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 feels 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.

• What is COBRA?
• What is a qualifying event?
• What are the required notifications?
• What about COBRA Premiums?
• What is a disability extension?
• What is a Multiple Qualifying Event?

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 (1) Termination of Employment (for reasons other than "gross misconduct") and (2) 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, New York, Connecticut and Texas have extended the maximum time frame.)

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. 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 on at least half of the business days in the previous calendar year) to provide written notifications to inform employees and their covered dependents of their rights to continuation coverage. The law requires seven notices; the General Notice, Qualifying Event Notice, notice of Conversion rights under eligible group plans, Open Enrollment letter, Short Payment Letter, 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 USPS first class mail. (Administrators are not responsible to verify 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. COBRA requires the General Notice be sent within ninety days from the date coverage becomes effective. 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. (Once printed, the letter will be saved in the employee’s digital File Cabinet.)

The COBRA Qualifying Event Letter is the notice sent when an employee/dependent experiences a qualifying event. This letter explains a qualified beneficiary’s COBRA rights as well as detailing 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 a 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. We have seen a trend of insurers to eliminate conversion plans after the passage of the Affordable Care Act which provides plans with no pre-existing condition limitations.

As insurance plans renew, they have different monthly premiums. Plan Administrators are required to notify Participants of the new rates and their rights during Open Enrollment. Participants should be granted the same rights as “similarly-situated” active employees. Therefore, if active employees are allowed to change, add or terminate plans, Participants should be allowed the same rights. During Open Enrollment, most plans offer the ability to add/remove dependents. COBRA Participants should be offered this right as well but any added dependents added do not receive the rights of qualified beneficiary. To produce Open Enrollment letters in the software, click the “Produce Open Enrollment Letters” under the Events Menu. Enter the renewal date, select the plans the Participants are eligible followed by selecting all the participants. Lastly, enter the date you need the Enrollment Forms from the Participants and click the Print button.

If a Participant sends a payment that is short by an “insignificant” amount, Plan Administrators are required to notify the Participant and make arrangements to make up the payment. The law defines a payment being “insignificantly” short if you receive a minimum of 90% of the monthly premium when the premium is less than $500. For monthly premiums over $500, if the payment is short by $50 or less than it is considered “insignificant.” Plan Administrators are allowed to accept the check as payment in full or send a notice detailing the short payment. The software will notify the user when a payment is short by an insignificant amount and places an item in the Things-to-do list to send the letter.

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). If the employer is terminating one or more group health plans without replacing them, COBRA Participant’s should be notified. Since the facts of this form of plan termination differ among employers, the system will NOT produce a template letter. Plan Administrators will be responsible for creating and distributing a notice.

COBRA Acceptance - The natural progression of events is Active employees and/or 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 the Plan Administrator 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. It is recommended you do not reinstate coverage until you have received the first premium payment. 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. Another form of proof is to scan the postmarked envelope and save the copy to the qualified beneficiary file cabinet.

Q: Are Participants required to pay monthly 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 (plus a two percent administrative fee to help cover postage/administrative 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. 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.

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 Administration (SSA), the law provides for that individual and all others covered under the same policy to extend their coverage from eighteen to twenty-nine months. To receive the extension, qualified beneficiaries must provide the SSA determination to the Plan Administrator within 60 days of the notice’s date and prior to the end of the 18 month continuation period. 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 (or “multiple”) 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.

Is Your Cafeteria Plan Ready for 2019?
Most employers have been receiving large rate increases over the last several years from their insurance providers because medical trend is over 15%. In many cases, the employer is forced to pass on the increase to employees. One good way to minimize rate increases is to start a Cafeteria Plan. A Cafeteria Plan allows employees to pay for their portion of premiums on a pre-tax basis. This lowers their taxable base, therefore decreasing federal, FICA and most state's taxes. Most employees (depending on their tax bracket) will see that a Cafeteria Plan saves them 20% to 35% of their cost of premiums. Not only does the employee save money but the employer sees a reduction in their FICA and other payroll taxes.

In addition to paying for premiums on a pre-tax basis, employees may set up Flexible Spending Accounts (FSAs) to pay for items not covered by an insurance plan (i.e. deductibles, copays, coinsurance, over the counter medication, etc.) and even Dependent Care expenses. It is a win-win situation; both the employer and employee save money in taxes.

COBRA Solutions offers Cafeteria Plan software that assists employers with the administration of a Cafeteria Plan. Please visit our website at www.cobrasolutions.com for further information and a free 60-day no obligation demonstration version of Cafeteria Plan Manager. It is an outstanding software program that will pay for itself in the first few months, and the savings will continue for years. To see what your firm may save by implementing a Cafeteria Plan, visit our site at http://www.cobrasolutions.com/CafeteriaPlanManager.html and click the "Calculate Your Savings" link.

Senate Bill 1217 – Arizona mini-COBRA
To address the lack of options for employees (and/or their covered dependents) that lose their group insurance from their employer with fewer than 20 employees (as calculated in the previous calendar year), Arizona legislation passed Senate Bill 1217 to allow limited-time group continuation coverage. Although similar to the federal law called COBRA, Arizona “mini-COBRA” has numerous differences.

Effective with a small group insurance plan renewal on or after January 1, 2019, employers are responsible for notifying employees/dependents (who have been enrolled on a group plan for a minimum of 3 months and who are not Entitled to Medicare) of their right to continue group coverage for 18 months (“total coverage period”) if they lose coverage due to experiencing any of the following “qualifying” events:

• Voluntary or Involuntary termination of employment;
• Reduction of work hours;
• Divorce or separation;
• Death of the employee;
• Employee becomes Entitled to Medicare; or
• Loss of dependent status under the group plan.

Employers are required to send a notice to the employee/dependent (“qualifier”) within 44 days of the qualifying event. (Unless the employer knows of a dependent’s different address, sending a single letter to the employee will satisfy the notification requirement.) If the notice is postmarked within this 44 day window, the qualifier has 60 days (from the date of the letter) to notify the employer of their desire to continue their group coverage. Qualifiers are responsible for premiums back to the date they are terminated from the group plan and must be made within 45 days from the day they notify the employer of their continuation decision.

If the employer does NOT meet the 44 day notification period, qualifiers will be allowed a 120 day election period and to pay premiums back to the coverage termination date. To ease the burden of creating a notice meeting the law’s requirements, the Department of Insurance has been tasked for providing a “model notice.”

Each qualifier will have an independent right to elect Arizona mini-COBRA. The premiums for the Qualifiers will be based upon the group plan rate plus a 5% administration fee. Employers are also required to notify qualifier of changes to the premiums 30 days prior to the change.

If a dependent is deemed disabled by the Social Security Administration within the first 18 months of continuation coverage, they shall be offered an 11 month extension for a total coverage period of 29 months. If a dependent experience a divorce, separation, employee’s death or Entitlement to Medicare or a loss of dependent status during their time under continuation coverage, they shall be offered an additional 18 months of continuation coverage (for a total coverage period of 36 months).

If a qualifier elects to continue coverage, they may continue until the:

1.  Qualifier completes their total coverage period;
2. Qualifier does NOT make “timely” premium payments;
3. Qualifier becomes Entitled to Medicare, Medicaid or other healthcare coverage; or
4. Employer terminates (without replacing) the group health insurance plan.

The law also addresses continuation coverage for employees in the Military Reserve or National Guard that is outside the scope of this article. For further information you may want to review https://www.azleg.gov/legtext/53leg/2R/laws/0164.pdf.

SSome of the differences we find between the way the law is written and federal COBRA are:

1. Regardless of qualifying event experienced, qualifiers will be offered 18 months of coverage;
2. Employers do not have to offer Arizona mini-COBRA to employees/dependents on Medicare at the time of the qualifying event;
3. The law mentions a 45 day grace period for submitting the initial premium payment but never defines “timely manner” payments. Without this information, we would assume subsequent premium payments are due on the first of the month of coverage with NO grace period.
4. Only dependents are eligible for the 11 month disability extension;
5. Qualifiers may be terminated from Arizona mini-COBRA if it is known they have obtained ANY other coverage;
6. Employers must notify qualifiers of rate changes 30 days in advance of the change;
7. Qualifiers may be charged a 5% administration fee; and
8. The qualifying event “divorce or separated” does not state “divorce or LEGAL separation.”

All contents of this article are our initial opinion of Senate Bill 1217. We request you contact an Arizona Benefits Attorney for advice on this bill. COBRA Solutions will be producing and releasing a separate software product for administering Arizona mini-COBRA after 01/01/2019.