COBRA Participants & Open Enrollment

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COBRA regulations state that COBRA qualified beneficiaries (QBs) are entitled to the same rights under a group health plan as are similarly situated non-COBRA beneficiaries i.e. active participants (§ 54.4980B-5 Q&A-1).

COBRA qualified beneficiary includes:

  • individuals currently enrolled and paying for COBRA
  • individuals in their 60-day election period
  • individuals who have elected, but not yet paid for COBRA

During open enrollment, COBRA qualified beneficiaries have the same rights as active employees. (§ 54.4980B–5 Q&A–4c)  For instance, they may:

  1. Add coverage they didn’t previously have while on COBRA (e.g., enroll in dental and vision coverage at OE even if previously covered only by medical) § 54.4980B-5, Q/A-4
  2. Drop coverage
  3. Add dependents (as non-qualified beneficiaries with no independent COBRA rights), even if they were not covered at the time of the qualifying event § 54.4980B-5, Q/A-5
  4. Drop dependents
  5. Switch to another benefit package within the same plan (e.g., change medical plan option from PPO to HMO).

To be compliant, during open enrollment it’s important that employers remember to provide COBRA QBs everything they would need to make an informed coverage decision and election as if they were active employees.  The open enrollment materials must be provided to QBs in a manner that is “reasonably expected to ensure receipt”. Generally, this would mean 1st class mail to the last known home address. A Certificate of Mailing is also a best practice. 

Who Is Responsible for Offering COBRA Open Enrollment? 

COBRA open enrollment is always the responsibility of the employer.  Even if the employer has a third party administrator (TPA) handling COBRA notices, ultimately it is still the employer’s responsibility to communicate with their TPA on who will be handling the COBRA open enrollment. This is typically not included as part of the regular TPA COBRA administrative services, but many will assist for an additional fee.

What if an enrolled participant doesn’t send back their OE election?

There are different schools of thought on the answer to this question.

Per COBRA statutes, there are only 6 ways COBRA may terminate before max. coverage period ends: (§ 54.4980B–7 Q/A-1)

  1. Failure to pay on time
  2. Early termination when employer ceases to provide any group health plan
  3. Early termination because of coverage under other group health plan coverage
  4. Early termination because of Medicare entitlement
  5. Early termination when QB in disability extension found not disabled
  6. Early termination for cause (e.g. fraudulent claims)

There is nothing in the regulations that says failure to re-elect during OE is cause for termination. So, it’s my understanding, if the plan(s) the participant is on didn’t change, then their coverage should roll over into the new plan year and they should be billed the new plan year’s premiums. If the plans did change, they should be enrolled in the plan most comparable (i.e. what replaced the coverage they had).  If they fail to send in payment, they’ll term for non-payment accordingly.

However, that being said, at least one court has held that the plan may terminate COBRA coverage for a QB who fails to re-enroll after they are provided OE materials and are notified that failure to re-enroll will lead to a loss of coverage. This is because, §54.4980B-7, Q/A-1(b), provides that “a group health plan can terminate for cause the coverage of a qualified beneficiary receiving COBRA continuation coverage on the same basis that the plan terminates for cause the coverage of similarly situated nonCOBRA beneficiaries.”  So some interpret this, (as did the the court ruling) to mean, because COBRA participants have the same rights (and responsibilities) during open enrollment as similarly situated employees, if an employer requires active enrollment by employees during open enrollment, they can require active enrollment by COBRA participants too.

In my experience, it’s best to keep QBs enrolled on their current plans (or the the plans most comparable to what they currently have) unless an employer is provided other guidance from their legal counsel.

NOTE: Don’t forget about your employees on FMLA. They too have the same open enrollment rights for the health plan as active employees

 

Dallas & San Antonio Paid Sick Leave Ordinance Scheduled to Take Effect 8/1/2019

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Background

Texas does not have a statewide paid sick leave; however, paid sick leave ordinances in Dallas and San Antonio are scheduled to take effect on August 1, 2019.

NOTE: Austin’s paid sick leave ordinance, which was supposed to go into effect this past October, has been held unconstitutional by the Third Court of Appeals in Austin. The Third Court of Appeals decided that it violated the Texas Constitution because it was pre-empted by the Texas Minimum Wage Act. Given the similarities among the ordinances, the Texas Supreme Court’s decision on the Austin ordinance may impact the San Antonio and Dallas ordinances.

The 86th Texas Legislative Session failed to pass Senate Bill 2487, a seemingly well-supported bill to preempt all such ordinances from taking effect and being enforced. Without a Special Session, there is no other procedural method to revive the bill, and the Texas Legislature will not have an opportunity to address the sick leave preemption issue until the next session in January 2021.

High Level Key Points – for employers who have employees working in Dallas or San Antonio:

Effective dates:

  • August 1, 2019, for employers having more than five employees.
  • August 1, 2021 for employers with less than 5 employees.

Who is entitled?

  • Any employee (including part-time) who performed at least 80 hours of work for pay within the city in a year, including work performed through a temporary or employment agency.
  • Where the employee worked and for how many hours are the determining factors, regardless of whether the employer has a location within the city limits of Dallas or San Antonio.

What are qualified employees entitled to?

  • Employers with more than 15 employees – one hour of earned paid sick time for every 30 hours the employee worked in the city up to a yearly cap of 64 hours per employee per year.
  • Employers with less than 15 employees – one hour of earned paid sick time for every 30 hours the employee worked in the city for up to 48 hours per employee per year.

Notice requirements:

  • The employer must provide an employee at least a monthly statement showing the amount of the employee’s available earned paid sick time.
  • If an employer has an employee handbook, the ordinances require that the employer provide a statement of rights and remedies in the handbook.
  • The ordinances also require the display of a sign in a conspicuous place where other notices to employees are customarily posted.

What actions should an employer take?

Employers who already have a paid sick leave policy in effect that is the same as or more generous than these ordinances, (e.g. company’s policy already provides at least 64 hours (8 days) of paid time off to all employees (or 48 hours if  less than 15 employees) the Dallas and San Antonio ordinances both state that they do not require an employer to provide additional earned paid sick time. However, employers should consider developing procedures that will comply with the additional ordinance requirements (e.g. notice).

An employer who has more than five employees performing work in San Antonio and/or Dallas and does not currently have a paid sick leave policy that is compliant with these ordinances, should watch for continuing developments and start thinking about the necessary changes they need to make to their policies and practices in order to comply with these new rules by August 1.

References:

  1. City of Austin Sick Time Ordinance
  2. City Of San Antonio Paid Sick Leave
  3. Dallas Paid Sick Leave Ordinance

Qualified Medical Child Support Order (QMSCO) & National Medical Support Notices (NMSN)

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The Employee Retirement Income Security Act (ERISA) requires employment-based group health plans to extend health care coverage to the children of a parent-employee who is divorced, separated, or never married when ordered to do so by state authorities.

Generally, a State court or agency may require an ERISA-covered health plan to provide health benefits coverage to children by issuing a medical child support order. The court order forces coverage under the plan, even if the employee is not interested in obtaining plan coverage for the child.

Under ERISA §609(a), the group health plan must have procedures established to determine whether the medical child support order is “qualified”. Such an order is referred to as a Qualified Medical Child Support Order (QMCSO).

In addition, a State child support enforcement agency may obtain group health coverage for a child by issuing a National Medical Support Notice (NMSN). A NMSN is treated like a QMSCO if the group health plan determines it to be qualified (i.e. it’s appropriately completed by the agency).

Under the terms of the law, child support or other court orders which do not meet all the qualification requirements, are not “qualified” and plans are not required to provide any benefits to child, unless the deficiencies are later corrected.

Once a medical child support order has been determined to be a QMCSO, then the plan administrator must act in accordance with the order’s provisions as if it were part of the plan. (Qualified Medical Child Support Orders, Q/A 1-25)

Thus, plan administrators must comply with general QMCSO requirements when processing and administering benefits.  For instance: 

  • If the employee is eligible to participate in the plan, the child must be covered.
  • If, the employee is not enrolled in the plan, but as a condition for covering his dependents, the employee must be enrolled, the plan must enroll both.
  • If the employee named in a medical child support order has not satisfied the plan’s generally applicable waiting period, the administrator should have procedures in place so that the child will begin receiving benefits upon the employee’s satisfaction
    of the waiting period.
  • If a group health plan does not provide any dependent coverage, an order may not require a plan to provide dependent coverage when that option is not otherwise available under the plan
  • A child covered pursuant to a QMCSO is a “qualified beneficiary” with the right to elect continuation coverage under COBRA, if the plan is subject to COBRA and if the child loses coverage as a result of a qualifying event.

Employers are required to have written procedures for assessing and responding to QMSCOs/NMSN notices and may be subject to sanctions or penalties imposed under State law and/or ERISA for failure to respond and/or for non-compliance with a QMSCO/NMSN notice.

For additional information, check out:

  1. The DOL’s QMCSO Compliance Guide
  2. HHS Office of Child Support Enforcement Medical Support FAQs

 

 

 

Dependent Care FSA & Leave of Absence

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When an employee takes a leave of absence (LOA), protected (e.g. FMLA) or unprotected, they may no longer be eligible for reimbursements from their dependent care FSA (which IRS regulations call a “DCAP” = dependent care assistance program) during their leave. However, they may still be able to participate in the DCAP depending on their employer’s LOA policy. 

REIMBURSEMENT

There are 2 conditions required for dependent care expenses to be eligible for reimbursement:

  1. employee must incur the expense to enable the employee and the employee’s spouse to be gainfully employed” – a facts and circumstances test
  2. the expense must be for the “care” of one or more “qualifying individuals”

In general, condition #1 is determined on a daily basis, however there are exceptions to the “daily basis” rule for certain, short, temporary absences (e.g. vacation, minor illnesses) and part-time employment.

This “exception” is based on the IRS regulations establishing a “safe harbor” under which an absence of up to two consecutive calendar weeks is treated as a short, temporary absence. However, whether an absence for longer than 2 weeks qualifies as short and temporary is determined on the basis of facts and circumstances.

Likewise, when it comes to FMLA, the IRS does not agree that one’s entire absence under FMLA (which guarantees eligible employees up to 12 weeks of unpaid leave for certain purposes) is appropriate as a temporary absence safe harbor, noting that an absence of 12 weeks “is not a short, temporary absence” within the meaning of the regulations See Preamble to Treas. Reg. §§1.21-1 through 1.21-4, 72 Fed. Reg. 45338 (Aug. 14, 2007).

PARTICIPATION

Although the employee may not be eligible to reimburse dependent care expenses while on leave, an employee on LOA may be able to continue to participate in (and make contributions to) a DCAP but any reimbursements from the DCAP will still be subject to the gainfully employed rule and would have to fall within the exception for short, temporary absences.

A DCAP (a non-health benefit) is not subject to FMLA continuation requirements, therefore it would be based on the employer’s policies regarding a leave of absence as to whether they are allowed to continue or revoke their election of “non-health benefits” under the cafeteria plan and how contributions are handled during an unpaid leave.

Employers need to understand the rules regarding DCAPs when an employee is on a leave, and make sure it was “reasonable to believe” that a expense is reimbursable or there may be adverse consequences (e.g. taxes, interest, penalties).  Likewise, if using a third-party administrator, ensure that appropriate measures are being taken too, because in general the employer will ultimately be responsible for such procedures, both under the services agreement with the TPA and under governing law.

 

Self-Insured Plans & Form 5500

Form 5500

When a plan is self-insured unless the assets are held in a trust* (e.g. VEBA), there usually is no Schedule A nor Schedule C included for the self-insured plan in a Form 5500 filing.

Schedule A is used to report “insurance contracts information” so by definition, a self-insured policy is not an “insurance contract”. They are self-insured benefits from the employer to the employee group and not reportable on a Sch A. Per the Form 5500 instructions: 

“Schedule A (Form 5500) must be attached to the Form 5500……if any benefits under the plan are provided by an insurance company, insurance service, or other similar organization (such as Blue Cross, Blue Shield, or a health maintenance organization)”

An ASO carrier may provide Schedule A information automatically to an employer leading to confusion. Some carriers do this proactively in the event the employer is required to file a Schedule A for the stop-loss coverage.  However, stop-loss insurance is fully insured benefits on the employer (vs employees) and typically not reportable unless the fund assets are held in a trust*.

Schedule C is used to provide information about service providers’ compensation & fees. However, there are rules exempting plans that satisfy Technical Release 92-01 and also welfare plans that satisfy DOL regulation § 2520.104-44 from having to complete and file a Sch C. Which in a nutshell means, self-insured plans that pay claims through the company’s general assets and take employee contributions pre-tax usually do not have a Schedule C requirement. It is only for “service providers” of plans funded via a trust*.

How Are Self-Insured Plans Reported?

The self-insured benefits on the employee’s, are included in the 5500 by virtue of a benefit code on line 8B (e.g. 4A=health coverage) of the Form 5500 and by checking general assets on line 9A/9B. (General assets would not be checked if all plans were fully insured.)

Form 5500 self insured

It is most common for a self-insured plan to pay claims from the employer’s general assets and take employee contributions via a cafeteria plan pretax, therefore no Schedule A nor C would be included for those self-insured plans in a Form 5500 filing.

*NOTE: The general rule is a Form 5500 is required for a plan with 100+ participants as of the first day of the plan year. There is an exception to this rule. A plan that is funded through a trust, is considered “funded” (the money is set aside for payment of claims) and therefore also would be required to file a form 5500 even if less than 100 participants.  

Mergers and Acquisitions – COBRA Continuation Coverage

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There are numerous implications for benefit plans as a result of a merger or acquisition (M&A). One question raised frequently by HR departments is, who is responsible for COBRA for the COBRA qualified beneficiaries?

In simplified terms, the COBRA M&A qualified beneficiaries consists of—

  • those qualified beneficiaries already receiving COBRA coverage before the sale under a plan of the seller as a consequence of employment associated with the assets or the entity being sold; and
  • those qualified beneficiaries who experience their qualifying event in connection with the sale.

Often during the M&A negotiations, the only due diligence done in regards to benefit plans is a quick check to make sure Forms 5500 have been filed (if applicable) and to make sure there are no outstanding lawsuits or audits. Therefore, when the purchase agreement is silent in regards to COBRA, or the agreement is not followed, one can look to the guidelines the IRS has established in the COBRA regulations as to which party is liable to provide COBRA continuation coverage in a business reorganization.

In general, unless the purchase agreement stipulates otherwise, if the selling group maintains a group health plan after the sale, then a group health plan maintained by the selling group must provide COBRA coverage to M&A qualified beneficiaries.

i.e. If the seller maintains any health coverage, even if the entity sold (or employees terminating) never participated in that particular coverage, then that health plan must be made available to M&A qualified beneficiaries

If no plan remains (e.g. the selling group ceased providing any group health plan) COBRA liability may shift to buyer if the sale is a stock sale, or it may also shift to the buyer if the sale is an asset sale and the buyer is a successor employer (which is a legal determination).

When in doubt, it is best to work with qualified counsel to ensure liability issues regarding COBRA continuation coverage in connection with a M&A are properly addressed.

REMINDER: Social Security No-Match Letter

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The Social Security Administration has mailed “no-match letters” to more than 570,000 employers since March. (Some feel it’s been most heavily in the construction & agricultural industries.) The notices do not necessarily require employers to take action, but direct them to take steps to reconcile mismatches, which would require contacting the workers.

These letters are not the same as a TIN mismatch for ACA reporting, rather these no-match letters are related to the name and SSN reported on W-2s. There are many possible reasons for discrepancies between names and Social Security numbers, including typographical errors, clerical mistakes and name changes, the lack of lawful immigration status is a common one.

It remains unclear whether the Social Security Administration will share information about discrepancies with the immigration-enforcement agency and the mere receipt of a no-match letter does not lead to penalties. But Immigration and Customs Enforcement routinely asks firms subjected to I-9 audits whether they have received no-match letters, which can be used to prove that they had “constructive knowledge” of employing undocumented immigrants and raise the potential for criminal charges and hefty fines.

What do employers need to do if they receive one?

See my previous blog “Did you receive a “Social Security No-Match Letter?” for more details.