COBRA CONUNDRUMS is reprinted from the April, 2014 issue of Health Insurance Underwriter Magazine featuring our very own Robert Meyers.

Willie Nelson once said, “The early bird gets the worm, but the second mouse gets the cheese.”

For the past 10 years I’ve said, “The best brokers and agents help their clients with COBRA but don’t do it for them.” Those of you familiar with COBRA know exactly why. Because timing is everything and now, more than ever, it’s crucial that employers understand essential timelines.

That’s because now, the employer may be the second mouse! Let me explain …

If there is one part of COBRA administration with which every COBRA administrator struggles (and is also the number one reason employers outsource their COBRA administration), it is premium billing and collection to and from COBRA qualified beneficiaries.

Even before the Affordable Care Act (ACA), back when employers could be the “early birds,” they didn’t relish the collection process. In fact, according to a Charles D. Spencer & Associates survey, the premium collection process is the biggest pain point for employers. Why? Because employer representatives feel very uncomfortable collecting premiums from their former associates and they do not like enforcing the grace periods or terminating coverage when or if the grace periods are missed.

A quick history

Grace periods of 45 days for the first COBRA payment and 30 days for each subsequent payment have forever been the place where the rubber meets the road in COBRA administration. The best COBRA administrators handle premium billing and collection quickly, efficiently, and in-step with COBRA rules.

The ACA uses the terms “pay-or-play” with regard to the employer mandate, but the concept isn’t new. For nearly 30 years, COBRA’s “pay or play” philosophy has meant that former employees who desire COBRA continuation had to PAY for their coverage on a timely basis in order to keep it, or PLAY the health care market – either finding coverage elsewhere, or choosing to go without. 

As we discussed last month, when open enrollment in the Marketplace ends, those on COBRA who did not choose to switch to the Marketplace will have to keep their COBRA until their coverage exhausts or until the next Marketplace open enrollment period occurs. COBRA participants are not eligible for subsidies (as of the writing of this article) if they stop paying their premiums prior to the next Marketplace open enrollment and their COBRA coverage ends as a result.

A new day

Now, under the ACA, patients who buy health plans through the Marketplace have a 90-day grace period to get caught up on premium payments before coverage can be canceled. The law states that insurance companies must pay providers for claims incurred in the first 30 days of the grace period. However, carriers can pend payments for services incurred in the second or third month until premium is received. If the premium is not received, the carrier can cancel coverage and refuse to pay pended claims. Providers are then on the hook for directly collecting the cost of treatment from patients without coverage.

So, during a time of transition (i.e. COBRA eligibility), it will be more important than ever for employers to notify their COBRA-qualified beneficiaries quickly and help them facilitate the decision process so they don’t stretch out their COBRA eligibility period too long. In short, help your employer clients be compliant but close the COBRA window as quickly as the law allows. This has long been a best practice among COBRA administrators and it will be even more important in the future. Consider the alternative: The COBRA participant seemingly leaves the plan in favor the Marketplace plan only to find it unaffordable and return to the employer-based group coverage via COBRA, bringing a large bag of claims (and premium payments from angry unpaid providers) right back with them. If you haven’t figured it out, that’s what it means to be the second mouse!

As always, make sure that your clients are adopting best practices and strategies related to COBRA administration and compliance. By doing so, you help protect your clients’ plans and help them keep their cheese.