Top 10 cobra mistakes presentation

TOP 10 COBRA MISTAKES(AND HOW TO AVOID THEM)

Brett Webster – AH&T Insurance(206) 770-3051 - [email protected]

Introduction to COBRA

Consolidated Omnibus Budget Reconciliation Act

COBRA continuation coverage = temporary continuation of health coverage at group rates

Available to “Qualified Beneficiaries” upon occurrence of “Qualifying Events”

COBRA Penalties

IRS excise taxes ERISA - $110 statutory penalties Lawsuits to compel coverage (and pay

attorneys’ fees!) Adverse selection Inability to terminate coverage

#10 – Assuming COBRA Doesn’t Apply to You

COBRA applies to group health plans for employers with 20 or more employees

Small employer exemption Rule is – 20 or more employees on more than

50% of typical business days in the previous calendar year Count full-time and part-time employees Part-time employees = fraction

#9 – Assuming COBRA Doesn’t Apply to Your Plan

COBRA applies to group health plans maintained by employers

Health plans subject to COBRA: Medical, dental, vision and Rx plans Drug and alcohol treatment program Employee assistance plans that provide medical care On-site health care Health FSAs and HRAs Self-funded medical reimbursement plans Wellness programs that provide medical care

Health plans not subject to COBRA: Long-term care plans AD&D plans Group term life insurance plans LTD & STD plans Wellness programs or employee assistance programs that do not

provide medical care Exercise or fitness centers Onsite first-aid facilities

Cancelling plan doesn’t always cancel COBRA responsibility If employer continues to provide any group health plan, obligation to

provide COBRA coverage continues

#9 – Assuming COBRA Doesn’t Apply to Your Plan

#8 – Not Knowing Your Qualifying Events or Qualified Beneficiaries

Qualifying events trigger COBRA coverage for qualified beneficiaries (QBs)

Who is a QB? An individual covered by a group health plan on the day

before a qualifying event Employee, employee’s spouse, employee’s dependent

children Sometimes includes retired employee and spouse and

dependent children Any child born to or placed for adoption with covered

employee during COBRA coverage period May include agents, independent contractors and directors

What is a Qualifying Event?

Elements of a qualifying event: Specified triggering event Causes (or will cause) a loss of coverage Within maximum coverage period While the plan is subject to COBRA

Loss in anticipation of events FMLA Leave Pay attention to plan terms for eligibility – listed

event may not cause a loss of coverage, individual may not be QB

Qualifying events for employees: Termination of employment (for reasons other than gross

misconduct) Reduction in hours of employment

Qualifying events for spouses: Termination of covered employee’s employment (for any

reason other than gross misconduct) Reduction in hours of covered employee’s employment Covered employee becoming entitled to Medicare Divorce or legal separation from covered employee Death of covered employee


Qualifying events for dependent children: Loss of dependent child status under plan rules Termination of covered employee’s employment (for

any reason other than gross misconduct) Reduction in hours of covered employee’s

employment Covered employee becoming entitled to Medicare Divorce or legal separation of covered employee Death of covered employee


#7 – Giving No Information

Plan Administrators are required to provide certain information to plan participants and beneficiaries and QBs

COBRA Notice Rules - set minimum standards for timing and content of notices required under COBRA applicable to calendar-year plans on January 1, 2005 Provided model notices and added two new notice

requirements (unavailability and early termination) Require reasonable procedures for providing notices Did not affect substantive COBRA rules

Not providing timely/proper notices puts plan at risk Avoid problems by establishing procedures for sending

notices

COBRA Notices – General Notice

Provides information to plan participants regarding COBRA and plan procedures

Must be provided within 90 days after plan coverage begins

Must be written to be understood by average plan participant

May be provided in Summary Plan Description Single notice can be provided to employee and spouse

at same address Content specified in regs – model notice available

COBRA Notices – Election Notice

Gives QBs information about rights and obligations regarding a specific qualifying event and coverage

Must be provided to QBs within 14 days after plan administrator is notified of Qualifying Event

If employer is plan administrator, notice must be provided within 44 days of qualifying event or loss of coverage (whichever is later)

Content specified in regs - model notice available

COBRA Notices – Notice of Unavailability

Plan administrator must notify individual with explanation of why s/he is not entitled to COBRA coverage No Qualifying Event had occurred QB did not furnish required notice QB did not provide complete information

Deadline is same as that for sending election notice Generally must give notice of COBRA ineligibility within

14 days after receipt of notice of Qualifying Event

COBRA Notices – Notice of Early Termination

Plan administrator must notify QBs when continuation coverage terminates before the end of the maximum coverage period

Timing – must notify as soon as practicable Must contain the following information:

Reason for early termination Date coverage terminated or will terminate Available conversion rights

COBRA Notices – Employer’s Notice of Qualifying Event

Employer must notify plan administrator within 30 days of the later of qualifying event or loss of coverage

Notice must be given of employee’s death, termination of employment, reduction in hours of employment, Medicare entitlement

Must include sufficient information to determine plan, employee, qualifying event and date

No notice necessary where employer is plan administrator

#6 – Giving Bad Information

General Notice – Required Content Plan name Name, address and phone number for contact person for

information about the plan and COBRA Description of COBRA coverage under the plan Plan procedures for QBs to provide notice of certain

qualifying events Plan procedures for QBs to provide notice of SSA

determination of disability Statement that notice does not fully describe COBRA or

other rights and plan administrator and SPD can provide more info

Importance of advising administrator if address changes Model notice available

Election Notice – Required Content Plan name and name, address and phone number for

contact person for information about the plan and COBRA Identification of the qualifying event Date plan coverage will terminate Identification of the QBs by status or name Statement that each QB has independent right to elect

coverage Description of COBRA coverage Amount each QB required to pay and procedures for

making payments


Election Notice, continued Explanation of how to elect coverage and date by which election

must be made Consequences of failing to elect or waiving COBRA Explanation of duration of COBRA coverage Explanation of circumstances where coverage may be extended QB’s responsibility to provide notice of second qualifying event

or SSA disability determination (including procedures for providing notice)

QB’s responsibility to provide notice of determination that QB is no longer disabled

Explanation of importance of keeping plan administrator informed of current address

Statement regarding more complete information


#5 – Not Following Procedures

Plans must establish reasonable notice procedures for covered employees and QBs to notify plan of certain events Qualifying events: divorce, legal separation, dependent

child losing dependent status Second qualifying events SSA disability determination (or cessation of disability)

Consequences of not having reasonable procedures QB deemed to have given notice if s/he has communicated

a specific event in a manner reasonably calculated to inform those customarily considered responsible for the plan

Reasonable Notice Procedures

Described in SPD Specify individual or entity designated to receive notices Specify how notice is to be given

May require use of specific form Must allow covered employee, QB or representative to

provide notice Describe the information required Specify deadlines for providing notice Provide for proper handling of incomplete notices

COBRA Notices – Employee’s Notice of Qualifying Event

Covered employees and QBs are generally required to notify plan administrator within 60 days of the later of: Qualifying event or second qualifying event, Loss of coverage or Date they were first notified of notice obligations

Prompt notification decreases risk to plan

COBRA Notices – Employee’s Notice of Disability Determination

QBs determined to be disabled by SSA are generally required to notify plan administrator within 60 days of receipt of disability determination and before end of original 18-month continuation coverage period

QBs must notify plan administrator within 30 days of determination that they are no longer disabled

COBRA Election Procedures

QB must be given at least 60 days to elect COBRA Election period begins on date election notice is

provided or date on which coverage would be lost (whichever is later)

Each QB has independent right to elect COBRA Covered employee or spouse can elect on behalf of all

other QBs and parent or guardian can elect on behalf of minor child

If QB waives coverage during election period, s/he can revoke waiver before end of election period

Payment Procedures

Plan can require payment of “applicable premium” for COBRA coverage 102% of employer’s cost 150% for disabled QBs

Premium payments must be made in a timely manner Payment = made when sent Initial premium = due 45 days after election Premium due date is usually 1st of month – plan must allow 30

day grace period Late payments and short payments Forwarding payments to insurers

#4 – Not Giving Enough Coverage

Continuation coverage provided to QBs must be the same as coverage provided to “similarly situated” individuals covered under the plan (not receiving COBRA coverage)

Intended to be the same coverage the QB had before the qualifying event

QBs entitled to same benefits, rights and privileges that similarly situated participant or beneficiary receives under the plan

Changes to plan’s terms that affect similarly situated participants and beneficiaries apply to QBs receiving COBRA coverage

#3 – Charging Too Much or Too Little

Group health plans can require QBs to pay for COBRA coverage May choose to provide coverage at a discount or no cost

Maximum COBRA premium cannot exceed 102% of cost to plan for similarly situated plan participants

Disabled QBs receiving disability extension may be charged up to 150% of the plan’s total cost of coverage

COBRA premiums may be increased if plan cost increases, but must be fixed in advance of each 12-month premium cycle

#2 – No Documentation

Notice information and procedures – document in SPD and notices

Document notices sent Certificate of mailing Business records method

Keep records of notices received Document payments received Accurate and thorough records will assist in

administration and support plan in event of a claim

#1 – Bad Timing

Maximum coverage period 18 months for termination of employment and reduction in

hours 36 months for death of covered employee, divorce or

separation, covered employee’s entitlement to Medicare Can be extended or terminated early Special rule for newborn/adopted children – maximum

coverage period is the remainder of the original maximum coverage period

Expanding COBRA Coverage

Extended notice rule permits maximum coverage ➨period to run from date of loss of coverage, not date of triggering event

Disability extending rule extends 18-month period ➨to 29 months for all related QBs

Multiple qualifying event rule extends 18-month ➨period to 36 months for spouse and children when 2nd qualifying event occurs during initial 18-month period

Expanding COBRA Coverage

Medicare entitlement rule extends 18-month ➨period for spouses and children when covered employee becomes entitled to Medicare within 18 months before triggering event

Bankruptcy of sponsoring employer extends ➨coverage for retired employee, spouse and dependent children

Terminating COBRA Coverage

COBRA coverage generally terminates at end of maximum coverage period No notice to QB required

COBRA may be terminated early if: QB fails to make timely premium payments Employer ceases to make any health plan available to any

employee QB becomes covered under another group health plan Disabled QB is determined not to be disabled For cause

Notice required for early termination

QUESTIONS???

Top 10 cobra mistakes presentation

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