent, would have known of violation
IRS Waiver Rule – IRS may waive all or part of the tax if failure is due to reasonable cause and not willful neglect Waiver to the extent that tax would be excessive relative to the failure
involved
© 2012 Proskauer. All Rights Reserved.
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COBRA Fundamentals –Penalties for Non-Compliance
• ERISA Penalties ERISA notice penalties
Up to $110/day during the failure, determined in a court’s discretion
Courts frequently impose penalties, but not at $110/day ERISA claim for benefits
Claim under ERISA to enforce COBRA rights Claim under ERISA for fiduciary breach
Attorney fees under ERISA Not necessarily limited to prevailing plaintiffs
© 2012 Proskauer. All Rights Reserved.
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Questions?
© 2012 Proskauer. All Rights Reserved.
March 21, 2012Stacy H. Barrow