Blog

COBRA Solutions, Inc.

How do COBRA and Medicare Interact?

COBRA Solutions has been answering questions regarding COBRA since 1991 and we are often asked, “What is the most common question regarding COBRA?” It is actually a very easy question to answer; how Medicare and COBRA interact. This COBRAinReview will discuss COBRA and Medicare and how to administer COBRA correctly.

There are six situations where COBRA and Medicare interact and have been interpreted completely different throughout COBRA’s existence. Keep in mind; you cannot use logic when discussing COBRA and Medicare’s interaction. You also will have a difficult time finding confirming information on the internet. Quite frankly, there are many situations where administrative procedures don’t seem logical. Let’s examine those six COBRA and Medicare interactions.

  1. Employee’s Medicare Entitlement While Continuing to Work

    Not all employees retire at age 65. Many want to continue working but over the years the cost for group coverage has increased to the point many Medicare Entitled employees wish to drop their group coverage and obtain a Medicare Supplement Insurance plan. (And, due to MSP rules, employers may not terminate employee coverage because of Medicare Entitlement.) Although it was once considered a COBRA Qualifying Event for covered dependents, today’s interpretation is that the employee would be voluntarily cancelling his/her group insurance and therefore dependents should not be offered COBRA because coverage is not “involuntarily” lost.

    In a situation where an employee voluntarily removes him/herself from a plan, it is recommend to see if they have dependents on their plan. Prior to contacting the insurer to remove the employee, have a conversation to let them know their dependents will be terminated along with them and will not be offered COBRA. Some employers will have the employee sign a form stating he/she understands this consequence if they still wish to cancel coverage.

    In the COBRA software, you would enter this individual under File > Other Unique Files > Active Employee Voluntary Removal From Group Plan > New File. Enter the employee’s information and the system will place the Voluntary Removal Letter in the Things-to do list. Although not required by COBRA, it is recommended you send this notification so dependents know their coverage has been cancelled.

  2. Medicare as a Multiple Qualifying Event

    Once a COBRA Participant has started on COBRA and then becomes Entitled to Medicare, has a “multiple COBRA Qualifying Event” occurred? We know that Medicare Entitlement is a reason for COBRA termination but what about covered Qualified Beneficiaries? Prior to 2004, it was deemed as a qualifying event and covered dependents were offered up to thirty-six months of continuation coverage. But with Rev. Ruling 2004-22, 2004-10 I.R.B. 553, the Internal Revenue Service determined that a COBRA Participant’s Medicare Entitlement will rarely be considered a multiple qualifying event. They stated that under MSP (Medicare Secondary Payer) rules, group health plans are unable to terminate covered dependent’s coverage; therefore there they should not experience a loss of coverage.

    If a COBRA Participant becomes Entitled to Medicare, you will want to remove them from continuation coverage. Follow the steps below in the software to correctly remove them:

    a) Under the Events menu, select the “Remove Individual from Participant’s Plan > New File.”;

    b) Select the COBRA Participant subscriber file from the dropdown list;

    c) Select the individual that became Entitled to Medicare;

    d) Verify the Participant’s address and enter the last day the individual should be on the plan;

    e) Select the plan(s) that the individual should be removed from; and

    f) Click the Ok button.

    If the system cannot automatically determine, you may then be asked what tier/coverage type the remaining COBRA Participants will have after the removal of the individual. After the removal you will want to verify the billing information. The system will prompt you to send a notification informing the individual of their removal from the plan in the Things-to-do list. Double click on it and send the notification via USPS first class mail. Lastly, if there was a tier/coverage type change, you will want to send new coupons (or a letter detailing the new rates) to the remaining covered individuals.

  3. “Special Medicare Rule”

    Just when you thought you knew everything about how COBRA and Medicare interact, ERISA Section 602(2)(A)(vii) [and Treasury Regulation Section 54.4980B-7 Q?A -4(d)(1) ] changes everything. These sections of the law state the if an active employee is terminated (voluntarily or involuntarily) or experiences a reduction in work hours where there is a loss of coverage within 18 months of the employee’s Entitlement to Medicare;

    a) The employee should be offered the right to continue coverage for 18 months; but
    b) Covered dependents should be offered thirty-six months calculated from the date of the employee’s Entitlement to Medicare.

    The COBRA Administration Manager reviews the age of the employee at the time of the Qualifying Event and notifies the user when the employee is terminated or loses coverage to a reduction in work hours. The system will then create a COBRA Participant file for the employee providing 18 months of coverage and another file for the dependents. The dependent’s COBRA end date will be calculated by adding thirty-six months to the employee’ Medicare Entitlement date. You will notice that the system will change the number of months for COBRA to match the end date that was calculated. This number could be calculated to be between 19 and 36. Do not change it or it will change the correct COBRA end date.

  4. COBRA Participant Becomes Entitled to Medicare

    As we explained earlier, Medicare Entitlement is rarely considered a multiple qualifying event. When either an employee (or dependent of) is effective on COBRA and later becomes Entitled to Medicare, that individual “can” be terminated from continuation coverage. We are using the word “can” be terminated because by law they should be terminated from continuation coverage but we have found many Administrators allow these individuals to continue ancillary plans (i.e. dental, vision, etc.) if the carrier agrees to continue coverage.

    Your COBRA software will notify you when individuals reach age 65 and become Entitled to Medicare. Please follow the instructions found under item #2 to remove them from continuation coverage.

  5. Medicare Entitled Active Employee Experiences Qualifying Event

    Should an active employee age 65+ (who is enrolled under Medicare) be offered COBRA when they are terminated or lose coverage due to reduced work hours? In the previous paragraph we described how individuals should be remove when they are enrolled on COBRA and become eligible for Medicare so it only makes sense that you would not offer a Medicare covered employee COBRA when they experience a qualifying event. WRONG. The law states that the employer-sponsored plan may cover items that Medicare does not. For this reason, employers must offer these individuals COBRA continuation.

  6.  COBRA Participant Receives “Disability Extension”

     Although not directly related to Medicare, the reason for allowing a disabled COBRA Participant an additional eleven months of continuation coverage is to provide time to obtain Medicare. If a Qualified Beneficiary is deemed disabled prior to their sixtieth day on COBRA, notified the Administrator within sixty days of Social Security Administration’s (SSA) Disability Determination and provides that determination prior to the end of their 18 months on COBRA, they should be offered an eleven month Disability Extension. All members of the family unit should be granted the extension as well. If the disabled individual is no longer considered by SSA or becomes Entitled to Medicare, they may be removed from the plan.

Hopefully this description of COBRA and Medicare interaction will aide you in your administration. Please refer to it when you come across one of the above scenarios. If you are still unsure, feel free to call COBRA solutions for assistance.

COBRA Solutions Retirement – On December 31, 2017, Ron Johnson decided to retire from COBRA Solutions. Ron has been great asset for over ten years and will be missed greatly by employees and customers as well. Please join me in wishing him good health, fine wine and a passion for life. Until his position is refilled, you may contact Scott Beaver on extension 12.

COBRA Training 101

As we enter a new year, we receive numerous phone calls regarding COBRA administration procedures. And with the addition of many new users, our staff felt it important to go through the basics of COBRA administration so everyone has a clear understanding as to "what needs to be done when" and your administration responsibilities. We know that this may be elementary for many of our seasoned professionals but we still recommend that you take the time to read through it.

Q: What is COBRA?
A: In July of 1986, Congress passed the Consolidated Omnibus Budget Reconciliation Act, commonly known by its acronym COBRA. In the 1980's (as with today), the population of uninsured Americans was growing at an alarming rate. Congress determined that many of these uninsured individuals have some relationship to an employer. Their thought was to create legislation that would allow employees and covered dependents the ability to temporally continue their group coverage for a reasonable amount of time when they experience a "qualifying event."

Q: What is a qualifying event?
A: There are two types of qualifying events; ones that affect employees and others that affect an employee's dependents. The two qualifying events that affect employees are Termination of Employment (for reasons other than "gross misconduct") and a Reduction in Work Hours. To be considered a qualifying event, the employee must have a loss of coverage. (Example: If an employee has a reduction in work hours but is still eligible to continue under the group plans, there is no qualifying event.) Employees experiencing one of these events are eligible to continue coverage (for themselves and their covered dependents) for up to eighteen months under federal COBRA. (Some states such as California have extended the maximum time frame but have placed the burden of administration on the insurance company.)

Dependents have their own qualifying events; Death of the Employee, Divorce or Legal Separation, Employee's Medicare Entitlement and Dependents that no longer meet the definition of a "Dependent" under the group insurance contract. As you can see, covered dependents that experience these qualifying events (in most cases) will experience a loss of coverage and should be offered the right to continue for up to thirty-six months.

Members losing coverage upon experiencing one of these events is classified as a "qualified beneficiary." Each qualified beneficiary has independent rights under COBRA. This means a spouse or dependent child may continue singularly on the group plan as if they were an employee of the company. They may only enroll on the plan(s) they were enrolled on the day prior to the qualifying event (unless they move from a specific service area and another plan is available). At Open Enrollment time, the qualified beneficiary has the same rights as "similarly-situated active employees" and may add/change plans, even add dependents. Dependents added during open enrollment do not receive the same rights as a qualified beneficiary but merely may continue coverage with the qualified beneficiary. In the software, we refer to qualified beneficiaries as "qualifiers."

Q: What are the required notifications?
A: COBRA requires employers (with twenty or more employees - some states have similar state continuation laws with a minimum of two employees) to provide written notifications to inform employees and their covered dependents of their rights to continuation coverage. The law requires five notices; the “General Notice,” Qualifying Event Notice, notice of Conversion rights under eligible group plans, Unavailability of COBRA notice and a Termination letter when the qualified beneficiary terminates coverage prior to the end of his COBRA term. All notifications may be sent by first class mail but some employers prefer to send them in a form that offers proof of mailing. (Administrators are not responsible to see the qualified beneficiary receives the notice but merely prove it has been sent to the last known address.) The General Notice is designed to be sent to newly-hired employees as they enroll on one or more of the group plans. This notification explains COBRA and the steps necessary for notifying the Plan Administrator of a qualifying event. This notice should be sent to both the employee and covered spouse. Many insurance companies include the General Notice in their certificate of coverage but it is recommended a notice be sent via mail. The 2004 Final Regulations state the General Notice should be sent within ninety days from the date coverage becomes effective. We recommend it be sent within 30 days to eliminate other potential issues. To produce this letter in the software, click File and Newly Hired (Active) Employee and enter the employee's information. Double click in the Things-to-Do box on the line that states "Send DOL General Notice to . . ." and the letter will be produced. Since all employees should have been provided this notification at some time; if you cannot prove they receive it you should send another and place a copy in their file.

The COBRA Qualifying Event Letter is the notice sent when an employee/dependent experiences a qualifying event. This letter is similar to the General Notice in that it explains COBRA but it also details the cost for coverage and the enrollment procedures. Anytime you remove someone from the insurance plan, you should examine if a qualifying event has occurred. If so, you need to send a Qualifying Event Letter. To produce the Qualifying Event Letter in the software, click the File Menu followed by the New COBRA Qualifier option. Enter the information on both the employee and covered dependents. (If the employee elected not to cover his/her dependents on any group plans, do not enter them into the system.) Once completed, the Things-to-Do list will state "Send DOL Qualifying Event Letter to . . .” Double click on that line in the list and the letter will be produced, importing the information specific to the qualified beneficiary. This notice must be sent within forty-four days of the later of the qualifying event date or the date coverage is lost. (Employers using a Third Party Administrator must provide notice within thirty days to the TPA and then the TPA has fourteen days to produce and send the letter.)

The Conversion Notification explains an qualified beneficiary's right when they lose coverage at the end of their COBRA term. Not all plans offer a conversion right and the appropriate box should be checked under the insurance plan information screen. If your plan offers a conversion privilege, the system will track a COBRA Participant's coverage and 180 days prior to the end of their COBRA time frame, a line in the Things-to-do box will advise you to send this notification. A conversion policy is an individual plan whereby the employee/dependent does not have to qualify (by medical underwriting) for coverage. Usually, conversion policies are age-rated and have higher rates than standard individual plans.

The Unavailability of COBRA notification is sent to former qualified beneficiaries who are not eligible to continue under COBRA. For example, a spouse contacts the Plan Administrator ninety days after his/her divorce of their desire to continue coverage. The law provides sixty days for the qualified beneficiary to notify the Plan Administrator; therefore the person did not meet the deadline and have become ineligible for continuation coverage. In the past, the individual would be under the assumption they had coverage (until they submitted a claim and it was denied). For this reason the Department of Labor (DOL) requires Plan Administrators to send a notification explaining they were not re-activated and they do not have coverage. To create this notification, select FILE/Other Unique Files/Individual Ineligible for COBRA/New File. Enter the individual’s information and save. The Things-to-do box will notify you to send the Unavailability of COBRA notice.

In the event you are removing a qualified beneficiary from the group plan (voluntarily or not) prior to the end of their COBRA time frame, the 2004 Final Regulations require you send a termination notice. The software has always produced these notifications and you will be prompted in the Things-to-do box after terminating their coverage. Produce the letter and send as soon as possible (because time frames will vary based upon the type of termination experienced).

COBRA Acceptance - The natural progression of events is that Active employees and covered dependents become qualified beneficiaries who then become COBRA Participants (when they agree to pay for premiums for continuation coverage). As part of the COBRA Qualifying Event Letter, a Summary and Election Form is provided so the qualifier may notify you of their desire to continue coverage. If you receive this form or are contacted directly, you should have them complete a COBRA application for the insurance carrier(s) and notify the software so it may set-up a billing account. Qualifiers have sixty days from the later of date they lose coverage or the date on the Qualifying Event Letter to notify you of their desire to accept COBRA.

Since COBRA coverage is continuation coverage, you must add them back onto the group plan with no lapse in coverage. This could mean going back a few months to retro-actively add them back onto the plan(s). There is one exception when you would not retro-actively enroll the qualifier and that is when the employee removes a dependent from the plan "in anticipation of a future qualifying event." The most common situation is when an employee removes a spouse and later they are divorced. In that situation, you would offer COBRA to the spouse effective on the date of the divorce.

The most important procedure with COBRA administration is to document or have a paper trail of all COBRA-related events. A 2006 court case demonstrated the importance of maintaining a copy of sent notifications (which the software stores in its digital file cabinet) as well as a log detailing all notifications sent, when they were placed in the mail and have the administrator initial it was mailed. The software has a Proof of Mailing Form that should be completed on a daily basis and maintained in a log book.

Q: What about COBRA Premiums?
A: Once a qualifier elects COBRA and becomes a participant, they are required to make payments to your organization. Premiums are based upon the group rates your firm is charged. As an administration fee, you may add two percent to help cover costs. The participant is required to make payments in a timely fashion. They have a forty-five day grace period to make their initial premium payment. Thereafter, they have a thirty-day grace period. If they do not pay within these time frames, you may terminate their coverage. The software tracks payments and notifies you when someone has not paid in a timely fashion. Once notified, you should prepare the termination notice and then terminate them from the plan effective the last day premiums were paid through. If no payments were ever made, terminate coverage back to the original date they were terminated from the group plan. You will want to make sure you notify the insurance companies as soon as possible because most of them have implemented a maximum retro-termination policy, only allowing you to receive premium credits back sixty days. If an employee notifies you they wish to continue coverage but do not submit a premium payment, send the carrier the COBRA enrollment form with a note stating you have not received payment. With this information, the carrier will show the individual enrolled under COBRA but will not pay claims until premium is received.

There will be times when participants will not pay you prior to the company submitting group premiums to the insurance carriers. If you have not received COBRA payments, it is recommended you do not pay the carrier for their premiums.

Q: What is a disability extension?
A: If a qualified beneficiary is disabled on a date that is earlier than the 61st day under COBRA and later considered “disabled” by Social Security, the law provides for that individual and all others covered under the same policy to extend their coverage from eighteen to twenty-nine months. This eleven month extension comes with a price. Employers may (or may not) charge a fifty percent administration fee during this extension. The software will make the necessary change to premiums, automatically.

Q: What is a Multiple Qualifying Event?
A: If an employee initially experiences a termination of employment or reduction in work hours and later a covered dependent experiences another qualifying event, the dependent should be offered the right to continue up to thirty-six months from the original COBRA start date. In the software, click the Events Menu followed by the Multiple Qualifying Event option. Enter the information on the qualifier and the system will create a new billing account for them and produce a letter explaining their rights. (If employment termination follows a reduction in work hours, the law does not consider it a multiple qualifying event, therefore the qualified beneficiary would only receive the eighteen months continuation coverage offered upon the reduction of work hours.)

This is a very brief summary of COBRA. The actual law is hundreds of pages and is very complex. We appreciate your confidence in our software and hope that we can continue to provide you with useful information to assist with maintaining your COBRA compliance. Our goal is to keep you informed about COBRA, proposed legislation and the operation of our software. If you have any recommendations as to content of these monthly newsletters or software enhancements, feel free to email us at help@csisupport.com.

Rules for Open Enrollment

When open enrollment season rolls around, keep in mind that COBRA qualified beneficiaries have the same rights as active employees. Open enrollment is a period in which an employee covered under a plan can choose to be covered under another benefit package within the same plan and at the same time can add or remove coverage of family members. This same rule also applies to COBRA. Under COBRA, a qualified beneficiary is only entitled to continue the coverage in place immediately before the qualifying event. However, COBRA regulations provide that a qualified beneficiary may change coverage at open enrollment to the same extent that similarly situated active employees can do under the plan.

A good example would be taking an employer who offers both a medical indemnity option and an HMO option. Jim an employee who is covered under the medical indemnity option terminates his employment and elects COBRA in July to continue his medical indemnity option coverage. In December during the open enrollment period, Jim now must be given the opportunity to switch to HMO coverage for which the premium rates could be different. If Jim had a spouse who also elected COBRA, the spouse would have the same independent right to switch to the HMO coverage as well. If the spouse retained her indemnity coverage and Jim switched to the HMO, the plan could charge each of them the individual premium rate applicable to the coverage elected.

The rules allow for a qualified beneficiary who elected and paid for COBRA to add coverage for dependents under that plan at open enrollment. If the plan permits active employees to add new family members at times other than open enrollment, then qualified beneficiaries must be permitted as well.

Example of adding a dependent to COBRA coverage: Bob is a covered employee under the group health plan maintained by his employer. At the time when Bob’s employment is terminated, none of his family members are covered under Bob’s group health plan. Because the family members were not covered under the plan the day before the qualifying event, the family members are not qualified beneficiaries and do not have a right to elect COBRA. However, if Bob elects and pays for his COBRA coverage, he must be allowed to add his family members to his COBRA coverage under the plan during any open enrollment period to the extent as similarly situated active employees can do so. The premiums may change based on different rates for family plans.

Here is an example of a dependent child-qualified beneficiary adding a dependent: John is a covered employee under his employer’s group health plan. John’s spouse and child are also covered under the plan. When John terminates employment, all three family members elect and pays for COBRA coverage. John’s child, Jerry, has his own child while still receiving COBRA coverage. In this case, because the child is not a child of John, the child is not a qualified beneficiary in its own right, however Jerry must be allowed to add the child to his COBRA coverage under the plan during open enrollment.

During an open enrollment, qualified beneficiaries can not only switch from one medical plan to another, they can also elect plans of different types if similarly situated active employees are allowed to do so. For example, if an employer offers medical and dental coverage under two separate health plans and a qualified beneficiary elected medical only for his COBRA coverage, the qualified beneficiary must be given the opportunity to add dental to his coverage during the plans open enrollment.

Remember that each qualified beneficiary has their own independent rights. Example: Rick is employed by a company that offers several group health plans. By the terms of the plans, any family member whom an employee chooses to cover must be covered by the plan covering the employee. Before Rick’s termination of employment, he along with his spouse and two children are covered under Plan A. Upon Rick’s termination, each of the four family members is a qualified beneficiary. COBRA coverage is elected by all four family members. Six months after Rick’s termination, there is an open enrollment in which active employees are offered an opportunity to choose to be covered under a new plan or to add or eliminate family coverage. During the open enrollment period, each of the four qualified beneficiaries must be offered the opportunity to switch to another plan as though each qualified beneficiary were an individual employee. Each member of Rick’s family could choose coverage under a separate plan even though family members of employed individuals could not choose to do so. Of course the individual premium would apply under each plan.

No Cost Coverage Eliminates Need for COBRA Penalties

The failure to provide a COBRA notice can result in damage claims and statutory penalties. However, these claims and penalties can be avoided by good faith actions of the plan administrator. In this case a qualified beneficiary sued the employer for failing to provide a COBRA election notice after receiving benefits for 11 months of free coverage based upon an administrative error by the employer. For that reason, a federal district court in Iowa rejected claims that the employer should be subject to COBRA penalties for its notice failure. The case is Cole v. Trinity Health Corp. 2014 WL 222724 (N.D. Iowa, Jan 21 2014).

Bonnie Cole, an employee of Trinity Health Corp., was covered along with her husband and son by Blue Cross Blue shield of Michigan under the company’s group health plan. In December 2010 Bonnie went on leave under the Family and Medical Leave Act. On March 2, 2011 her FMLA expired, and she went on short-term disability leave, which expired on June 8, 2011. Cole temporarily received long-term disability; the LTD insurer ultimately denied benefits but did not request repayment of what it already paid.

Cole’s employment termination date should have been June 8, 2011, the last date on which she was qualified for disability benefits and considered an employee. However, her termination was not processed at that time and she remained on the health plan. In late April 2012, Trinity Health discovered that Cole had not been terminated, so that was processed on May 8, 2012, effective June 8, 2011, and Blue Cross was notified. The Coles’ coverage was terminated effective Jan. 1, 2012. At this time, they had received covered benefits through April 2012.

The Trinity Health system indicated a “COBRA Term Sent Date” of May 8, 2012, but a COBRA notice had not been sent.

After a doctor informed Cole’s husband that they no longer had health coverage, Cole got confirmation from Blue Cross that their coverage had ended. However, it still covered all claims through April 30, 2012. The Coles had $1,307 in medical claims denied by Blue Cross beginning on May 1, 2012. The Coles did have access to coverage through her husband’s employer which became effective June 1, 2012.

The Coles sued Trinity Health, stating that the company violated COBRA’s notice requirements. They sought statutory penalties of up to $110 per day. Trinity Health conceded that it did not send a COBRA notice but argued that a penalty was unwarranted because the Coles received about 11 months of free health coverage. This far exceeded the $1,307 in medical claims incurred before they were covered under her husband’s plan. The court agreed, noting that because of the Coles’ benefit of receiving extended free health coverage, they were already in a better position than they would have been in but for the COBRA notice violation.

In this author’s opinion: Mistakes are bound to happen when administrating COBRA. However when a mistake does happen plan administrators need to be sure to take a good faith and reasonable approach in solving the issue to avoid any risk of penalties and damages

Record Keeping Makes the Difference

As part of a recent discrimination lawsuit, an employer was able to prevail when charged with COBRA Notification Failure due to explicit record keeping. In the suit Perkins v. Rock-Tenn Servs., Inc, 2017 WL2829100 (6th Cir. 2017) the employee claimed she did not receive a COBRA election notice following her resignation. Even after the employee challenged the fact the court was simply depending upon an affidavit from the Third Party Administrator’s delivery manager, the trial court still found the employer had sufficiently provided proof that its TPA had mailed the notice.

In this case the TPA was contracted by the employer to provide recordkeeping services as well as sending COBRA notices to all terminated employees. The delivery manager for the TPA explained that even though they did not retain hard copies of COBRA notices they did keep computer records. While the manager himself did not send the election notice to Ms. Perkins, he was able to show screen shots from their computer system, corroborating the fact the notice had been sent. This evidence, along with the fact that the manager was a long time TPA employee well versed in proper recordkeeping, caused the appellate court to determine the proper notification had occurred.

In this author’s opinion, this case is a reminder that when COBRA notification lawsuits occur, courts often look to the employer or Third Party Administrator’s ability to provide written COBRA notice procedures and records that show these procedures are consistently followed. Remember, proof of receipt is not required. The crucial element in these cases is simply to prove that the notice was sent by means reasonably calculated to reach the qualified beneficiary. It is critical to retain records that back up the fact the procedure is being followed like clockwork.

Extraordinary Circumstances During Election Period

What happens when a qualified beneficiary is incapacitated during the COBRA election period? A recent court case sheds light on this predicament. The case is Regents of the Univ. of Ca. v. Stidham Trucking, Inc., 2017 WL 3840259 and the following are the facts:

Jack Franklin, an employee of Stidham Trucking, Inc. voluntarily resigned on Sept, 26, 2014. The company then properly sent him a COBRA notice giving him 60 days to elect COBRA benefits. Toward the end of the 60 day period, Franklin was in an accident and was hospitalized at University of California Davis Medical Center for 10 days. According to the lawsuit, Franklin was incapacitated during his hospital stay and never elected COBRA.

Upon admission, Regents of the University of California (Regents UC) on behalf of the medical center, alleged that Franklin signed over all of his insurance rights and that his 10-day incapacitation was reason for equitable tolling of the 60-day COBRA election period. In their lawsuit, Regents UC argued that Franklin should have received a new 60 day notice at that point from the plan administrator.

Strangely enough, it wasn’t until 2 years later that Regents UC decided to sue in order to seek a brand new election period. They filed a suit against Stidham, The insurance broker (CobraHelp) and the insurer (Anthem) for COBRA violations, alleging that the defendants denied Franklin the statutory benefits of COBRA by failing to adequately provide him with an opportunity to elect COBRA coverage under the equitable tolling principle.

In the end, the court decided the claim was based on a “misconstruction” of the equitable tolling principle, therefore dismissed the ERISA claims against all parties. The court explained that equitable tolling means the “clock stops running when the extraordinary circumstances arise, but the clock resumes running once the circumstances have ended or when the petitioner ceases to exercise reasonable diligence, whichever occurs earlier.” (Luna v. Kernan, 784 F. 3d. 640, 651 (9th Cir. 2015).

So in this case, Franklin’s election period would have been 70 days at the most. It would not have created another 60 day period, and most certainly would not have extended it another 2 years as requested in this lawsuit! Remember, equitable tolling simply pauses the election period during extraordinary circumstances. If a QB becomes incapacitated or dies during the COBRA election period, the courts have allowed time for recovery or for a legally appointed guardian to either represent the qualified beneficiary or to represent his/her estate.

Class Action Suit for COBRA Notice Violations

In a recent class action suit Pranav Bhattancharya and Navanneetha Koothapillai sued Capgemini North America, Inc. and Capgemini Financial Services, USA, Inc., on behalf of themselves and others for alleged violations of the COBRA provisions in the Employee Retirement Income Security Act (ERISA). The case is Bhattancharya vs. Capgemini North America, Inc. 2016 WL 7049082 (N.D. Ill. December 4, 2016). They claimed that the defendants, as plan administrators, failed to provide them initial COBRA notices as well as COBRA election notices.

As part of their lawsuit, they were seeking injunctive relief, the reimbursement of medical expenses and the cost of insurance premiums paid while they should have been covered. They also asked for statutory penalties of $110 per day for failure to prove a summary plan description (SPD) and a COBRA notice, along with attorneys’ fees and costs.

The penalty claim was promptly dismissed; the court sided with the defendants noting that statutory penalties are not assessed for failing to provide an SPD, but rather when a plan administrator fails or refuses to comply with an information request. The court, however, did not accept the defendants request to dismiss all claims due to their argument that the plaintiffs failed to properly name the plan administrator. The defendants tried to offer a copy of an SPD that listed the Plan administrator as Peter Kornoswke but because “Capgemini Financial Services” followed his name the court rejected their request. The court determined that this could imply the plan administrator was either Kornowske alone or both Kornowske and Capgemini. The court suggested the plaintiffs amend their claim by adding Kornowske as a defendant to remove any confusion.

Furthermore, the defendant’s argument that procedural ERISA violations should only entitle a plaintiff to monetary compensation in the case of bad faith, concealment or prejudice was rejected by the court. They concluded these components are used in determining whether to impose penalties – not as requirements for initially asserting a claim. Again, the court suggested the plaintiffs amend their complaint to allege bad faith, concealment and/ or prejudice. Lastly the defendant’s request to dismiss the injective relief claim was also shot down by the court citing procedural reasons.

In this author’s opinion, this case serves as a reminder for employers and plan administrators to carefully review their COBRA notice procedures as well as content requirements to make sure they are compliant. Using the model COBRA election forms as set forth by the U.S. Department of Labor (DOL) is a smart move so as not to find yourself in hot water with a lawsuit that could result in a settlement or award of damages.

Dangers of Verbal Elections

In order to avoid the game of “who said what” the election notice should require the qualified beneficiary to complete and return the election form provided. This offers proof of their intent as well as documentation for whom they are electing. The following cases are examples of how risky it can be to use verbal elections:

Lackman v. Recovery Service of New Jersey Inc.

During the exit interview the qualified beneficiary, Lackman misunderstood the conversation regarding the coverage being offered when his employer stated it would extend coverage one month as a courtesy. Lackman then believed he would have extended coverage for two months.

When taken to court it was determined that the verbal conversation between Lackman and his employer was irrelevant as Lackman did indeed receive a COBRA election notice a few days after his termination. That notice informed him that he had 60 days from his termination date to make his election. The court ruled that this was a misstatement of the law as the election period is actually 60 days from the latter of the loss of coverage date, or the date that the notice is sent. In this case, that extra month of coverage that the employer offered him should have also extended his election period. Additionally, the notice did not include one very important element – the loss of coverage date.

Lloyd v. Harrington Benefit Services, Inc.

In this case, the qualified beneficiary, Lloyd, alleged he had been given a verbal agreement by his new employer to process and pay for his COBRA coverage from his former employer until he could obtain coverage under the new employer’s health care plan. Both Lloyd and the employer failed to send the COBRA election or payment to the former employer; however it was soon discovered that his coverage had mistakenly continued anyway when Lloyd ended up being rehired by the former employer. The plan was able to obtain reimbursement from the health care providers that had received the mistaken payments for $15,000 in medical claims incurred by Lloyds’ wife during his employment with the new employer. The health care provider’s then came after Lloyd, whereby Lloyd then sued the plan administrator for failing to follow through with the verbal agreement to take care of the election as promised.

The court ultimately dismissed the case because it was determined that he had received his COBRA election notice from his former employer and furthermore the plan administrator did not have any responsibility for the employee’s failure to elect and pay for COBRA coverage. The court determined that Lloyd was not entitled to COBRA coverage and rejected his argument that the other employer was obligated to pay for the claims because no election or payment was ever received.

In this author’s opinion, when an employer receives a verbal election, it would be prudent to make the acceptance of the verbal election conditioned upon receiving a written acceptance so that there are no misunderstandings and lack of documentation. In case the election period is nearby, request that the qualified beneficiary send an email or fax to be safe.

When Administrating COBRA it is Best to Stick to the Guidelines

We frequently receive questions regarding whether or not to make exceptions to COBRA guidelines regarding late payments, late elections, etc. Being sensitive or compassionate to an individual’s situation is typically good practice; however, with COBRA it is best to stick to the guidelines. When you make exceptions to the COBRA rules you are setting a precedent – that means you will also need to apply it to all future instances. Following are a few examples where employers should give careful thought and consider sticking to the COBRA timeframes.

COBRA Premiums
COBRA has set time frames for the qualified beneficiary (QB) to make their COBRA premiums; there is a 45 day grace period for the 1st payment and then a 30 day grace period thereafter. If a QB requests that you accept a late payment, the employer should consider sticking to the rules and not allow for the additional time. The exception here would be an insignificant premium underpayment or incapacity (mental or physical incapacity that makes an individual unable to act or respond).

Secondary Qualifying Events
To be eligible for a secondary qualifying event (death, divorce or legal separation, loss of dependent status or Medicare entitlement) the qualified beneficiary has 60 days to notify the plan administrator of the secondary event. The 60 day clock does not start until the employer provides the notice for this event. If the QB notifies the employer outside of the 60 day time frame the employer should confirm that the notice was provided to the QB in a timely manner. If so, then it would be prudent to adhere to the 60-day timeframe.

Disability
This extension allows a qualified beneficiary to lengthen COBRA from 18 months to 29 months if the following requirements are met:

A Participant must have been disabled (prior to or) within 60 days of the COBRA start date. The Social Security Administration will make the determination as to the eligibility for Social Security benefits and notify the individual if they are considered disabled. The participant needs to provide a copy of this determination prior to you offering the 11 month extension.

During this disability extension period the employer can charge up to 150% of the COBRA premium. It is important for the employer to remain consistent and charge all qualified beneficiaries the 150 percent or the determined amount for the disability extension period.

Providing COBRA beyond 18 months
In some cases an employer might feel sorry for the situation a qualified beneficiary is in and want to extend the COBRA coverage over the 18 month time frame. COBRA has established timeframes for each event. For termination and reduced work hours COBRA provides 18 months of coverage. For other events like death of employee, divorce and loss of dependence status COBRA provides 36 months of coverage. Extending these timeframes is not in the employer’s best interest and may lead to establishing an unwanted precedent. Especially since the insurer may not allow it.

Late Elections
Qualified beneficiaries must be given at least 60 days for the election. This period is measured from the later of the coverage loss date or the date the COBRA election notice is provided by the employer or plan administrator. The important aspect of this is to view the postmark date on the election as the official date to use in these circumstances. Again, accepting an election notice past the 60 day election period is not good practice. You definitely do not want to set a precedent with the election period.

If an employer does decide to make an exception to the COBRA rules, they should consider the negative and positive consequences of the rule and determine how the decision would impact a precedent and the likelihood of the circumstances being repeated. The employer also must confirm with the insurer if making exceptions outside the COBRA rules to make sure they would be allowed. Lastly, make sure to communicate with everyone involved and document the reasons justifying the exception.

Penalties for Late Notice If No Proof of Harm to Qualified Beneficiary?

Will the courts penalize a plan administrator for providing a late COBRA notice if it cannot be shown that the qualified beneficiary was harmed or prejudiced by the late notice? According to a recent court case the answer is “no” as long as there is no intentional bad faith involved. In the case Pethers v. Metro Lift Propane, 2010 WL 3023887 (E.D. Mich., July 29, 2010) Robert Pethers was terminated by Heritage Operating L.P. d/b/a Metro Lift Propane on Oct. 24, 2008. He sued the company for COBRA notice violations when he did not receive a COBRA notice until Dec, 27 2008 - 64 days after his termination date which is well beyond the required 44 days. Pethers did acknowledge however that the notice was dated much earlier in the month and Heritage had paid his health coverage through the end of December 2008.

Even though Pethers admitted that there was no harm done by the late notice as neither he nor his family members were denied medical care or coverage, he moved ahead with his a suit against Heritage for notice violations. The court actually noted that in this case it could be argued that Pethers did not even have a COBRA claim at all because of the fact that the notice was indeed dated earlier, “suggesting that Heritage timely complied with the statute by sending the packet within the 44-day period allowed.” The court further noted that even if Heritage had violated COBRA law on a technicality, it would not be appropriate to assess a penalty. After taking into consideration other similar court cases where a plaintiff could not prove any harm or prejudice resulting from the notice failure, and of course the failure was not intentional, the court concurred by ruling against Pethers. It was determined that not only was Pethers entitled to no damages whatsoever for the late COBRA notice, but his claim was dismissed as well.

In the author’s opinion: Generally speaking, when a qualified beneficiary does not suffer any harm or prejudice due to a notice failure and the employer did not act in bad faith, past history shows the court will generally rule out any damages.

Content Matters When it Comes to Election Notices

An employer/plan administrator is now dealing with a class action lawsuit involving three COBRA claims due to vague language in its COBRA election notice. First, the lawsuit alleges the election notice was not clear enough about the specific date that the COBRA coverage would end. Secondly, it claims there was no instruction as to where to send the premium payments. Finally, it alleges the verbiage in the notice was crafted in such a way that would not be understood by the average plan participant. The case is Valdivieso v. Cushman and Wakefiled, Inc. 2017 U.S. Dist . LEXIS 75574 (M.D. Fla. May 18, 2017).

The facts of the case are as follows:

After Cushman & Wakefield terminated Luis Valdivieso, a COBRA election notice was sent to him. Keep in mind Valdivieso’s native language is Spanish; however, he can read English as well. Valdieso argued that Cushman & Wakefield were not accommodating to the fact that he and his wife were 68 and 61 years old respectively and English was their second language. By sending the notice in English and by using one of the smallest font sizes possible, Valdieviso alleged that Cushman and Wakefield thereby violated the regulatory requirement that a COBRA notice be written in a manner sufficient to be understood by the average plan participant. The court, however, determined that a 68 year old who had trouble reading English would not be considered an “average” participant. Therefore, the court promptly rejected Valdivieso’s 3rd claim. As for the other two, the court noted these were plausible claims.

In regards to the first claim that the notice did not have a specific date of termination, the court agreed. Cushman and Wakefield tried to argue that they had made a good faith effort to comply with its COBRA notice requirements by allowing Valdieso to make an informed decision whether to elect COBRA. They cited a previous court case from 2002, but the court rejected their argument because the good faith defense predated the U.S. Department of Labor’s 2004 COBRA notice regulations. The DOL’s regulation has now included the phrase “termination date” which suggests the employers must state the specific day that the coverage will be terminated.

As for the failure to mention an address to send the premiums, the court again held that Valdivieso stated a plausible claim. Cushman and Wakefield argued that their notice stated, “Additional information about payment will be provided to you after you make your election.” But the court noted that the DOL’s model notice includes a place to enter an appropriate payment address.

In this author’s opinion this case illustrates the importance of not only making sure COBRA election notices are sent to qualified Beneficiaries on a timely basis, but also be diligent about ensuring the content of the notice fulfills the COBRA regulations requirements. The safest bet is to think about using the model COBRA election notice published by the DOL.

COBRA Regulations for Dependent Children

COBRA regulations for dependent children can be confusing and we field many calls from administrators about what must be offered to dependent children, newborns, and adopted children in regards to COBRA coverage. Hopefully the following will provide a better understanding on how to administrate COBRA for children as beneficiaries.

It is important to remember that the term “dependent child” is not defined by COBRA, but rather by the terms of the group health plan. Therefore the Cobra term “dependent Child” is not to be confused with the terms “dependent” or “tax dependent” which are used for federal tax purposes. For example, it is possible that an individual living in the household might be a tax dependent and yet not a Cobra qualified beneficiary because he or she is not a dependent child of the covered employee. Furthermore, dependent children who are qualified beneficiaries have COBRA rights separate from and independent of the covered employees and spouses who are their parents.

There is one circumstance that allows a child to be a qualified beneficiary regardless of whether that he or she is a dependent of the covered employee. For example, a child is receiving benefits according to a qualified medical child support order (QMCSO). A QMCSO creates the right of a child of a plan participant to receive benefits under the participant’s group health plan. It may be required that the health plan of a noncustodial parent provide coverage for that child even though he or she is not considered to be a “dependent” per the health plan’s definition. When a child is enrolled in a group health plan under a QMCSO he or she is treated as a beneficiary for all purposes of ERISA regardless of his or her status as a dependent of the covered employee.

In terms of adult children, if the group health plan provides coverage for the children of their participants, then the coverage generally must be available until the child turns age 26 regardless of their student status. Furthermore, a child enrolling under this mandate must be treated as a HIPAA special enrollee and be offered all of the benefits available to similar individuals who did not lose coverage due to loss of dependent status.

Newborn and newly adopted children that are born to or placed for adoption with the covered employee during COBRA continuation coverage are also considered to be a qualified beneficiary. However, there is a limitation added per the IRS COBRA regulation: If a covered employee who is a qualified beneficiary has not elected COBRA coverage then any newborn or adopted child of the employee born or adopted after the qualifying event is not a qualified beneficiary. It must be pointed out, however that the meaning of this statue is somewhat unclear and may be difficult to interpret in various scenarios. One thing is clear – the newborn or newly adopted baby must be born to or adopted by the covered employee in order to be a qualified beneficiary. For example, if a dependent child Mary ceases to be a dependent and elects COBRA, then gives birth to a baby, that baby would not be considered a qualified beneficiary.

As for a newborn or newly adopted child added at Open Enrollment, the qualifying event giving rise to the period of coverage during which the child is born or adopted determines the amount of remaining coverage. However, if there is a second qualifying event, such as the death of the covered employee, then the child’s COBRA coverage will be extended 36 months from the employee’s termination date. A newborn child has the parent’s maximum coverage period and a child is entitled to the same coverage as children of active employees. For example, if the active employee is allowed to change coverage or add dependents at subsequent open enrollments, then the newborn or adopted child must be allowed to do so as well. Additionally, there are stipulations in the case of an adopted qualified beneficiary with a dependent. For example, if 18 year old Julie is adopted by an active employee during his COBRA coverage, but her daughter Natalie is not adopted, then only Julie can elect coverage at that time. However, at the next open enrollment Natalie can become covered, although Natalie will not be considered a qualified beneficiary.

It must be noted that COBRA’S election rules (including the 60-day deadline) do not apply to the children born or adopted during the COBRA continuation period. They must be enrolled during either the plans’ special 30-day enrollment period or some other period such as open enrollment. In summary although a newborn or newly adopted child is automatically considered a qualified beneficiary, the child is not covered until enrollment occurs. Because the IRS COBRA regulations do not provide for a specific period in which a newborn or newly adopted qualified beneficiary must enroll for COBRA coverage, special caution and legal counsel should be taken before rejecting late enrollments. Furthermore, because the plan administrator is not required to provide a separate COBRA election notice for the newborn or adopted child, the rights of these children should be clearly explained in the election notice that is provided to the qualified beneficiary. The IRS regulation’s definition of adoption or placement for adoption means, “The assumption and retention by the covered employee of a legal obligation for total or partial support of a child in the anticipation of the adoption of the child.” ERISA offers more guidance on what “placed for adoption” means however plan administrators should note that a child may be placed for adoption prior to the adoptive parents having physical custody of the child. Typically when COBRA is elected coverage begins on the date of the qualifying event. Because this rule cannot be applied to a newborn or adopted child who becomes a qualified beneficiary during a COBRA continuation period caused by another qualifying event, the plan administrator will need to determine when the child’s coverage is effective.

Court Rejects COBRA Penalties Even Though Administrative Error Occured

Due to an administrative error, an employer clearly did not provide a qualified beneficiary with a COBRA election notice. However, the qualified beneficiary also benefited from that mistake by receiving 11 months of free health coverage. For that reason, a federal district court in Iowa rejected claims that the employer should be subject to COBRA penalties for its notice failure.

Facts of the Case:

Bonnie Cole, an employee of Trinity Health Corp., was covered under the company’s group health plan, along with her husband and son. Blue Cross Blue Shield of Michigan was the insurer.

Bonnie went on leave under the Family and Medical Leave Act beginning in December 2010. Her FMLA leave expired on March 2, 2011, and she went on short-term disability leave, which expired on June 8, 2011. Cole temporarily received long-term disability; the LTD insurer ultimately denied benefits but did not request repayment of what it already paid.

Cole’s employment termination date should have been June 8, 2011, the last date on which she was qualified for disability benefits and considered an employee. However, her termination was not processed at that time and she remained on the health plan. In late April 2012, Trinity Health discovered that Cole had not been terminated, so that was processed on May 8, 2012, effective June 8, 2011, and Blue Cross was notified. The Coles’ coverage was terminated effective Jan. 1, 2012. At this time, they had received covered benefits through April 2012.

The Trinity Health system indicated a “COBRA Term Sent Date” of May 8, 2012, but a COBRA notice had not been sent.

After a doctor told Cole’s husband that they no longer had health coverage, Cole got confirmation from Blue Cross that their coverage had ended. However, it still covered all claims through April 30, 2012. The Coles had $1,307 in medical claims denied by Blue Cross beginning on May 1, 2012. The Coles did have access to coverage through her husband’s employer, however, which became effective June 1, 2012.

The Coles sued Trinity Health, alleging among other things that the company violated COBRA’s notice requirements. They sought statutory penalties of up to $110 per day. Trinity Health conceded that it did not send a COBRA notice but argued that a penalty was unwarranted because the Coles received about 11 months of free health coverage. This far exceeded the $1,307 in medical claims incurred before they were covered under her husband’s plan. The court agreed, noting that because of the Coles’ benefit of receiving extended free health coverage, they were already in a better position than they would have been in but for the COBRA notice violation.

Insufficient COBRA Premium Payments

According to COBRA regulations, a qualified beneficiary is required to pay their COBRA premiums on time and in full. The plan administrator has the right to terminate COBRA coverage if the qualified beneficiary fails to make the proper payment; however, COBRA law includes a special rule in the case of underpayments. If the shortfall is deemed to be “not significant” (which means it does not exceed $50 or 10% of the COBRA premium) then the plan administrator can do one of following:

First, the plan administrator can simply accept the deficient payment as “paid in full.” Or secondly, the plan administrator may choose to notify the qualified beneficiary of the shortfall and allow for a reasonable timeframe for the deficiency to be collected. Simply accepting the insufficient payment as a full payment can be a slippery slope for most plan administrators – it is difficult to determine what is “not significant” and it also sets a precedence for future payments. So in the majority of cases the plan administrator will opt for the second choice and notify the qualified beneficiary of the shortfall.

This is where things can get tricky – there is a separate COBRA stipulation for grace periods. For the initial payment the grace period is 45 days from the date of COBRA election. After that the grace period is generally 30 days for successive payments. But keep in mind even though 30 days is considered the safe harbor for a grace period, it can actually be longer if the plan is insured and the insurer allows more than 30 days for the employer to make the payment for plan coverage. If that is the case, then the same timeframe must be offered to the qualified beneficiary as well.

When an insufficient payment is made, often times the reason is simply due to a mix-up or error. Perhaps the wrong check to another institution was mailed inadvertently in the COBRA envelope or the numbers written on the check were simply transposed. Although a plan administrator is within the legal rights to begin the termination procedures, in this author’s opinion it might be prudent to go above and beyond to ensure an extra effort was made to allow the qualified beneficiary to rectify the error. Especially if it is apparent that the qualified beneficiary has a history of making the proper payments and suddenly there is an insufficient payment, it might make sense to call or email them to make sure the consequences are clear. Doing so will mitigate costly lawsuits and benefits claims, not to mention the fact that as a plan fiduciary, ERISA requires one to always act in the best interest of participants and beneficiaries.

COBRA Notice Sent on Time Includes Insufficient Content

According to COBRA law, termination of employment or a reduction in hours that thereby results in a loss of health care coverage, are both considered a “qualifying event.” Qualifying events then entitle a qualified beneficiary to “up to 18 months of coverage.” Keep in mind that just because a COBRA notice has been sent to a qualified beneficiary in good faith on a timely basis does meet mean that the employer or plan administrator has met all legal obligations. According to the Department of Labor’s Model Notice there are fifteen content requirements that need to be included in the election notice. A recent court case illustrates the importance of ensuring to cover all 15 specific items in your COBRA notices to avoid costly litigation and penalties. This pending case is Griffin v. Neptune Technology Group, 2015 WL 1635939 9m.D. Ala., April 13, 2015).

Upon termination of employment from Neptune Technologies, Joshua Griffin decided to sue his former employer for failure to send a COBRA notice. Neptune came to court prepared to show they had in good faith sent an election notice to Griffin’s last known address via first class mail. Their Benefits Coordinator attested she followed the routine process in Griffin’s cases, even submitting to the court a copy of the COBRA notice and metered envelope she had sent to Griffin on Jan 32, 2013. Additionally, Neptune provided documentation of their usual method of preparing and sending COBRA notices, including a declaration from another employee describing their standard mailing procedures.

The case is ongoing and thus far the Federal District Court in Alabama did not dispute that Neptune acted reasonably in sending the election notice to Griffin. Neptune was able to show that the notice was properly mailed - first class mail to the last known address. Neptune showed the court that they followed the proper legal requirements in how they sent the notice to Griffin. However, to Neptune’s surprise, the court denied their summary judgment motion stating that the content of the notice was insufficient - only five of the required items were included in their COBRA election notice to Griffin. At that time the DOL’s Model Notice only included fourteen specific requirements but has since been expanded to fifteen. The court noted that not only was this notice woefully incomplete, they pointed out that it directed Griffin to return the election form within 60 days of the notice and to “follow instructions on the next page to complete the enclosed election form.” However, in looking closely at their instructions, the court realized there was no such page attached! It was therefore determined that Neptune failed to provide sufficient content in its notice for Griffin to make a reasonably informed decision as to whether to elect COBRA coverage or not.

In this author’s opinion, let this case be a reminder to read the DOL’s model election notice that was last updated in May 2014 to ensure your election notices comply with all fifteen requirements – after all, content does matter! And don’t forget, the notice should be written in a manner that can be understood and completed properly by the average participant. Failure on the part of a plan administrator to meet COBRA’s requirements can be subject to statutory penalties of up to $110 per day.

Notices Require Specific Information

An employer who attempted to send verbiage from an employee handbook as a COBRA notice “failed miserably” to comply with COBRA law, according to a recent court ruling. It was determined that even if a notice is sent on a timely basis, if the notice does not include specific information per COBRA mandates, it can result in COBRA penalties as well as vulnerability in terms of claims liability. The case is De Leon-Serrano, et al. v. Northwestern Selecta, Inc., 2015 WL 1470571 (D. Puerto Rico, March 31, 2015).

Facts of the case: As a newly hired employee of Northwestern Selecta, Inc., Edgard De Leon-Serrano elected family coverage under their group health plan. Northwestern acted as both the plan sponsor as well as the plan administrator for this plan. De Leon-Serrano was provided with an employee handbook upon his employment which included a three sentence paragraph on COBRA.

COBRA Plan
“This benefit allows an employee who has terminated his/her services with the company to maintain the medical insurance he/she had with the same (if it’s the case), so long as he/she makes the total payments for the cost of the COBRA plan for a maximum period of 18 months, starting on the date of his/her termination or until the employee acquires another medical insurance, whichever is less. One of the principal benefits of the COBRA plan is to provide extension, during the time the employee makes the corresponding payments, to the price of a group plan and not to the price of a self-insured medical insurance. Those insured in the COBRA plan under treatment recognized by the COB RA law and who meet the 18 month coverage may qualify for a coverage extension.”

When De Leon-Serrano terminated his employment on Feb, 15, 2013, Northwestern allegedly sent him and his family a COBRA election notice approximately one week later. The De Leon-Serranos claimed both this notice, as well as the general notice of COBRA rights in the beginning of his employment, were neither timely nor sufficient.

Northwestern tried to claim that the COBRA statute and regulations are permissive; through the statute and regulations they argued that the word “shall” should be understood to mean “may.” Therefore, they contended that meant an alternate method of notification should be allowed. The court found this argument to be absurd – substituting the word “may” for “shall” would make it possible for an employer to decide whether or not to properly inform employees and their qualified beneficiaries of their continuing coverage rights. Needless to say, the court ruled in favor of the plaintiffs in this case and Northwestern was held liable for reimbursement of medical expenses, statutory penalties, attorney’s fees, etc.

In this authors opinion this case illustrates the importance of ensuring both the general notice and the election notice include specific information in order to be COBRA compliant. You must include the name of the plan and contact information in order for the individuals to seek help with any COBRA questions they may need answered. You must identify the type of qualifying event involved and name the qualified beneficiaries that are affected by this event. The date that their active coverage will terminate must be mentioned as well as a statement of their various rights in electing COBRA coverage. The procedures for electing COBRA coverage must be explained with specific dates with regards to the election time period and deadlines. The ramifications of failure to elect COBRA must be clearly spelled out. Finally, a description of the COBRA coverage should be included, along with details of the premium requirements, i.e. amounts and due dates. Make sure to periodically review your notices in order to verify all the pertinent information required has been included. As evidenced in this case, a simple notice without the proper verbiage will not suffice.

The Risk of Administrators Accepting Verbal Elections

In order to avoid the game of “who said what” the election notice should require the qualified beneficiary to complete and return the election form provided. This offers proof of their intent as well as documentation for whom they are electing. The following cases are examples of how risky it can be to use verbal elections:

Lackman v. Recovery Service of New Jersey Inc.

During the exit interview the qualified beneficiary, Lackman misunderstood the conversation regarding the coverage being offered when his employer stated it would extend coverage one month as a courtesy. Lackman then believed he would have extended coverage for two months.

When taken to court it was determined that the verbal conversation between Lackman and his employer was irrelevant as Lackman did indeed receive a COBRA election notice a few days after his termination. That notice informed him that he had 60 days from his termination date to make his election. The court ruled that this was a misstatement of the law as the election period is actually 60 days from the latter of the loss of coverage date, or the date that the notice is sent. In this case, that extra month of coverage that the employer offered him should have also extended his election period. Additionally, the notice did not include one very important element – the loss of coverage date.

Lloyd v. Harrington Benefit Services, Inc.

In this case, the qualified beneficiary, Lloyd, alleged he had been given a verbal agreement by his new employer to process and pay for his COBRA coverage from his former employer until he could obtain coverage under the new employer’s health care plan. Both Lloyd and the employer failed to send the COBRA election or payment to the former employer; however it was soon discovered that his coverage had mistakenly continued anyway when Lloyd ended up being rehired by the former employer. The plan was able to obtain reimbursement from the health care providers that had received the mistaken payments for $15,000 in medical claims incurred by Lloyds’ wife during his employment with the new employer. The health care provider’s then came after Lloyd, whereby Lloyd then sued the plan administrator for failing to follow through with the verbal agreement to take care of the election as promised.

The court ultimately dismissed the case because it was determined that he had received his COBRA election notice from his former employer and furthermore the plan administrator did not have any responsibility for the employee’s failure to elect and pay for COBRA coverage. The court determined that Lloyd was not entitled to COBRA coverage and rejected his argument that the other employer was obligated to pay for the claims because no election or payment was ever received.

In this author’s opinion, when an employer receives a verbal election, it would be prudent to make the acceptance of the verbal election conditioned upon receiving a written acceptance so that there are no misunderstandings and lack of documentation. In case the election period is nearby, request that the qualified beneficiary send an email or fax to be safe.

Working in Conjunction with Insurance Carriers

The following questions are examples of difficult situations that often arise between major insurers and employers along with possible solutions for a positive outcome:

What if the Insurer is denying COBRA?

First of all, the employer should confirm that the COBRA election notice was sent within the proper time frame. Keep in mind the COBRA statute states, “the employer of an employee under a plan must notify the plan administrator of a Qualifying Event with 30 days of the Qualifying Event.” Furthermore, the statute also requires the plan administrator to notify any qualified beneficiary, with respect to an event, within 14 days of the date on which the employer notifies the plan administrator of the date.

In the event that the employer failed to send the election notice within the proper time frame then the insurer can deny COBRA coverage. This means the employer will become self-insured for any and all claims made during the full 18, 29, or 36 month COBBRA coverage period. If confirmation can be made that the election notice was sent in a timely manner and everything was done correctly then the following steps should be taken:

a) Obtain the specific reason the insurer is denying coverage b) Provide documentation of your COBRA compliance along with applicable legal guidance. These can be found in either the notice regulations issued by the U.S. Department of Labor (DOL) in 2004, or the COBRA regulations issued by IRS in 1999 and 2001. c) Examine the COBRA language in the insurance contract and policy – specifically find the part that outlines what obligates the insurer to comply with COBRA.

What if the Insurer is denying an Extension of Coverage?

The first thing to do is make sure the qualified beneficiary was properly notified of their 60-day responsibility to notify the plan of a secondary event. The notice must include who should be notified and in what manner. Remember that until a qualified beneficiary has been notified the “clock does not start ticking.”

In order to ensure the extension will be accepted, the employer should first obtain the specific reason for the denial from the employer and then:

  1. Submit documentation proving the proper time frame was met
  2. Submit documentation received from the qualified beneficiary
  3. Provide the DOL’s 2004 final regulations.

In summary, timing is of the utmost importance when dealing with COBRA. In this author’s opinion employers must work in conjunction with insurance carriers to ensure all rules and regulations are followed. Otherwise, the employer will run the risk of becoming self-insured which could be potentially devastating financially.

Be Careful About Proper Dates when Offering Subsidized COBRA Coverage

A recent court case involved a suit against an employer and plan administrator for an alleged ERISA fiduciary breach along with COBRA notice failures. In the case Damiano v. Institute for In Vitro Sciences et al, 2016 WL 7474535 (D. Md. December 29, 2016) the plaintiff, Michele Damiano sued her former employer, (IIVS) and their third party COBRA administrator, Paychex Insurance Agency, Inc. in connection with material misrepresentation claims as well as COBRA notice violations.

The facts of the case are as follows: Michele Damiano was sent a letter by IIVS on September 9, 2015 stating that she was terminated effective immediately. The letter further affirmed her benefits would be paid through October 31, 2015. However, Damiano ended up liable for $4,900 in dental expenses for procedures that were done in September. Additionally Damiano underwent emergency surgery in early October. A few days later, on October 8, 2015 Paychex issued a COBRA notice that stated her coverage end date would be October 31, 2015 confirming what the original termination letter from IIVS had articulated. However, a second COBRA notice arrived that was dated October 23, 2015 stating that her coverage ended September 9 2015. Because Damiano received this second notice more than 44 days after being fired from her job, she decided to file suit against both IIVS and Paychex based upon a breach of fiduciary duty under ERISA, COBRA notice violations, and lastly, state law breach of contract.

The state law claim was dismissed as preempted by ERISA. As for the fiduciary claim, the defendants tried to wriggle out of this by suggesting Damiano did not detrimentally rely upon the statements in the termination letter. However, Damiano was able to prove that the defendants were indeed a fiduciary and as such they had breached their fiduciary responsibilities to her. Furthermore, she successfully proved her need from the court to remedy the violations. Damiano was able to prove that she “relied on the misrepresentation of the Defendants that she had coverage and thus did not pursue alternate coverage to her detriment.” Therefore her claim of breach of fiduciary duty stood strong. Lastly, her COBRA notice claim also survived because the court concluded that the plan administrator failed to send the notice within the 44-day timeframe.

In this author’s opinion it appears that the conflicting verbiage in the two COBRA notices was probably because of confusion as to whether the employer was offering extended “subsidized” coverage in the severance package or not. In other words, make sure to specify that the even though the coverage may be free of charge for a specified period, the 18 month COBRA period would still begin upon the original employment termination date. And most importantly, the COBRA election notice must be sent within 44 days of that original termination date – not within 44 days of the end of any employer subsidized COBRA coverage.

Administrate Coverage during an Election or Initial Payment Period

An employer or plan administrator has 44 days to provide an election notice. Then the qualified beneficiary has 60 days to elect COBRA. Once the qualified beneficiary has elected COBRA he or she has another 45 days to pay the initial premium. So what happens during these timeframes?

During the election period it is up to each employer to decide whether to remove the qualified beneficiary from the plan when coverage is lost, or allow the qualified beneficiary continue on the plan. If removed from the plan, COBRA coverage could be pending until payment is received. The employer is then responsible to reinstate coverage back to the original loss-of-coverage date once payment is received. Before an employer chooses to keep the qualified beneficiary on the health plan during these grace periods, there are a few aspects to contemplate. If a group health plan is insured, how far back will the insurer allow the retroactive removal of a qualified beneficiary by the employer? Some insurers may not allow the removal to go back more than 60 days. If you add up the three time frames allowed (which would be 44 + 60 + 45) you end up with almost a five month period. If an insurer allows the removal back to only 60 days, the employer will be self-insuring the period that the insurer does not allow. Consequently, it is recommended that the qualified beneficiary be removed from the plan and only reinstated if payment is received. In the case that an employer desires to keep a qualified beneficiary on the plan, it should review the process with the insurer. Upon approval by the insurer to retroactively remove a qualified beneficiary to the original loss-of-coverage date when an election and payment has failed to be received, it is prudent for the employer to obtain confirmation in writing.

How about monthly grace periods for premium payment? This period has to be at least 30 days and most employers hold it to that timeframe. So, if the qualified beneficiary does not pay the monthly premium within the 30 day grace period, the insurer will allow retro-active removal from the plan without any issues. In some cases, insurers will remove qualified beneficiaries each month until premium has been received. Upon receipt of payment, a plan must promptly reinstate coverage; thereby the qualified beneficiary receives coverage for the entire month. This can be a very complicated process to administrate because when a qualified beneficiary is removed each month, claims are denied. As soon as the premium payment is received, however, claims have to be processed.

What about denied claims that a qualified beneficiary has during these grace periods? First of all, claims during the election period or grace period could potentially be denied. Once the qualified beneficiary pays for COBRA coverage, the denied claims can be resubmitted upon reinstatement onto the plan.

What is the correct response when someone contacts the employer or plan administrator about health plan status during these grace periods? According to the IRS final COBRA regulations, a complete response is required to a health care provider’s request regarding a qualified beneficiary’s coverage status during the election and initial payment periods. This means that just a covered or a not covered response will not suffice. To respond to a coverage pending election, the employer can indicate that a qualified beneficiary is removed from the plan during the 60-day election period and then reinstated once COBRA is elected and first payment is received. It is wise to inform the provider’s office of this status, as well as to let them know the qualified beneficiary is not currently on the plan but will have coverage, retroactively, once COBRA coverage is elected and the first payment is received. This notification should include specific dates of election period and premium due dates.

So what is the response if the qualified beneficiary is not removed during the election/payment period? This other option is appropriate if the plan allows coverage during the election period but cancels it retroactively if COBRA is not elected. In this case, the plan or administrator is required to notify a provider that the qualified beneficiary is covered but is subject to retroactive termination if COBRA coverage is not elected and the appropriate premiums are not paid. As part of the information given to the provider, specific election and payment dates should be included.

To avoid liability or litigation, accurate information should be given to a health care provider requesting a qualified beneficiary’s coverage status. Because COBRA is an employer law, the burden of liability may belong to the employer rather than an insurer. Any inquiries regarding health coverage should be handled by the employer or plan administrator rather than the insurer.

Common Examples of “Cause” Resulting in COBRA Termination

The most common examples of “cause” is fraud that is committed by qualified beneficiaries: leaving an ex-spouse on the group health plan after a divorce, covering non-dependents such as stepchildren and other relatives, and failure to report the fact that an adult child under the age of 26 is eligible for other group coverage. Some other examples of fraudulent activities that employers should be made aware of are as follows.

Sometimes Qualified Beneficiaries are tempted to try and come out ahead when covered by two different health insurers. Failure to reveal coverage through another plan by submitting the same claim to two different insurers in the hopes of getting at least 100% of the medical claim reimbursed should never be expected. Dual coverage is possible; however, only one of the insurers will be considered the primary and the other will be the secondary. This attempted “double dipping” will probably not go unnoticed. It will become apparent when the insurers check into the coordination of benefits.

Unfortunately there have been cases where an individual has submitted multiple copies of the same invoice for an ongoing medical condition, but with additional falsified dates in order to get reimbursed for services that were not provided or used. Falsification of claims would be considered fraudulent activity, which would be grounds for COBRA termination. There have also been instances when an individual has received prescription drugs for their medical conditions, only to resell them in a money making scheme. Again this would be considered fraudulent activity, which would also warrant COBRA termination.
Writing a bad check for the COBRA premium could result in COBRA termination if the individual cannot rectify the situation within the grace period. Although there are no guidelines regarding this specific incident, it would be prudent for the plan administrator to make an attempt to contact the individual about this situation before taking drastic steps. If this was simply an oversight and could be corrected in a timely manner, COBRA coverage would continue; however writing bad checks that cannot be covered are grounds for early termination of coverage.

Finally, cause can be expanded past fraudulent activity to include failure to follow plan procedures. If a plan requires that all participants re-enroll every year during open enrollment, including those on COBRA, failure to do so can result in early termination. In the 2007 court case, White v. The Kroger Co., the court upheld the employer’s decision to terminate COBRA coverage before the maximum coverage period due to failure on the part of the QB to re-enroll.

Again, plan administrators need to remember to provide written notice to each affected QB when the COBRA coverage is being terminated early; unfortunately there is no exception even when the termination is due to fraudulent activity.

Administrate Coverage during an Election or Initial Payment Period

An employer or plan administrator has 44 days to provide an election notice. Then the qualified beneficiary has 60 days to elect COBRA. Once the qualified beneficiary has elected COBRA he or she has another 45 days to pay the initial premium. So what happens during these timeframes?

During the election period it is up to each employer to decide whether to remove the qualified beneficiary from the plan when coverage is lost, or allow the qualified beneficiary continue on the plan. If removed from the plan, COBRA coverage could be pending until payment is received. The employer is then responsible to reinstate coverage back to the original loss-of-coverage date once payment is received. Before an employer chooses to keep the qualified beneficiary on the health plan during these grace periods, there are a few aspects to contemplate. If a group health plan is insured, how far back will the insurer allow the retroactive removal of a qualified beneficiary by the employer? Some insurers may not allow the removal to go back more than 60 days. If you add up the three time frames allowed (which would be 44 + 60 + 45) you end up with almost a five month period. If an insurer allows the removal back to only 60 days, the employer will be self-insuring the period that the insurer does not allow. Consequently, it is recommended that the qualified beneficiary be removed from the plan and only reinstated if payment is received. In the case that an employer desires to keep a qualified beneficiary on the plan, it should review the process with the insurer. Upon approval by the insurer to retroactively remove a qualified beneficiary to the original loss-of-coverage date when an election and payment has failed to be received, it is prudent for the employer to obtain confirmation in writing.

How about monthly grace periods for premium payment? This period has to be at least 30 days and most employers hold it to that timeframe. So, if the qualified beneficiary does not pay the monthly premium within the 30 day grace period, the insurer will allow retro-active removal from the plan without any issues. In some cases, insurers will remove qualified beneficiaries each month until premium has been received. Upon receipt of payment, a plan must promptly reinstate coverage; thereby the qualified beneficiary receives coverage for the entire month. This can be a very complicated process to administrate because when a qualified beneficiary is removed each month, claims are denied. As soon as the premium payment is received, however, claims have to be processed.
What about denied claims that a qualified beneficiary has during these grace periods? First of all, claims during the election period or grace period could potentially be denied. Once the qualified beneficiary pays for COBRA coverage, the denied claims can be resubmitted upon reinstatement onto the plan.

What is the correct response when someone contacts the employer or plan administrator about health plan status during these grace periods? According to the IRS final COBRA regulations, a complete response is required to a health care provider’s request regarding a qualified beneficiary’s coverage status during the election and initial payment periods. This means that just a covered or a not covered response will not suffice. To respond to a coverage pending election, the employer can indicate that a qualified beneficiary is removed from the plan during the 60-day election period and then reinstated once COBRA is elected and first payment is received. It is wise to inform the provider’s office of this status, as well as to let them know the qualified beneficiary is not currently on the plan but will have coverage, retroactively, once COBRA coverage is elected and the first payment is received. This notification should include specific dates of election period and premium due dates.

So what is the response if the qualified beneficiary is not removed during the election/payment period? This other option is appropriate if the plan allows coverage during the election period but cancels it retroactively if COBRA is not elected. In this case, the plan or administrator is required to notify a provider that the qualified beneficiary is covered but is subject to retroactive termination if COBRA coverage is not elected and the appropriate premiums are not paid. As part of the information given to the provider, specific election and payment dates should be included.

To avoid liability or litigation, accurate information should be given to a health care provider requesting a qualified beneficiary’s coverage status. Because COBRA is an employer law, the burden of liability may belong to the employer rather than an insurer. Any inquiries regarding health coverage should be handled by the employer or plan administrator rather than the insurer.