COBRA: Updated Model Notices and Extended Timing Rules
Despite being close to 35 years old, COBRA continues to create challenges for employers. All of these challenges notwithstanding, it is incumbent upon employers to ensure their best efforts in COBRA compliance.
To review, COBRA applies to employers employing 20 or more employees on at least 50% of the business days in the preceding calendar year. An employer-sponsored plan subject to COBRA includes any comprehensive group health plan, whether insured or self-funded, dental, vision and prescription drug plans, health reimbursement arrangements, medical FSA plans, and any other plan providing medical benefits.
The right to COBRA continuation coverage arises when two events occur: 1) a qualifying event, such as termination or reduction in hours of employment; and 2) a related loss of coverage. One event without the other will not give rise to COBRA.
One of the areas that has been historically challenging relates to the interaction between COBRA and Medicare entitlement. Generally, Medicare entitlement, i.e., actual coverage, that occurs prior to the date COBRA is elected, will not negate eligibility for COBRA. Conversely, Medicare entitlement that arises after the date COBRA is elected can terminate the right to COBRA.
In making a decision about whether to elect COBRA or to enroll in Medicare, it is important for individuals to be aware that the special enrollment window to enroll in Medicare Part B arises at the time coverage as a current employee ends. An individual who fails to timely enroll would be subject to Medicare Part B’s general enrollment period which is available from January 1 through March 31, with coverage effective on July 1 of the year the individual enrolls. Unlike Medicare Part B, Medicare Part D does provide a special enrolment opportunity upon exhaustion of COBRA.
On May 1, 2020, the Department of Labor’s Employee Benefits Security Administration (EBSA) released updated model COBRA notices, together with a set of FAQs, to assist employees in making an informed COBRA decision.
Application of MSP rules. The FAQs provide further explanation of how the Medicare secondary payor rules (MSP) apply. Generally, with the exception of end-stage renal disease, if the individual does not have current employment status, or is not a dependent of individual with current employment status, Medicare pays primary to the group health plan. An individual deciding between Medicare and COBRA needs to be aware that a plan may be written that it will pay secondary, without regard to whether the individual has enrolled in Medicare.
Updated model COBRA notices. The verbiage contained in both the revised model initial general notice and revised model election notice attempts to better explain the Medicare vs. COBRA issue. Both of these notices are available from EBSA’s website:
While an employer is not obligated to use these model notices, they are, at minimum, a starting place for customizing its COBRA notices. As employers are reviewing and updating their COBRA documentation, it is important to ensure that all of the required information contained in these notices is included in the employer’s documents. There is a plethora of litigation going on at this time challenging the voracity of COBRA documentation. Claimants are challenging that documentation is at best, incomplete, and at worse, misleading. Given the current coronavirus-related situation with many employees being furloughed or laid off, the need to offer COBRA is paramount. Employers should take time to review and update their COBRA documentation and processes; this would be a good defense to a later challenge.
COBRA Timeframes Extended
In separate guidance released on April 28, 2020, the Departments of Labor and Treasury announced certain timing relief for plans and participant actions (see Benefit Plan Regulatory Relief, CBIZ COVID-19 Resources, 5/4/20). Generally, this guidance applies for the “outbreak period” from March 1, 2020 (the beginning of the national emergency declared by the President) until 60 days following the end of the national emergency period. At this point, the termination date of the national emergency outbreak period is not known. Further, the governing agencies reserved the right to change the ending date of the outbreak period either by broad application or specific to a region.
Among the different types of benefit plan extended timeframes addressed in this guidance, several COBRA deadlines are extended until after the emergency period ends, including:
- The employer’s 30-day deadline to notify the plan administrator of a qualifying event such as termination or reduction in hours, death, Medicare entitlement, or the employer commencing a bankruptcy proceeding;
- A qualified beneficiary’s 60-day deadline to notify the plan administrator of a divorce or legal separation, loss of dependent child status under the plan, or second qualifying event;
- The 60-day deadline for individuals to notify the plan of a determination of disability;
- The 14-day deadline for plan administrators to furnish COBRA election notices);
- The 60-day deadline for participants to elect COBRA; and
- A COBRA continuee’s 45-day deadline in which to make a first premium payment, as well as the 30-day deadline for subsequent premium payments.
This guidance leaves many unanswered questions, particularly as it relates to the delay in the COBRA election periods. Employers should closely work with their third party administrators, insurers, and stop loss carriers (if applicable) to determine how best to manage the potential eventuality of long periods of time lapsing without a COBRA election, and perhaps even more challenging, a potential lengthy period of time without a COBRA premium payment.
Further, it is unclear to what extent employers and plans are obligated to communicate these changes to plan participants. It is also uncertain how plans will manage claim payments during extended periods without premiums. The regulations suggest that plans can treat claims similar to the way they are treated during a traditional COBRA election period. Effectively, claims can be treated as pending during the period of unpaid premium.