COBRA administration is anything but routine. In this article, we examine a few interesting situations that deserve the label “COBRA Curveballs.” Batter up!
Q: We offer wellness credits or discounts to our employees to reduce premium costs. Do these same discounts apply to people who are on COBRA?
A: The answer is, of course, it depends. Remember that COBRA qualified beneficiaries normally pay the entire cost of coverage - both the employer and employee portions of health plan premiums plus a 2% administration fee. If the wellness credit simply adjusts the allocation between the amount the employer pays and the amount the employee pays, the wellness credit becomes irrelevant under COBRA.
Think about a situation in which the monthly cost of coverage is $1,000. The employer pays $500 and the employee pays $500. If the employee qualifies for wellness credits, the employer pays $600 and the employee pays $400. The cost of coverage remains the same at $1,000. The COBRA premium is based on the cost of coverage plus 2%. Thus, the wellness credits do not affect the COBRA premium.
Seems easy, right? Not so fast. Now consider a fully insured plan in which the insurer gives a discount for wellness participation. Normally, the total monthly cost of coverage is $1,000, but the insurer offers a $100 wellness credit making the total monthly cost of coverage $900. The COBRA premium would likely need to take into account wellness credits because they affect the cost of coverage and not just the allocation of cost between the employer and employee.
Q: Our COBRA election notice explains that qualified beneficiaries must notify us in writing within 60 days of a second qualifying event to get an extension of the COBRA period. A qualified beneficiary provided verbal notice of a divorce to a manger who is not involved in plan administration. Can we deny the extension?
A: The COBRA regulations require health plans to establish reasonable notice procedures governing situations in which qualified beneficiaries are required to provide notice to the plan administrator. Plans that do not establish reasonable notice procedures will be bound by oral notice from qualified beneficiaries. Even oral notice to employees who do not usually handle plan administration is sufficient notice.
Among other requirements, notice procedures are deemed reasonable only if they are described in the plan’s Summary Plan Description (SPD). Many plans do not have adequate SPDs, relying on the insurance policy documents alone.
Including notice procedures in a COBRA election notice is insufficient. Unless the requirement to provide written notice is contained in the SPD, the employer in our question cannot deny the COBRA extension simply because notice of the second qualifying event (divorce) was provided verbally.
Q: Are we required to send a Notice of Unavailability?
A: A Notice of Unavailability is sent when an individual expecting to receive COBRA is determined to be ineligible or when an extension of the COBRA period is unavailable. The notice is required if the plan administrator receives notice of a qualifying event, a second qualifying event or notice of a disability determination and the plan administrator determines that the individual is not entitled to COBRA or to an extension of the COBRA period.
COBRA rules are found in three different parts of the United States Code and three different agencies have authority to issue regulations. The IRS has authority to issue regulations under the Internal Revenue Code. The DOL has authority to issue regulations under ERISA. HHS has authority to issue regulations under the PHSA.
The requirement to send a Notice of Unavailability is found only in the COBRA regulations issued by the Department of Labor under ERISA. Governmental plans and certain church plans are not subject to ERISA. Thus, the DOL requirement to send a Notice of Unavailability does not apply to these plans.
Bottom line: Plans sponsored by private employers who are subject to ERISA are required to send a Notice of Unavailability, but governmental and church plans are not required to do so. Even though it is not technically required, governmental and church plans would be very smart to send a Notice of Unavailability to prevent uncertainty and document unavailability. A simple notice can serve to prevent litigation down the road.
Q: We require proof of student status to remain on our dental and vision plans beyond age 19. Can we also require this proof for dependents who are on COBRA?
A: More plans are wisely performing dependent eligibility audits to ensure that only eligible dependents are covered under various group plans. While it is a good idea to include COBRA participants in eligibility audits, there are some situations where questions of eligibility are irrelevant. For most aspects of eligibility, once an individual experiences a qualifying event, he or she is covered not under the terms of the plan, but under the rules of COBRA.
Let’s look at the question posed above. A vision plan only covers dependents over the age of 19 if they are full-time students. A dependent elects to continue vision coverage via COBRA following his dad’s loss of employment. He would be entitled to 18 months of COBRA even if he turns 19 during the COBRA period and is not a full-time student. His COBRA cannot be terminated early because he is not a full-time student. Thus, requiring proof of his student status is an irrelevant exercise.
This article was reprinted from the October 2017 issue of Health Insurance Underwriter Magazine featuring our very own Robert Meyers.
