Category: COBRA

COBRA & Medicare Entitlement (enrollment) – Are You Making This Mistake?

On By Michelle Turner, MBA, CEBSIn COBRA, MedicareLeave a comment
When an employee enrolls in Medicare and subsequently voluntarily drops the group health plan, their spouse does not become a qualified beneficiary eligible for COBRA coverage.

Medicare entitlement (i.e. eligible & enrolled) is only a COBRA qualifying event (QE) if it causes an employee to lose group health coverage (i.e. under 20 lives, or retiree plan). Otherwise, due to Medicare Secondary Payer (MSP) rules, Medicare entitlement is not a COBRA QE for the employee.

Likewise, if the employee voluntarily drops group coverage because they enroll on Medicare and as a result, the dependents (e.g. spouse) then lose employer coverage, this also is not a COBRA QE for the dependents. Medicare entitlement did not “cause” the loss of eligibility, rather the employee deciding to drop the employer’s group coverage did.

When an employee drops their employer’s plan because they enrolled in Medicare, the spouse should not be offered COBRA coverage, but it happens all the time.

Why does it matter?

Although this is something often incorrectly administered, it potentially violates the MSP rules. It could be viewed as the employer providing an incentive for the employee to drop the group plan in favor of Medicare (knowing the spouse will have continuation coverage).

The penalty for violating the rules:

If an employer offers a Medicare beneficiary an incentive, financial or otherwise, not to enroll in the plan, the group health plan is subject to a civil money penalty of up to $5,000 for each violation. In addition, an excise tax could be applied that would equal 25% of the plan’s expenses incurred during the calendar year.

Employees who are turning 65 may also need additional education, to allow them to make an informed decision when deciding whether to enroll on Medicare instead of their employer’s plan.

If you have questions about the above, or need help with another employee benefits administration question, please contact us! We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Open Enrollment Compliance Reminders & Considerations

On By Michelle Turner, MBA, CEBSIn ACA, Cafeteria plans, COBRA, FSA, HIPAALeave a comment

Open enrollment can be a stressful time for employers. Planning well in advance and ensuring there is time to strategize and set new goals can help alleviate the missteps.

Open enrollment is also a perfect time to address compliance, especially this year with the relaxed regulations that many employers adapted based on their workforce needs.

Prior to open enrollment employers may also need to determine if changes made for the 2021 plan can or will continue in 2022.

Here is a list of open enrollment compliance reminders & considerations:

(Download checklist)

COBRA Beneficiaries

  • Are you notifying COBRA beneficiaries of election opportunities? The “Outbreak Period” has relaxed the timing for elections. Therefore, anyone who is still eligible to elect COBRA will need to receive the open enrollment materials.
  • COBRA beneficiaries have the same rights as similarly situated active employees.

Evergreen/Default Elections

  • How is your election process communicated?
  • Do your plan documents allow for evergreen elections?
  • If you offer an FSA, are you requiring an annual election?

ACA – Offers of Coverage

  • How are offers of coverage being documented?
  • Are you able to provide proof of employees who waive benefits?
  • If you are an ALE, can you confirm that at least one of the health plans offered satisfies the ACA’s affordability standard? (9.83% for 2021 plan years)

Are you providing the mandatory notices?

-CHIPRA                                          
-Medicare Part D
-Wellness Notices		-Summary of Benefits & Coverage (SBC)
-HIPAA Special Enrollment Rights
-HIPAA Privacy Notice		-WCHRA
-Initial COBRA Notice
-Notice of Patient Protections

Open Enrollment Guide

  • Is there a disclaimer indicating that if there are discrepancies between the open enrollment guide, summary plan description & plan document that the plan document will control?

⭐ TIP: Include language in the guide about it also being the Summary of Material Modification (SMM). This prevents the need to create a separate SMM. ⭐

Electronic Disclosure

  • If you are providing your documents electronically, do all employees use a computer as an integral part of their duties? If not, have you received affirmative consent to provide them electronically?

HIPAA Privacy

  • Enrollment data may be considered “PHI” under HIPAA.
  • Do you have a HIPAA Policy & Procedure manual?
  • Are business associate agreements in place?

Correcting/Changing Participant Elections

  • Pre-tax elections are irrevocable after the plan year has started unless the participant. experiences another permissible midyear change in status event (e.g., marriage).
  • Pre-tax elections are required by the IRS to be prospective in most situations.
  • Retroactive election changes are rarely permitted under the tax code.

If you have questions about the above or need help with an employee benefits administration question, please contact us. We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

WARNING: Keeping an Employee on Benefits When They Are Not Actively at Work Is Risky

On By Michelle Turner, MBA, CEBSIn COBRA, eligibility, leave of absence, self-insured1 Comment
Employers who are trying to be generous by keeping employees on their benefits plan, may be making a costly mistake.

There are eligibility rules known as “actively at work clauses” for employer group benefits including medical, dental, vision, life, and disability. These provisions allow the insurer to exclude coverage for employees who are not working a minimum number of hours each week, such as when they are on a leave of absence because of an illness or furloughed.

If you have a fully insured plan, the carriers define the rules on how long an employee who is on an unprotected leave of absence (e.g., not out due to a reason covered by the Family Medical Leave Act (FMLA)) may remain on the plan before coverage must be terminated and continuation coverage (e.g., COBRA) offered. If you are self-insured, it is a conversation that should have been discussed when creating plan documents with the stop-loss carrier.

If an employer does not follow this provision and fails to terminate an employee and offer them continuation coverage, then the carrier may not cover any claims, leaving the employer financially responsible. It has been my experience, although the carrier leaves eligibility verification up to the employer, before paying a large claim, many carriers are thorough and review an employee’s status by asking for payroll records.

There is no standard rule for when an employee who is not actively at work must be terminated from active coverage. Often, for ease of administration, carriers will permit an employee to remain on the plan for up to 12 weeks to be the same as a protected leave of absence under the FMLA. However, an employer must check their plan documents and never assume. Once the employee no longer meets the definition of actively working, the employer should terminate the employee and offer continuation coverage. This includes providing port/covert paperwork for life and disability coverage.

If you have questions about the above, or need help with another employee benefits administration question, please contact The Compliance Rundown. We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

State Mini-COBRA ARPA Subsidy Obligations

On By Michelle Turner, MBA, CEBSIn ARPA, COBRALeave a comment

There are 21 FAQs in the DOL’s guidance released on April 7, 2021 providing clarification on the COBRA subsidy added by the American Recue Plan Act of 2021 (ARPA). Generally, when we think of COBRA, the focus is on federal COBRA laws, that are typically applicable to private sector employers subject to ERISA with twenty or more employees and governmental plans. State continuation, or ‘mini-COBRA” laws have been adopted by over 40 states and often fill in gaps where the Federal COBRA laws do not apply or extends coverage after Federal COBRA has been exhausted.

The COBRA subsidies under ARPA are also available to Assistance Eligible Individuals (AEIs*) enrolled in a state continuation program; however, ARPA does not change any state program requirements or time periods for election of state continuation. This means there are important differences on how the subsidies work for health plans only subject to state continuation (e.g., church plans or employer plans when the employer has less than 20 employees).

  • It does not add a Notice requirement for States if the State does not have a notice requirement now. The general notice, second election notice and subsidy expiration notice requirements are only applicable to federal COBRA plans. The DOL did provide a model alternative notice to satisfy mini-COBRA subsidy notice requirements.
  • If the state’s mini-COBRA laws do not provide continuation coverage due to a reduction in hours, an AEI is not eligible for a subsidy if they lost coverage because their hours were reduced.
  • Individuals must elect to receive state continuation within the state’s required original election time period, unless the state issues guidance permitting a second election period. The section of ARPA that provides for the second election period references ERISA, the Internal Revenue Code, and the Public Health Service Act—but does not explicitly address state law programs. 

*AEIs are those whose involuntary termination or reduction in hours occurred:

  • During the subsidy period (4/1/2021 – 9/30/2021)
  • Prior to the subsidy period but they have existing COBRA coverage extending into the subsidy period
  • Prior to the subsidy period and have not elected COBRA. But if they had elected, coverage would have extended into the subsidy period.
    • Includes those who elected and subsequently dropped COBRA coverage before the subsidy period begins.

If you have any questions regarding the COBRA subsidy guidance, contact: questions@thecompliancerundown.com

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything contained in this post or on their website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

‘Tis the Open Enrollment Season – Don’t Forget About Those on COBRA

On By Michelle Turner, MBA, CEBSIn COBRALeave a comment

COBRA OE

‘Tis the season for not only the holidays, but many employers are in the midst of open enrollment.  There’s so much to think about that it’s easy to forget important tasks, like notifying COBRA participants.

Have you sent COBRA open enrollment kits notifying your COBRA participants* of the new plan options and rates?

If  “Ummm….what?” is your first thought, keep reading……

COBRA regulations provide that COBRA participants (i.e. qualified beneficiaries) have the same health insurance rights during open enrollment as their former employer’s active employees. So although, a qualified beneficiary was only entitled to continue the coverage in place immediately before the qualifying event,  COBRA participants at open enrollment may:

  1. Add/drop coverage
  2. Add/drop dependents
  3. Switch from one group health plan to another
  4. Switch to another benefit package within the same plan

to the same extent that similarly situated active employees can.

Therefore, COBRA participants must also receive an open enrollment packet containing not only any updated information about the plans and changes to rates but also all required open enrollment disclosures.

Avoid a Common Pitfall

Many employers use a COBRA administrator and believe they automatically send all required notices on their behalf. However, COBRA open enrollment packets are generally an opt-in service, often for an additional fee.  Ultimately it is the employer who is responsible for ensuring participants receive the information, so it is worth reaching out to your COBRA administrator if you are not sure whether they’ve been sent.

While open enrollment may be winding down for many, don’t be caught off guard. To be compliant, it’s important that employers, remember to notify COBRA participants of open enrollment, as if they are active employees. Employers who fail to communicate open enrollment options to COBRA participants, may be exposed to legal action, including expensive lawsuits and penalties.

*For the purposes of Open Enrollment, COBRA Participants are individuals currently enrolled and paying for COBRA, individuals in their 60-day election period, and individuals who have elected, but not yet paid for, COBRA.

Making the switch between State Continuation & COBRA

On By Michelle Turner, MBA, CEBSIn COBRALeave a comment

switch

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law allowing employees, spouses and dependents in certain situations to temporarily continue their health coverage at group rates. In general, COBRA will apply to employers that have 20 or more employees on more than 50 percent of their “typical business days” in the preceding calendar year.

State continuation (often referred to as mini-COBRA) varies by state. While the majority of states have passed their own laws that require smaller employers to provide COBRA-like continuation of benefits for certain employees and their families, not all states offer a continuation program.  In some states, state continuation coverage rules also apply to larger group insurance policies and add to COBRA protections.  (Note: State continuation coverage requirements generally apply to insured plans only.)

When a small business grows above 20 employees* or an employer’s work force falls below 20 employees during the year, its plans will continue to be subject to whichever option (state continuation or COBRA) was applicable at the beginning of the calendar year until a new calendar year begins. 

i.e.  If an employer exceeds 20 employees during a calendar year, then the group health plan may become subject to COBRA on the following first day of January.

If an employer drops below 20 employees during a calendar year, the employer’s group health plan remains subject to COBRA through the end of that calendar year.

On the first day of January, (regardless of policy renewal date) is when the employer should look at whether it’s still considered a small employer (i.e. fewer than 20 employees on at least 50% of the employer’s “typical business days” during the preceding calendar year) or whether it is subject to COBRA compliance.  It will only be exempt from COBRA compliance if during the preceding calendar year, it normally had fewer than 20 employees. However, despite being exempt, an employer cannot terminate existing COBRA coverage even after the end of the calendar year.

*There is an exception to this rule when a small employer’s growth is due to a stock acquisition.

 

 

 

References:

Health FSA & HSA in the same year?

On By Michelle Turner, MBA, CEBSIn Cafeteria plans, COBRA, FSA, HSA1 Comment

puzzle

Q: We just hired a new employee on 7/1 who told us he elected the maximum amount under his previous employer’s health FSA that started in January. We offer a HDHP with an HSA. Is he eligible to participate in an HSA? Or does he need to wait until next year? 

A:  If his health FSA terminated (i.e. he did not elect COBRA), he is eligible to participate in an HSA as of the first of the month after his FSA termination, assuming he’s otherwise eligible for the HSA.

There are 4 basic rules to Qualify for an HSA:

  • Covered under a high deductible health plan (HDHP), on the first day of the month.
  • Have no other health coverage except what is permitted under the regulations
  • Not enrolled in Medicare.
  • Cannot be claimed as a dependent on someone else’s tax return.

So if he meets these 4 requirements, he is eligible to open an HSA on the first of the month following the health FSA termination.

When an employee leaves a job during the course of the year, they are still entitled to the earmarked FSA amount for that year (assuming the eligible expenses incurred prior to termination and claims submitted timely), even if they spend more than has been taken out of their paycheck so far. Furthermore, they could contribute to a new employer’s FSA (or HSA) and have additional pre-tax dollars to spend. (The “FSA loophole” doesn’t work for HSAs because the HSAs are portable and the employee’s account even if they leave.) Likewise, an employee may work for two or more entirely different (i.e. unrelated) entities and contribute the maximum amount to both employer’s FSAs at the same time. The health FSA limit is per employee per employer’s health FSA plan.

So if the health FSA and the HSA don’t overlap, (i.e. the health FSA terminated when the employee left the previous employer) he can contribute to an HSA for the remaining months assuming he’s otherwise eligible (mentioned above). The amount he is eligible to contribute, is calculated in two ways (see Limit On Contributions):

  1. “general monthly contribution rule” – which is one-twelfth of the applicable maximum contribution limit for the year for each month of they year they are HSA eligible. (There are tax implications for “over contributing” when not eligible.)
  2. “last month rule” – which basically states an individual is treated as HSA-eligible for the entire calendar year for purposes of HSA contributions, if they are eligible on the first day of the last month of their tax year (which is Dec. 1 for most). However, to rely on this special rule, the individual must then remain eligible for the HSA through the next 12 months after the last month of their tax year. (i.e. 13 months total).

If he did elect COBRA, assuming no carry-over provision (not common for COBRA participants to be eligible for) or grace period (this is something many COBRA participants are eligible for), or if there is a grace period (or carryover) & he has a zero balance on the last day of the FSA plan year, then he would be eligible for an HSA as of the first day of the month after the health FSA plan year ends (assuming he’s otherwise eligible for the HSA).

COBRA Participants & Open Enrollment

On By Michelle Turner, MBA, CEBSIn COBRALeave a comment

what should I do-list-297195_960_720

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

 

Mergers and Acquisitions – COBRA Continuation Coverage

On By Michelle Turner, MBA, CEBSIn COBRALeave a comment

contract 2

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.

COBRA extensions & Medicare

On By Michelle Turner, MBA, CEBSIn COBRA, MedicareLeave a comment

lightbulb

As mentioned in a previous post Common Medicare entitlement (enrollment) COBRA mistake…are you making it too?, Medicare entitlement (i.e. eligible & enrolled) is only a COBRA qualifying event (QE) if it causes an employee to lose group health coverage (i.e. under 20 lives, or retiree plan). So due to Medicare Secondary Payer (MSP) rules, Medicare entitlement is not a COBRA QE for the employee, nor is it a QE for the spouse (or dependent) who loses the employee’s group health coverage when the employee voluntarily drops the employer’s plan and enrolls in Medicare.

However, Medicare entitlement does not have to cause the loss of coverage for the spouse or dependents when it comes to being eligible for a COBRA extension. There is a special rule, which extends the maximum COBRA coverage period for spouses and children, (but not for employees) to 36 months of COBRA coverage vs. the typical 18 months when the qualifying event (e.g. retirement) occurs after the employee becomes entitled to Medicare but remained on their employer’s group plan.

In those cases, the spouse and dependents are entitled to the longer of (i) 18 months from the date of the qualifying event (retirement); or (ii) 36 months from the date of Medicare entitlement.

For example: Jack works for Up the Hill, Inc. He and his wife Jill are covered by a group health plan which is subject to COBRA. Jack becomes entitled (enrolled) to Medicare on May 1st. Jack and Jill also remain covered under the group health plan offered by Up the Hill, Inc. On January 1st (8 months later), Jack retires and therefore Jack and Jill both experience a qualifying event (termination of employment).

Jill would be eligible for 28 months of COBRA coverage. (36 months minus 8 months)

On the other hand, if Jack waits longer than 18 months to retire after he enrolls in Medicare, Jill will just get the regular 18 months of COBRA.

Either way, Jack is only entitled to 18 months of COBRA upon retirement.

COBRA regulations appear simple on the surface but the rules are rather complex.  Best practice is for employers to work with a competent third party COBRA administrator who can help them comply with the challenging requirements.