With Healthcare Reform in flux, it's a confusing time for employers and healthcare brokers. However, one thing that's not confusing is the future of COBRA administration. Regardless of the Healthcare Reform outcome, COBRA compliance will continue to be a requirement. To help you separate fact from fiction, we've tackled three common COBRA administration myths below:
MYTH #1: COBRA is no longer required if Healthcare Reform goes forward.
This one is pure fiction. The health reform law did not eliminate or change the COBRA rules. There’s also a belief that since there will be no pre-existing condition exclusions for all health plans beginning in 2014 and everyone will be required to have health insurance, nobody will need COBRA. This is a dangerous assumption since reform did not eliminate the employer-based system of health coverage.
As long as there is employer-based coverage, the need for COBRA administration will continue. In fact, the IRS just published new COBRA audit guidelines in March 2012, further affirming that the IRS and DOL are not backing down on COBRA. The new guidelines crack down on COBRA violations and foreshadow increased audits.
Myth #2: Insurance exchanges are the only option under Healthcare Reform.
Also not true. Health insurance exchanges are one option. Variations will still exist among employer-provided plans. Individual coverage, even through insurance exchanges, is likely to be more expensive and may not be as comprehensive as employer-provided group coverage. Therefore, for unemployed individuals, employment-based coverage through COBRA may be the more desirable option.
Myth #3: Exchanges will alleviate employers' COBRA responsibilities.
False! In fact, exchanges will likely create more of a burden for employers because they will have to make sure COBRA programs meet the minimum essential coverage requirement – or face a monthly penalty. The employer penalty is effective January 1, 2014 and applies to employers with 50 or more full time employees with part time employees counted on a fractional basis.
Specifically, the plan must be “affordable” and provide “minimum value.” The plan will not be affordable or provide minimum value if the individual’s required contribution toward the plan premium for self only coverage exceeds 9.5 percent of their household income OR the plan pays for less than 60 percent, on average, of covered health expenses. The employer will still be required to provide all appropriate notices of these provisions.
Also, employers may not impose cost sharing in amounts greater than the current out-of-pocket limits for high deductible health plans ($6,250 for individuals, $12,500 for families in 2013) and they may not impose a waiting period longer than 90 days for healthcare coverage. If the employer’s existing COBRA plan does not match these requirements, they will need to adjust accordingly. This will especially impact employers with high turnover and longer eligibility waiting periods.
The Supreme Court case ruling on PPACA is expected in June. Regardless of the result, employers will need to be ready to maintain COBRA compliance. For more helpful COBRA administration tips, subscribe to our monthly e-newsletter COBRATalk.