This session was presented on February 16, 2023
80% of employer time spent addressing COBRA questions focuses on a few key areas where mistakes are common. Those mistakes are avoidable! In this session we break down your basic COBRA obligations and prepare you to be ready when a triggering event occurs. You’ll learn where common missteps occur and leave with best practice tips and tools to help you meet your COBRA obligations like a pro! Employers with COBRA administrators will also benefit from a better understanding of their obligations.
Session Transcript:
Eeloria Brown: Hello, and thank you for joining us today for a conversation about COBRA. We’re just going to give it a minute to let everybody get settled before we begin. So please get yourself ready and we’re just going to give it a few moments.
All right. It’s like we’ve got people coming in.
[00:00:30] All right.
Bethany, how do you think we’re looking?
Bethany Lopusna…: I think we’re looking pretty good. I’d say we can probably go ahead and get started.
Eeloria Brown: Perfect. Perfect. And let’s just begin by introducing ourselves. So my name is Eeloria Brown and I’m a Benefits Advisor at Mineral, going on my sixth [00:01:00] year, and I am very grateful for this opportunity for us to get together.
Bethany Lopusna…: Hello there. I am Bethany Lopusnak, and I lead our Benefits Advisory Services team. And I have been working in HR and Benefits for nearly 25 years, and I can tell you from experience that COBRA is one of those areas where there are always a ton of questions and often misunderstandings. So we are really excited to demystify some things today. But before we get started, let’s go over [00:01:30] just a few housekeeping items.
Eeloria Brown: Perfect. First, we will email you the recording of this presentation and the slides within 24 or so hours, 24-ish hours. Within those slides, you’ll also see some extra sample cases and solutions we’re not actually going to cover in this webinar, so we do really encourage you to review those for additional insights. And then we’ll also hold a few polls throughout, and we really do hope that you’ll participate in them, [00:02:00] so just stay tuned. And then finally, please use the Q&A box for general questions and we’ll answer as many as we can during the brief Q&A session at the end. However, if you have an employer specific or an employee specific question, please reach out to one of our experts on the platforms. We can address you or address your issue in that matter.
Bethany Lopusna…: Thank you for that. Let’s go ahead and cover our learning objectives for today. Eeloria, can you walk us through those?
Eeloria Brown: [00:02:30] Absolutely. What we hope for and what we expect is, really at the end in the webinar, you’ll have really three takeaways. And so we see a good number of COBRA cases submitted. This ranges from fundamental COBRA questions to really complex situations, under which often there may not actually be exact guidance available under the regulations or there could be multiple compounding events. So the first hopeful outcome of this webinar is to dissect the various parts of that COBRA obligation so that the employers are empowered [00:03:00] to apply these regulations to most events that will occur in their organizations. And then secondly, our goal is to ensure that for those more complicated or nuanced COBRA situations, you will have a clearer understanding that when you started in terms of deciding the best compliant path forward. And then lastly, we intend to elevate your knowledge to both design internal processes to help prevent compliance issues as well as what to do when occurs, because they will, they’re just unavoidable.
Bethany Lopusna…: [00:03:30] This is so true. Whether you are an employer administering COBRA in-house or you have a third party administrator or TPA assisting, really everyone involved will benefit from a better understanding of COBRA. Now, today’s webinar covers federal COBRA obligations, but you might also have requirements under a state Mini-COBRA law or a conversion provision. We are not going to be discussing those today, but you can find basic information about many COBRA rights on our platform. [00:04:00] I also just want to take a moment to note that we know that people joining today may be at various levels of understanding when it comes to COBRA. So some of you might be hearing things for the first time, and for others some things might be a refresher. But either way, don’t hesitate to ask questions. And let’s go ahead and take a look at our agenda.
Today we are going to cover who COBRA applies to, what the basic parts of the regulation are [00:04:30] and how employers must comply. We’re going to be highlighting common scenarios employers encounter. We’ll talk about some best practices to help you ensure your COVID administration process is effective. And as Eeloria mentioned earlier, when you get a copy of the webinar, recording and slides, you’ll see that in the appendix there are some examples of common errors and sample steps to resolve them. So we’re not going to cover those today, but we’ve provided them as an additional resource. Let’s go ahead and kick things off [00:05:00] with a poll.
Eeloria Brown: All right.
Bethany Lopusna…: All right. Let me see here. So please be candid here. There’s no wrong answers. And this question really helps us understand where you’re all starting from when it comes to your current levels of COBRA confidence related to COVID administration. So whether you are so confident you could do a TED talk on the topic all the way to being somebody who just recently realized, “Oh my gosh, I might have some COBRA administration obligations.” So we will [00:05:30] give you… I can see a lot of these responses are coming in. Thank you for that. We’ll give you another 10, 20 seconds to select an option before we take a look at the results.
Eeloria Brown: Perfect. And again, there is no right or wrong answer. It simply just helps us to understand where you’re starting from and where we can take you to the next level.
Bethany Lopusna…: All right, let’s see. Great. I think [00:06:00] we’re about ready to share the results.
Eeloria Brown: Perfect. It looks like most of you have your fingers crossed, and I understand that, or maybe this is something new to you. And there’s with some confidence, but I really do appreciate that honestly, that this is something that we all struggle with as employers and administrators. Let’s get started with how to know if an employer is subject [00:06:30] to COBRA so we can begin boosting your knowledge no matter where you started from. Just one moment. All right.
As you can see, our webinar today is mainly focused on obligations for private employers. Which one of these employers does it actually apply to? Private employers with 20 plus employees on more than 50% of their [00:07:00] typical business days in the previous calendar year. So this is always going to look to the calendar year. Also, controlled groups, like if there’s a parent or subsidiary or brother, sister companies, those are all counted together for that 20. And note that many church organizations are exempt all together from COBRA. And COBRA has made part of the… Sorry, of ERISA, which stands for the Employee Retirement Income Security Act, and the IRS code. [00:07:30] All right. So again, this 20 employee count is a broad brush, so it includes all common law employees such as part-time, full-time, union. And this is regardless of the benefit plan year or whether the employees actually benefits eligible.
Bethany Lopusna…: That’s a really great point, Eeloria, and actually just saw a question come in where somebody was asking if it applies to all employees or just full-time, so-
Eeloria Brown: [inaudible 00:07:57].
Bethany Lopusna…: … great point, it applies to part-time and full-time. [00:08:00] Although we’re focusing on private employers, you should be aware that non-federal public employers can be subject to COBRA as well. We’re not going to get into the details, but the information is there on the screen and in the deck for your reference. I will say, it’s not always clear who’s a public employer. It could include state or local governments, cities, even public school districts. So if you aren’t sure if you’re a public employer, you’ll definitely want to check with legal counsel to be certain.
Eeloria Brown: Yes, thank you. And also remember that in this context, [00:08:30] public does not mean publicly traded. That’s not what that is referencing. Let’s now discuss the proper method to count to 20. Because believe it or not, it is not as simple as just 1, 2, 3, 4, and we get our way to 20. It’d be nice, but it’s not. We know some of you have this down cold, but we also know that there are some on the presentation today who are seeing this for the first time, so we want to make sure everybody is clear. If all employees are full-time [00:09:00] in an organization, then counting is really easy, it’s straightforward, one for one. However, if there are part-time employees, then each is actually counted as a fraction of a full-time employee towards that 20. So in this fraction, the numerator, the top number, equals the part-time hours worked.
And the denominator or the bottom number equals the hours an employee must work to be considered full-time. And keep in mind that the denominator cannot exceed 40, so we can’t say it’s 50 hours to be full-time. I’m [00:09:30] a visual person, I love to look at this as a quick example calculation and let’s do that together. So here’s the sample, sample employer, they’re trying to figure out if COBRA applies to them, and they’ve got 10 full-time employees doing 40 hours a week. That’s pretty simple. But they also have 20 hour part-timers and there’s five of them. And then they have these hybrid part-timers are doing 25 hours, and there’s eight of those. So if we turn these into fractions, then for a full-time employee, again, it’s [00:10:00] just one employee. But if it’s a part-time employee working half-time, then the fraction actually becomes 20 hours over 40 hours or half of an employee.
And then we can apply that same math to the part-time we’re doing 25 hours. So it’s 25 over 40, which is a five-eights employee. So if we add up how many of each in each category we have, one times 10, well that’s 10. So we have 10 full-time employees. For the part-time 20 hours, it would be [00:10:30] half of that, so half of five, which is two and a half employees. And then for the 25 hours, five-eights times eight of those equals five. So we just simply add them all up. And in this case we get 17.5 total employees. So this means they are not a COBRA covered employer.
Bethany Lopusna…: Thank you for that. One of the things that I think often comes up when you end up with this kind of fractional amount, should employers be rounding [00:11:00] up here? I know we all know we don’t have half a person in real life, so what should they do?
Eeloria Brown: That does make sense. However, the rules are a little bit different. We all know we don’t have a half person in real life, but rounding up or down is not expressly addressed in the COBRA regulations. The original text of the law states fewer than 20 are exempt, and then related FAQ state at least 20. So employers may want to consider a literal interpretation and not round up or down if unable to otherwise address [00:11:30] this with their carriers and legal counsel. And obviously if this is 19.5, a lot of employers may be tempted to be looking at rounding at that point.
Bethany Lopusna…: All right.
Eeloria Brown: Let’s get into the meat of it. And really, as you can see in this box, the full definition of what the COBRA obligation is can be summarized as a qualified beneficiary who loses group health plan coverage due to qualifying event [00:12:00] is allowed to elect to continue coverage for a limited time on a self-pay basis. A lot of words in there, not the most straightforward or specific, so if we break this sentence down, there really are six key parts. So the first is a qualified beneficiary. The second is a loss of group health plan coverage. Third is a qualifying event that caused that. And the fourth is the right to elect to continue [00:12:30] coverage. And the fifth is for a period of time, not forever. And then the last is on a self-pay basis, so who picks up the cost of that coverage. So this means that all of these components are present for a fully compliant COBRA offer. And don’t worry, we don’t expect you to memorize those, we will remind you along the way.
Bethany Lopusna…: Thank you for that, Eeloria. Next, we’re really going to dive into these individual six components. They’re really [00:13:00] important and better understanding them will help you when you’re involved in case specific decision making along the way. All right, let’s start by talking about who is a qualified beneficiary or QB. It’s really important to understand the difference between who must be provided COBRA rights versus who can be provided COBRA rights. And that determination will ensure that you are administering your COBRA program compliantly and following the ERISA obligations that require [00:13:30] you as a plan sponsor to administer your plan as it’s written. And when I say, “As it’s written,” what I mean is following the rules outlined in your plans, Summary Plan Description or SPD. So Eeloria, can you talk to us a bit about who is a qualified beneficiary?
Eeloria Brown: Absolutely. And so this is that first component part that you see in that definition above. And really it’s an individual that’s covered by a group health plan on the day before a qualifying event occurs. And they have to be an employee, [00:14:00] a spouse or former spouse, or their dependent child. So there are some special cases as you can see there, but that is the basis of what a qualified beneficiary is. But again, as a visual person, I like to think of it as an equation comprised of four parts. So if one’s lacking, then the QB, or qualified beneficiary, status is not present. So let’s look at that little formula.
First it has to be an employee, spouse or child. And then there has to be a COBRA event, [00:14:30] not all events are COBRA events. And then the third component is that there had to have been coverage, qualifying coverage, on the day before the COBRA event. And then there has to be a loss of qualifying coverage as a result. And now we have qualified beneficiary status. So that means that the COBRA rights are triggered at that point, when all of these components are available and the equation is completed.
Bethany Lopusna…: [00:15:00] Thank you for that. And Eeloria, I want to pause for just a second because I’m looking at the Q&A here and there’s a question in the chat that’s relevant, and frankly it’s one we hear a lot, so I’m going to paraphrase this. “If an employee has their domestic partner enrolled in our medical coverage and their domestic partnership ends, do we have to offer COBRA to the domestic partner? Isn’t that the same as divorce?” What would you say about that?
Eeloria Brown: You’re right, that does come up a lot and I’m glad someone raised that. Intuitively it makes sense [00:15:30] that it’s similar to a divorce, a relationship is ending, but if the end of this partnership does result a loss in coverage for that ex-partner, this is actually not a required COBRA qualifying event because the ex in this case is not a qualified beneficiary, so they are not meeting that first part of the equation, they’re not an employee, a spouse or a child. That’s where that would be problematic. However, a plan could be voluntarily [00:16:00] written to afford them rights in the same manner, that’s when it would become plan specific.
Bethany Lopusna…: Got it. Thank you for that. Now before we move to the next section, I want to take a pause for a quick knowledge check, so if you have a moment to look at this formula on the screen here, it will become relevant. Let’s see. We talked about the pieces of the qualified beneficiary formula, so let’s do a quick knowledge check. We know that a qualified [00:16:30] beneficiary is an employee, spouse or child, and that in order for the COBRA qualifying event to be triggered, they have to lose coverage and they must be enrolled in the group health plan.
However, when do they have to be enrolled by in order to be a qualified beneficiary? And your choices are, the first day of the month in which the qualifying event occurs, the day before the qualifying event occurs or the day after the qualifying event occurs. I can see a lot of you are fast fingers there, so [00:17:00] got that coming in. We’ll give you probably about 20 more seconds just to make your selection. So feel free, take a guess. Let’s see. Give you a few more seconds here. All right, about five more seconds and then we’re going to go ahead and close it out. All right, let’s see how we did. Eeloria, how did we [00:17:30] do?
Eeloria Brown: Well, I think we actually did quite well. Let’s do a little personal round of applause there. The correct answer is B. Let’s talk now about the types of plans that are considered group health plans, the ones that are eligible for COBRA. As you can see here, we have a little chart, but the key criterion for the second component of the COBRA obligation is defining what group [00:18:00] health plans are considered qualifying coverage. So which plans count. And this term can vary in definition across different regulations, but in this context, it looks to whether, quote, unquote, “medical care” is provided. So keep in mind this is a broad definition that can include care for the whole body, including mental health, dental, vision, et cetera. It’s not just what’s under a medical plan. For example, when looking at an Employee Assistance Program, or EAP, mental health counseling is considered medical care.
Accordingly, an EAP [00:18:30] providing mental health counseling is subject to COBRA. Conversely, if this employee assistance program purely provides referrals and general information and is not staffed by trained counselors, likely it is not required to offer COBRA. So you can also see some examples on this slide of common types of coverage that are not covered by COBRA. Keep in mind this is not exhaustive, but these are your main ones. For example, a healthcare flexible spending account [00:19:00] can be COBRA eligible, but a dependent care flexible spending account never will be. And the difference is there’s no medical care provided under a dependent care FSA.
Bethany Lopusna…: Good to know. When I’m looking at this, I think the takeaway here, for all of you listening, is that it’s important to know which of your plans are subject to COBRA to ensure that you are not missing any of those key obligations. Let’s talk now about what actually triggers the requirement to [00:19:30] offer a group health plan under COBRA. And specifically, we’re going to talk about that third step, what is a COBRA qualifying event?
Eeloria Brown: Absolutely. First it’s important to note that we were talking about COBRA qualifying events. This is absolutely not the same list as those afforded under cafeteria, or section 125 plan rules or HIPAA special enrollment rights. I know it’s the same term, but it’s a completely different list. As you can see here, there’s really three categories [00:20:00] of qualifying events for COBRA. These events will trigger COBRA if for an employee they have a termination of employment, for whatever reason it just ends, except gross misconduct or if there’s a reduction in hours of employment below the eligibility for the plan. So for a spouse, they have all those same events that can happen to them as can happen to the employee in the first column, plus they can have a qualifying event if the covered employee becomes entitled to [00:20:30] Medicare if there’s a divorce or legal separation with their spouse or there’s a death of the covered employee.
And then the same applies for dependent child events. They get everything in the spouse column as well, but another event to add in there is if they lose child dependent status under her plan, like turning age 26 under a medical plan and simply no longer being eligible. As you can see, there’s a much narrow list of events that require COBRA to be offered compared to those midyear event rules. [00:21:00] And not all losses of this group health plan coverage trigger COBRA. So it’s important to understand which ones do and which ones do not. For example, if I have an employee who never elected benefits but then is terminated from employment, even though that’s a qualifying event, COBRA is not due as there’s actually no loss that occurred, again, even though that is a listed qualifying event.
Bethany Lopusna…: Got it. So if an employer is subject to COBRA, and we’ve established there are qualified beneficiaries, [00:21:30] who’ve had a qualifying event, let’s talk about what rights do they actually get.
Eeloria Brown: Definitely. We’re on that fourth component part, believe it or not. And as you see listed there, there are various election rights that are afforded to qualified beneficiaries. If we look at them in groupings, there’s standalone election rights, meaning that each qualified beneficiary can make their own choices independently and they can also choose to enroll for others [00:22:00] or do OBO, or On Behalf of Elections. A spouse can elect COBRA for a child, the child doesn’t have to do it themselves. Now waiving is a whole nother matter, so just keep that in mind. And they also have the rights for certain time periods to allow them to elect. So they have to be given an election notice and they have to be given at least 60 days to decide when to elect. What’s important to note is that that 60 day election window starts from the date coverage is lost or the date the COBRA [00:22:30] election notice is provided by the employer whichever is later.
Getting that notice out quickly is really important and can certainly help you, and we’ll talk about that more with some tips and tricks later. And then also note that as of the date of this live webinar, this deadline is currently extended or told due to COVID-19, but is anticipated end on May 11th of this year. And then also identical coverage, that’s the last component or the last right. [00:23:00] A qualified beneficiary has to be given the exact same coverage that they had before the event occurred. And generally that, again, is the same coverage that happened right before the event. So they have that right to continue the coverage they were in.
Bethany Lopusna…: Thank you for that. Once we determine that COBRA is due in a particular situation, how does an employer know how long it should actually be offered for?
Eeloria Brown: Absolutely. For this fifth part, [00:23:30] we’re going to look at it in a couple of different ways, but keep in mind this is the most that is required by each event type. There are certain early termination events that can occur that will shorten these maximum entitlements for a particular qualified beneficiary. Let’s talk about how much each qualified beneficiary gets, this has a few parts to it. We commonly receive these questions about the proper length, and you’ll see that for an employment ending or hours reducing, that’s an 18- [00:24:00] month event and that is something that can be available to all QBs. So the employee, the spouse, the child, they all have those rights.
Now, 29 months is also available to all qualified beneficiaries that are affected. And it’s really when there is a Social Security administration disability determination, so an actual determination letter is issued. And in that case, 18 months can actually go up to 29 months because there’s an additional optional 11 month extension. All right. And then for [00:24:30] 36 month events, these are often the ones that get people tripped up the most and it’s easy to do. These actually only apply to dependent qualified beneficiaries. So these never go to the employee. The 36-month events are only offered to a spouse or a child, potentially, or both. So that’s an employee death, Medicare part A or B entitlement, divorce or legal separation, or the child loses eligibility.
Bethany Lopusna…: [00:25:00] I suspect that you would agree with me that we get a lot of questions about when Medicare is a triggering event for COBRA. So can you talk a little bit more about that and that asterisk up there on the screen?
Eeloria Brown: Yes, our old friend, COBRA plus Medicare. This is confusing for most and it really is in part, or if not mainly because there are so many public resources, including from the Department of Labor and [00:25:30] CMS included that don’t address fully what, quote, unquote, “entitlement” to Medicare means. So what does this mean? Does it mean eligible? Does doesn’t mean enrolled? Well in the COBRA context, this means Medicare part A or part B enrollment rather than eligibility. So just keep that in mind, when we’re talking here and we use the word entitlement it means enrollment.
Bethany Lopusna…: Good. Thank you for explaining that because I can’t tell you how often that is misunderstood. And sometimes I feel like I want to just start [00:26:00] a personal petition to reword that in the regulations, but for now it is what it is.
Eeloria Brown: Yes, you and me both.
Bethany Lopusna…: Let’s take a pause here and do another quick knowledge check about what you just covered.
Eeloria Brown: Cool.
Bethany Lopusna…: Here’s the scenario. An active employee is enrolled in the employer’s medical plan. The employer offers coverage to full-time employees, but not part-timers. This employee moves to a part-time role, so the question is, how many months of COBRA [00:26:30] are available in this situation? Is it 18 months, 29 or 36? So take a moment and vote. And if you aren’t sure that’s okay, just take your best guess. I can see that people are typing away here. You all have speedy fingers. We’ll give you maybe 20 more seconds. Go ahead.
Eeloria Brown: I was just going to say, and thank you for participating. It’s really nice to see everyone doing their part to cast their vote there.
Bethany Lopusna…: [00:27:00] All right, we’re getting close. Maybe another five seconds or so we’ll give you. We’re going to go ahead and close things out here. And Eeloria, let us know how we did.
Eeloria Brown: We did good. Most of you recognized that this would be an 18-month event, and that’s because it is the employee’s termination of employment… Or not termination, I’m sorry, reduction of hours in this case, where there’s a loss of eligibility [00:27:30] and so it’d be 18 months for that employee.
Bethany Lopusna…: Great, thank you for that. Let’s talk now about a couple special scenarios relating to the length of COBRA that’s available and when the usual timeframe that we’ve been talking about might actually get extended.
Eeloria Brown: Just to keep you on your toes, there’s some special rules. Everything we talked about is true, but there’s two special scenarios to keep in mind on top of those. [00:28:00] And they’re based on secondary COBRA qualifying events. So we call these the two special rules. Let’s look at the first one, and this is when a secondary event occurs. If a qualified beneficiary has an 18 or 29 month COBRA entitlement, and then they experience a secondary qualifying event, they can extend coverage to 36 months. So that 18 can actually turn into 36 or the 29 can turn into 36, only if the second [00:28:30] qualifying event that occurred would have caused them to lose coverage under the plan in the absence of the first. It’s like a really bad word problem basically, but let’s look at it visually.
12/22, last year, whatever reason, the employee has a reduction of our event, they get 18 months of COBRA. Well come January they’re offered COBRA and it’s offered to themselves and the spouse, again for 18 months. [00:29:00] Now we have a situation where there’s a divorce that occurs about six months into COBRA, so in June, and this will then give a 30-month spousal extension. This is one of those extending events for the dependent only, so the employee still only gets 18 months. They’re offered that from January 1st, 2023 to the end of June of next year. But the spouse, because that secondary event, because that divorce would’ve [00:29:30] caused them to lose coverage if the reduction of hours hadn’t occurred, they get theirs extended out up to 36 months, and since they already had six months, we subtract that out and that’s where we get the 30 months from. So one’s getting 18 and the other is getting 36 months total.
Bethany, I know that’s a lot, but hopefully the visual will help you and others, but do you want to explain how this Medicare situation can create an extension [00:30:00] for dependent qualified beneficiaries? I know this is a point of confusion.
Bethany Lopusna…: It is. Medicare, one of my favorite topics. Let’s talk through another example here, and specifically we’re going to talk about how dependent qualified beneficiaries might have their COBRA extended because an employee enrolled in Medicare. So first, when an employee experiences a COBRA qualifying event that provides 18 months of coverage, but that employee enrolls in Medicare less than 18 months before their COBRA qualifying event, [00:30:30] then in that scenario COBRA coverage for the employee’s dependence can last until 36 months after the date the employee became enrolled in Medicare. I know that’s just a word salad there, but this is a special rule that can allow an employee, spouse or children to have COBRA longer than they otherwise might. In our situation, let’s say an employee and their spouse are enrolled in the group health plan and the employee also enrolls in Medicare parts A and B on June 1st, [00:31:00] 2022.
In December of that year, the employee retires. Now that retirement is a COBRA qualifying event that would provide the employee and their spouse with 18 months of KBRA coverage. However, because the employee enrolled in Medicare less than 18 months prior to the COBRA qualifying event, the employee’s dependents, in this case the spouse, are eligible for an extension. Now that only applies to the spouse, not to the employee, but the spouse gets the equivalent [00:31:30] of 36 months minus the amount of time that passed prior to the COBRA event. So in this case, the employee had Medicare six months prior to terminating employment, so prior to their COBRA qualifying event, and 36 minus six is 30, so the employee’s spouse in this scenario is actually eligible for 30 months of coverage. So they get from January 1st, 2023 to June 30th, 2025. That is our second special scenario that commonly [00:32:00] happens that can extend coverage.
Eeloria Brown: Definitely. And we do encourage you to use these slides as a reference point, because I understand that sometimes that’s a lot to retain and really that could be a helpful tool for you. So now that we’ve gone through this fifth component in detail and discuss those maximum lengths of COBRA that are required, let’s talk about the few times that an employer can actually choose to terminate that early. When those are less than 18, 29 or 36 months? [00:32:30] Keep in mind that this is what the employer is empowered to do. A qualified beneficiary doesn’t need to use these reasons to drop COBRA. They can just do so if they desire, if they just don’t want it anymore. So these are four, the five situations that allow an employer to early terminate COBRA. For the first one, premium nonpayment. This comes up a lot, significant underpayment, someone gives you 10 cents for a thousand dollars bill, that’s not paying it, or just doesn’t [00:33:00] pay, or pays and then just stops paying.
So if they’re not paid on time or they’re not paid in full, then with the proper notices given the employer can terminate coverage, so based on that. Now, another scenario is if there’s no group health plan offered anymore. Let’s say that the employer just decides we’re not doing this anymore, we’re shutting our doors, we’re going out of business or what have you, or we’re still staying in the game, but we certainly are not offering health coverage, it’s just too much work. [00:33:30] If that means all of the employer itself, meaning if it’s part of a controlled group, or any successor employers, like in a merger or acquisition, if it just is not there anymore, it can terminate early, again, with the proper notice.
Now the third scenario is if that qualified beneficiary enrolls in other coverage. Let’s say that you have an employee, they terminate employment, they elect COBRA, they get a new job, they enroll [00:34:00] in COBRA… Or I’m sorry, enroll in the new coverage with the employer, then that COBRA can be early terminated by the employer as long as that new coverage they have does not impose any exclusion or limitation in regards to a existing health condition.
That’s a good reason to keep the lines of communication open with those on COBRA, because naturally it’d be really hard to know without them letting you know. And then the fourth is misconduct. Now this is not a common reason, [00:34:30] and this is something definitely that if you’re looking to use this, we’d recommend legal get involved. It would have to be something pretty severe and obviously documentation would be key and that could be litigated. So we’ll just gloss over that one, it doesn’t come up that often. And then for the fifth it’s Medicare enrollment. So again, this is one of those situations where Medicare can have an effect on COBRA and in this case it would occur when a qualified beneficiary enrolls in part A or B, or both, [00:35:00] after electing medical under COBRA.
So we’re looking at the effective dates of the COBRA versus Medicare, and if the effective date of Medicare is after then that corresponding COBRA right can be early terminated. Keep in mind, I know that’s a lot, for the first early termination reason as of the day of this live webinar. This is currently extended and told due to COVID-19 as well, but again, it is anticipated to end on May 11th of this year.
Bethany Lopusna…: [00:35:30] I’m keeping an eye here on the Q&A. And there’s a question that just came in, I think is relevant. Somebody’s asking, you said they can do this with proper notice, what does proper notice mean?
Eeloria Brown: Absolutely, absolutely. This is very important. If you’re looking to terminate as an employer, terminate COBRA coverage for non-payment, then the affected qualified beneficiaries must receive a notice of early termination prior to taking action. So the notice has [00:36:00] to be given as soon as practical after that decision has been made and must describe the date coverage will terminate the reason, nonpayment, and any rights they have under the plan to elect an alternative coverage such as the right to convert to an individual policy if the plan allows for that.
Bethany Lopusna…: That is good to know. And I will just mention here that on our platform we do have a sample for a notice of early termination. So if that’s something where the situation comes up and any of you need that you can find a sample out there on the platform. [00:36:30] So we are at the last of the six parts of the basic COBRA requirement and it’s everyone’s favorite topic, or at least my favorite topic, which is money. But what can you tell us about the cost of COBRA?
Eeloria Brown: Absolutely. This is that self-pay basis component part broken down. And really there’s two rates that can be charged in terms of maximum. One is 102% and one is 150%. For this 102% [00:37:00] that we’re looking at here, again, this is the most an employer can charge, not the minimum they can and do decide to charge less, like maybe only a hundred percent, or maybe pay everything and bill the COBRA qualified beneficiary nothing, such as through a severance subsidy or something similar. The 102% limit is based on the total premium bill by the carrier, or if you’re self-funded that total premium that’s been established under that arrangement.
So let’s just say it’s [00:37:30] like 500 bucks a month for employee only medical, then COBRA would be capped at 510 for that same coverage, because that’s 102%. Same with 36 month events, and it’s important to note as well that these rates, the COBRA rates, have to be established in advance of each 12 premium cycle. So you can’t just change them up once you’ve began without some reason, there’s very minor exceptions and usually that’s aligned with your group health plan year. [00:38:00] So it’s also important to note that if premium rates decrease in this period, let’s say a carrier says, “Oopsies, we’re going to re-rate you mid-plan year, we actually are going to bill you less,” then those COBRA members would have to have an adjustment down because you’re not allowed to exceed that 102% in this case.
Bethany Lopusna…: You mentioned 150%, and I know the rules are slightly different when COBRA is due to a disability determination. How does the pricing approach change in that scenario?
Eeloria Brown: [00:38:30] Definitely. During that 11 month extension, during that period, an employer is allowed to charge up to 150% of the total premium build. And again, this applies to all QBs, or all qualified beneficiaries, in that 11 month extension period, not further periods. If we look at that same $500 a month cost when they’re an active employee than under this period of an extension, they could actually charge up to $750 a month. [00:39:00] Not saying that has to be done, but that is an option that is allowed, that is the most.
Bethany Lopusna…: That is good to know. We’ve talked a little bit about these maximum amounts that an employer can charge, and I think the next logical question here is, what is the deadline by which qualified beneficiaries have to pay their COBRA premiums?
Eeloria Brown: That is a really great question. As you can see here, basically they must be permitted to pay at least on a monthly basis. You can’t say, “You have to pay me every day, every week,” [00:39:30] or anything like that. You could let them pay at other intervals, like weekly, or quarterly, or every other month, or whatever. But the regulations state that you cannot be more restrictive than allowing them a month to pay. And the initial payment is due within 45 days after they’ve elected COBRA. And typically it’s retroactive to cover the cost from the original loss of coverage date to the date of the election. And then, ongoing payments are due on the date that the plan states, and usually it’s the first of the [00:40:00] month, and there has to be a minimum 30-day grace period for payments.
And then, importantly remember that if you’re trying to figure out if a payment is untimely or not, it’s actually considered made on the date that it is sent or postmarked, not the date that the employer or COBRA administrator gets it. So you’re not also obligated to send monthly premium notices or reminders, but often coupon books or similar approaches are used just to hopefully give a good reminder, but definitely not required. And [00:40:30] then, one little final note, again just of a little reminder, this is also a provision that the payment deadlines that has been extended or told due to COVID-19. So keep that in mind, but again, this is if everything goes as expected, will end May 11th, 2023.
Bethany Lopusna…: That was a lot of really great information that we covered. And now that we’ve addressed some basics, let’s talk a little bit about some common errors that employers run into.
Eeloria Brown: [00:41:00] Yes, definitely. And this is no judgment zone, we’ve all done them. And again, these are really the three common categories of mistakes or errors that can occur when it comes to COBRA compliance. Really the first is, employers can think that they are exempt from COBRA when in fact they’re not. Getting the covered employer status wrong, that whole counting to 20. Those that dip under and over 20 employees year to year may be particularly ripe for this. It’s [00:41:30] really important to ensure that your status and plan documents are up-to-date and that this is looked at and reviewed so it doesn’t catch you unaware. When do we get this wrong most often? Well, when really we have fluctuations, like I said, plus or minus 20, or maybe they just don’t count the employees properly, we forget the part-timers or a union employee, or forgets a related employer, when it comes to common ownership. [00:42:00] We also get a good deal of questions about notices, which ones, when are they due, so let’s talk about the second common mistake that can be made or that’s commonly made.
Bethany Lopusna…: As you mentioned, the next mistake relates to COBRA notices, but before we get into that, I want to just take a moment and acknowledge that there are a lot of required notices. You can see some of the ones on the slides, everything from a general rights notice, [00:42:30] qualifying event, election notice, notice of unavailability, and notice of early termination, which you referenced earlier. Those are just some common examples, but I encourage all of you to check out our COBRA compliance chart on the platform. It does have a full list of the notices, including some optional ones and sample letters. I want to pause for a moment and talk a little bit more about these notices that are on the screen right now in detail, because sending these notices to the right people at the right time is one of the core [00:43:00] responsibilities of COBRA.
So again, these are all required, they’re not optional, this is not all the required ones, but the most common, and they are due at different times and based on different events. The first one, the general rights notice, is due to the employee and any covered spouse within 90 days of becoming covered by a plan. But practically speaking, most employers really just give it as part of the new hire enrollment or open enrollment packages. And it’s often included with the Summary Plan [00:43:30] Description, the SPD. Now the next notices, qualifying event notices, and they are due at different times depending on what the qualifying event is, and you can see those on the screen. But it’s worth noting that for the first three qualifying events, the employer is responsible for notifying the plan administrator within 30 days of the event. And that’s so that the administrator can then take the next step and send the election notice.
But in the case of divorce, separation [00:44:00] or a child becoming ineligible, employee or qualified beneficiary is actually responsible for notifying the plan administrator. And that’s because you obviously aren’t going to know about these events unless they tell you. So in that case, the employee or qualified beneficiary has 60 days to do that. Now the actual election notice, that’s what goes out to the qualified beneficiaries so that they can elect or decline COBRA. Now the plan administrator has 14 days to provide that election notice to the qualified beneficiaries [00:44:30] after they’re informed about the qualifying event. Now, one thing I just want to note here is that if the employer is doing the administration themselves and is the plan administrator, and that’s not uncommon, you actually have 44 days, because you get that 30-day period to notify the administrator, who in this case is you, and the 14 days to notify the qualified beneficiaries.
30 plus 14, 44. Now, we don’t recommend taking that long if it’s not necessary, but technically [00:45:00] you do have that time available. Now, the last two items here are only required if specific things occur. The first one, the notice of unavailability of COBRA, has to be provided within 14 days of someone requesting COBRA coverage that isn’t available to them. So when might that happen, for example? Let’s say a domestic partner relationship ends, and the domestic partner is removed from the plan. That’s technically not a COBRA qualifying event. So you can either proactively notify the domestic [00:45:30] partner that COBRA isn’t available, that’s a best practice, or you could wait until they request it, then if they do, you’d need to provide this notice within 14 days.
Now the last one on our list here, the notice of early termination, that’s one of the ones that a lawyer referred to earlier, that is only due when COBRA ends before the maximum coverage period. So let’s say the employee enrolls in COBRA, and then notifies you six months later that they have enrolled in Medicare. That’s an early termination event for the employee. And so you would need to provide them [00:46:00] with this notice as soon as possible after becoming aware of the early termination event.
Eeloria Brown: Absolutely. That is with the proper notice, that’s what we mean when we say that, because that will then allow this to happen in a compliant manner. And it’s also important to add that in this context, plan administrator means the individual that’s actually named in the ERISA plan documents, such as the Summary Plan Description. This is not referring to a third party administrator, such as a COBRA vendor, it’s [00:46:30] talking about the actual individual named in the plan. Often the plan administrator is also the employer, but that is not always the case, especially if there’s a complicated organizational setup.
What are the mistakes now that we’ve covered that that can come up with these notices? All right. These are the common ones that can occur, and these can be very costly mistakes to make as there can be per day penalties applied, as well as prompt benefits litigation, definitely [00:47:00] be careful on the notices. And this can happen in a variety of different ways.
Let’s just say an employer just doesn’t distribute a notice. They didn’t know that they had to do this early termination notice before taking action. Or maybe they do and they send a notice, but they don’t do a good notice. It just says, “Benefits are ending.” Well, that’s not good enough. Or the contents of the notice are incorrect, or incomplete, or they’re not sent to all the qualified beneficiaries that they should have been, or maybe they [00:47:30] offer the wrong COBRA option, “I offered you the HMO, but they were enrolled in the PPO,” just as an accident, or if there’s inadequate COBRA notices, forms, plan language or summary plan description disclosures. So there are written documentation requirements as well that we’ll talk about some of these rights that have to be in there. One thing that’s also really important to mention is that you should make sure as an employer that you’re understanding of any COBRA rights due under a certain plan aligns with [00:48:00] the carriers, and again, is formalized in the written plan document, everybody on the same page.
Bethany Lopusna…: Definitely agree there. All right. Let’s talk a little bit about cost errors that can occur next.
Eeloria Brown: The money part. This is where COBRA really can be literally costly. And this is something that can occur when incorrect rates are communicated to the COBRA administrator. Let’s say for example, you have a COBRA vendor, you get your renewal, [00:48:30] you communicate the 102% rates to them, they think you communicate a hundred percent of the rate, and so they add on another 2% and now we’re charging people 104%, which we can’t do. So another mistake is that, again, someone’s just charged too much or too little for COBRA as a qualified beneficiary, or payment deadlines are not enforced or applied in a consistent manner, so you let Bob pay six months late with no problem, but Sally gets terminated because she’s a day past the deadline.
Bethany Lopusna…: That [00:49:00] is definitely good to know, and I think it’s helpful to be aware of the different situations under which mistakes can occur, but we also know that a lot of times mistakes can be avoided altogether if we just put some best practices into action. So that’s what we’re going to talk about next, is a few helpful hints to make your COVID administration as smooth as possible.
Eeloria Brown: Absolutely. And naturally, there’s going to be mistakes, but if we can avoid most of [00:49:30] them, that can certainly cut down on the headache that that involves. Expedient elections, that’s an area of best practice where we can actually minimize adverse selection under the plan. And in case you’re not aware what adverse selection means and why we should care about this for COBRA is, even without the current COVID tolling provisions enforced, qualified beneficiaries have at least 60 days to consider whether they want to elect COBRA. So they lose coverage and they have 60 days to make up their mind. Well, during [00:50:00] the 60-day window, life can happen, and sometimes there could be a medical event that occurs or some other life event that then pushes them to elect when they otherwise would not have. And so, although we’re not suggesting in any way curtailing COBRA rights based on the health factor, if there are too many high claim COBRA members that enroll, this can affect the plan’s overall renewal rates and health.
In short, start the 60-day clock as soon as is permitted. That’s ideal to limit COBRA elections being made [00:50:30] by mostly high claimants. And you can also consider offering inducements for early election or payment like, “If you elect COBRA within 30 days, then we’ll pay for your first month of COBRA,” something like that. Another tip is to consider including a waiver in the COBRA election mailing. Send the COBRA election form, but also a waiver, because once that waiver is signed, [00:51:00] then there’s definitely a really nice cushion that can be allowed by the plan, where if they then later revoke it retroactive coverage doesn’t have to be applied. So it’s definitely something to think about as a best practice.
Bethany Lopusna…: Thank you for that. Certainly all of these things happening can turn into a lot more than 60 days. So getting that clock started as soon as practical is really key. All right. The next recommendation [00:51:30] involves minimizing errors due to miscommunications. And it’s really important to both establish and maintain good communication between you and the qualified beneficiaries to avoid issues that could potentially turn into litigation. That means making sure upfront that you have relevant contact information and reinforcing within the importance of keeping that up to date with you. It also means putting things in writing whenever possible. That is absolutely a best practice and it can help you avoid situations where somebody claims, ” [00:52:00] You told me something,” but you didn’t actually, or to show that you as the employer have just taken all the right steps.
Now having said that, when you’re getting questions about COBRA coverage and your obligations from these qualified beneficiaries, it’s really important to ensure that anything you’re saying is consistent with your plan documents. This is not the time to guess, or just make it up as you go along. You want to make sure you’re checking your summary plan description if you need to or the insurance carriers documents, et cetera. Would you agree with [00:52:30] that, Eeloria?
Eeloria Brown: Documentation is key. And especially so if there’s a carrier or COBRA, third party administrator change, maybe a merger acquisition, HR turnover, who knows? We want to make sure we have a good solid foundation there. Let’s talk about, next, some ways that we can avoid offering more COBRA than what is required or what the plan rules permit. How to keep from giving somebody 19 months [00:53:00] when they should have only gotten 18. So we talked earlier about when a plan is allowed to early terminate COBRA, however, most of those events that permit this right require that the plan administrator first be informed by those qualified beneficiaries. So the plan heavily relies on, for example, a COBRA enrollee to notify them when they start coverage with a new employer, move, become disabled, enroll in Medicare after COBRA, get divorced, give birth, et cetera. So we definitely want to make sure that, again, those lines of communication [00:53:30] are open so that we can capture these timely and we make it clear that they do need to let us know, even after employment ends.
Bethany Lopusna…: That makes a lot of sense. And I think, just again, really underscores why open communication is important and having all those documents up-to-date are key.
Eeloria Brown: Absolutely. Let’s talk about some tips here to minimize process-based compliance risks, so how do we improve the process? [00:54:00] Really it’s create and establish a system, understanding it needs to be maintained and that mistakes can happen. To avoid that, let’s establish a routine audit process to catch system breaks, communication breakdowns, et cetera. Because correcting errors is way easier when discovered earlier than later. It can get very problematic, as you know, Bethany. Finally, again, remember just because your current process is working well one day, it doesn’t mean it’s going to next.
[00:54:30] So file feeds can be really rude and just break without telling anyone they’re going to be a ministry of turnover, maybe with the TPA, the carrier, employer, who knows. Or there just could be, “You made a human mistake,” because you’re one. So employers can save a big headache by periodically auditing their process to make sure everything is working as it should, and then make those modifications if they need to. So for example, you can set up a once a quarter task of comparing the notices that went out on COBRA, on the COBRA website with what the carrier build or with another source file like that.
Bethany Lopusna…: [00:55:00] Got it. Thank you for that. All right, guess what everyone, we have almost made it to the end of our COBRA destination. We appreciate the time you spent with us to discuss all of this. And before opening this up for Q&A, let me just quickly share a couple resources that we can support you with. Again, I would encourage you to check out our platform, the COBRA laws pages have great information. We also have a COBRA compliance chart that includes really helpful sample required and [00:55:30] optional notices and letters. And then there’s two guides here from the Department of Labor, one for an employer and one for an employee, that have really helpful information along with just tips and tricks.
Eeloria Brown: I know we covered a lot of information today, and I hope and I do trust that this was all useful, but now we’re going to review some of the questions you’ve chatted in that we haven’t addressed before and give us just a few seconds to take a look and we’ll be right back to do [00:56:00] so.
Bethany Lopusna…: I’m looking here. Here’s a question. I’ve heard that if an employer, or an employee, drops our coverage to enroll in Medicare, that their family doesn’t get COBRA, but you said Medicare enrollment is a qualifying event, is that true? Good question. Our old friend, Medicare. Here’s the deal. Medicare enrollment is a qualifying event when it causes a loss of coverage. The issue is [00:56:30] that in most cases it does not cause a loss of coverage because most group health plans cannot refuse to allow somebody to enroll because they are enrolling in Medicare. Now, there are some size components to that, but if we say for example, I have an employee who has their spouse and child enrolled, the employee wants to enroll in Medicare and they want to drop coverage, well the spouse and child don’t actually get COBRA in that situation, because the employee is not involuntarily losing coverage, they are voluntarily [00:57:00] making a choice to drop coverage, and that is not a curb for qualifying event, because if they wanted to, they could keep both, they could have the group health plan and they could have Medicare. So that’s how that situation works.
Eeloria Brown: Absolutely. And just to add to that, I think it’s really important to communicate that right to employees that they’re aware, because that does come up a lot and individuals will think, “Well, they involuntarily lost coverage through my decision.” But we go back to that formula [00:57:30] and it’s not all there, so that qualified beneficiary status is not present because there was not an involuntary loss.
Bethany Lopusna…: Got it. That makes total sense. Here’s another one here. I’m going to throw this one over to you, Eeloria, but it says, “If an employer voluntarily chooses to offer COBRA when not required, can they offer a custom or a skinnier version of COBRA rights?
Eeloria Brown: That’s actually really interesting. And like we were talking about [00:58:00] throughout this presentation, COBRA sets the minimums in most cases, or the maximums for how much you can charge somebody, those type of things. But it doesn’t say that you can’t offer COBRA if you’re not required to. So let’s say you’re that 17.5 employer, and you’re not a covered employer, you don’t have to do it. Or maybe you’re a church organization that’s exempted, but you don’t want to just do a hard cutoff at benefits. Absolutely something that you can do, however, it’s something you have to be careful about because [00:58:30] oftentimes the carrier or carriers can just say, “No, we’re not going to do it. We don’t have to. You’re not big enough.”
And in that case, you couldn’t offer it. Maybe you could look at maybe a longer state Mini-COBRA or something, but it has to be agreed to, it has to be formalized, the rules have to be there. It has to be a full program, even if you’re only offering a skinny down or a custom version. Just be cautious, that’s all, and then naturally, that would have to be something that was disclosed [00:59:00] to participants so they didn’t have any confusion and actually think that they had full-blown federal corporate rights.
Bethany Lopusna…: Awesome. Great. Thank you for that. Well, we are about at time, so that’s all the time we have today. As a final reminder, we will email you a PDF of the slides plus the recording in about 24-ish hours. But just want to take a moment again to say thank you so much for taking time out of your busy days to talk with us about COBRA. I want to encourage [00:59:30] you to check out the resources available on the platform, and again, we’ve got our experts available to you to answer any case specific questions or things that we might not have had time to get to today, but that are just burning questions in your mind.
Eeloria Brown: Absolutely. Thank you.
Bethany Lopusna…: Have a great rest of your day, everyone.
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