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Best Practices for Initial COBRA Notices | Ohio Benefit Advisors

Categories: Benefits, Blog, COBRA, Team K Blog, UBA, UBA News
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The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires group health plans to provide notices to covered employees and their families explaining their COBRA rights when certain events occur. The initial notice, also referred to as the general notice, communicates general COBRA rights and obligations to each covered employee (and his or her spouse) who becomes covered under the group health plan. This notice is issued by the plan administrator within the first 90 days when coverage begins under the group health plan and informs the covered employee (and his or her spouse) of the responsibility to notify the employer within 60 days if certain qualifying events occur in the future.

The initial notice must include the following information:

  • The plan administrator’s contact information
  • A general description of the continuation coverage under the plan
  • An explanation of the covered employee’s notice obligations, including notice of
    • The qualifying events of divorce, legal separation, or a dependent’s ceasing to be a dependent
    • The occurrence of a second qualifying event
    • A qualified beneficiary’s disability (or cessation of disability) for purposes of the disability extension)
  • How to notify the plan administrator about a qualifying event
  • A statement that that the notice does not fully describe continuation coverage or other rights under the plan, and that more complete information regarding such rights is available from the plan administrator and in the plan’s summary plan description (SPD)

As a best practice, the initial notice should also:

  • Direct qualified beneficiaries to the plan’s most recent SPD for current information regarding the plan administrator’s contact information.
  • For plans that include health flexible spending arrangements (FSAs), disclose the limited nature of the health FSA’s COBRA obligations (because certain health FSAs are only obligated to offer COBRA through the end of the year to qualified beneficiaries who have underspent accounts).
  • Explain that the spouse may notify the plan administrator within 60 days after the entry of divorce or legal separation (even if an employee reduced or eliminated the spouse’s coverage in anticipation of the divorce or legal separation) to elect up to 36 months of COBRA coverage from the date of the divorce or legal separation.
  • Define qualified beneficiary to include a child born to or placed for adoption with the covered employee during a period of COBRA continuation coverage.
  • Describe that a covered child enrolled in the plan pursuant to a qualified medical child support order during the employee’s employment is entitled to the same COBRA rights as if the child were the employee’s dependent child.
  • Clarify the consequences of failing to submit a timely qualifying event notice, timely second qualifying event notice, or timely disability determination notice.

Practically speaking, the initial notice requirement can be satisfied by including the general notice in the group health plan’s SPD and then issuing the SPD to the employee and his or her spouse within 90 days of their group health plan coverage start date.

If the plan doesn’t rely on the SPD for furnishing the initial COBRA notice, then the plan administrator would follow the U.S. Department of Labor (DOL) rules for delivery of ERISA-required items. A single notice addressed to the covered employee and his or her spouse is allowed if the spouse lives at the same address as the covered employee and coverage for both the covered employee and spouse started at the time that notice was provided. The plan administrator is not required to provide an initial notice for dependents.

By Danielle Capilla
Originally Posted By

Our Firm is making a big push to provide compliance assessments for our clients and using them as a marketing tool with prospects. Since the U.S. Department of Labor (DOL) began its Health Benefits Security Project in October 2012, there has been increased scrutiny. While none of our clients have been audited yet, we expect it is only a matter of time and we want to make sure they are prepared.

We knew most fully-insured groups did not have a Summary Plan Description (SPD) for their health and welfare plans, but we have been surprised by some of the other things that were missing. Here are the top five compliance surprises we found.

  1. COBRA Initial Notice. The initial notice is a core piece of compliance with the Consolidated Omnibus Budget and Reconciliation Act (COBRA) and we have been very surprised by how many clients are not distributing this notice. Our clients using a third-party administrator (TPA), or self-administering COBRA, are doing a good job of sending out the required letters after qualifying events. However, we have found that many clients are not distributing the required COBRA initial notice to new enrollees. The DOL has recently updated the COBRA model notices with expiration dates of December 31, 2019. We are trying to get our clients to update their notices and, if they haven’t consistently distributed the initial notice to all participants, to send it out to everyone now and document how it was sent and to whom.
  2. Prescription Drug Plan Reporting to CMS. To comply with the Medicare Prescription Drug Improvement and Modernization Act, passed in 2003, employer groups offering prescription benefits to Medicare-eligible individuals need to take two actions each year. The first is an annual report on the Centers for Medicare & Medicaid Services (CMS) website regarding whether the prescription drug plan offered by the group is creditable or non-creditable. The second is distributing a notice annually to Medicare-eligible plan members prior to the October 15 beginning of Medicare open enrollment, disclosing whether the prescription coverage is creditable or non-creditable. We have found that the vast majority (but not 100 percent) of our clients are complying with the second requirement by annually distributing notices to employees. Many clients are not complying with the first requirement and do not go to the CMS website annually to update their information. The annual notice on the CMS website must be made within:
  • 60 days after the beginning of the plan year,
  • 30 days after the termination of the prescription drug plan, or
  • 30 days after any change in the creditability status of the prescription drug plan.
  1. ACA Notice of Exchange Rights. The Patient Protection and Affordable Care Act (ACA) required that, starting in September 2013, all employers subject to the Fair Labor Standards Act (FLSA) distribute written notices to all employees regarding the state exchanges, eligibility for coverage through the employer, and whether the coverage was qualifying coverage. This notice was to be given to all employees at that time and to all new hires within 14 days of their date of hire. We have found many groups have not included this notice in the information they routinely give to new hires. The DOL has acknowledged that there are no penalties for not distributing the notice, but since it is so easy to comply, why take the chance in case of an audit?
  2. USERRA Notices. The Uniformed Services Employment and Reemployment Rights Act (USERRA) protects the job rights of individuals who voluntarily or involuntarily leave employment for military service or service in the National Disaster Medical System. USERRA also prohibits employers from discriminating against past and present members of the uniformed services. Employers are required to provide a notice of the rights, benefits and obligations under USERRA. Many employers meet the obligation by posting the DOL’s “Your Rights Under USERRA” poster, or including text in their employee handbook. However, even though USERRA has been around since 1994, we are finding many employers are not providing this information.
  3. Section 79. Internal Revenue Code Section 79 provides regulations for the taxation of employer-provided life insurance. This code has been around since 1964, and while there have been some changes, the basics have been in place for many years. Despite the length of time it has been in place, we have found a number of groups that are not calculating the imputed income. In essence, if an employer provides more than $50,000 in life insurance, then the employee should be paying tax on the excess coverage based on the IRS’s age rated table 2-2. With many employers outsourcing their payroll or using software programs for payroll, calculating the imputed income usually only takes a couple of mouse clicks. However, we have been surprised by how many employers are not complying with this part of the Internal Revenue Code, and are therefore putting their employees’ beneficiaries at risk.

There have been other surprises through this process, but these are a few of the more striking examples. The feedback we received from our compliance assessments has been overwhelmingly positive. Groups don’t always like to change their processes, but they do appreciate knowing what needs to be done.

Audit-proof your company with UBA’s latest white paper: Don’t Roll the Dice on Department of Labor Audits. This free resource offers valuable information about how to prepare for an audit, the best way to acclimate staff to the audit process, and the most important elements of complying with requests.

By Bob Bentley, Manager
Originally published by

Cafeteria plans, or plans governed by IRS Code Section 125, allow employers to help employees pay for expenses such as health insurance with pre-tax dollars. Employees are given a choice between a taxable benefit (cash) and two or more specified pre-tax qualified benefits, for example, health insurance. Employees are given the opportunity to select the benefits they want, just like an individual standing in the cafeteria line at lunch.

Only certain benefits can be offered through a cafeteria plan:

  • Coverage under an accident or health plan (which can include traditional health insurance, health maintenance organizations (HMOs), self-insured medical reimbursement plans, dental, vision, and more);
  • Dependent care assistance benefits or DCAPs
  • Group term life insurance
  • Paid time off, which allows employees the opportunity to buy or sell paid time off days
  • 401(k) contributions
  • Adoption assistance benefits
  • Health savings accounts or HSAs under IRS Code Section 223

Some employers want to offer other benefits through a cafeteria plan, but this is prohibited. Benefits that you cannot offer through a cafeteria plan include scholarships, group term life insurance for non-employees, transportation and other fringe benefits, long-term care, and health reimbursement arrangements (unless very specific rules are met by providing one in conjunction with a high deductible health plan). Benefits that defer compensation are also prohibited under cafeteria plan rules.

Cafeteria plans as a whole are not subject to ERISA, but all or some of the underlying benefits or components under the plan can be. The Patient Protection and Affordable Care Act (ACA) has also affected aspects of cafeteria plan administration.

Employees are allowed to choose the benefits they want by making elections. Only the employee can make elections, but they can make choices that cover other individuals such as spouses or dependents. Employees must be considered eligible by the plan to make elections. Elections, with an exception for new hires, must be prospective. Cafeteria plan selections are considered irrevocable and cannot be changed during the plan year, unless a permitted change in status occurs. There is an exception for mandatory two-year elections relating to dental or vision plans that meet certain requirements.

Plans may allow participants to change elections based on the following changes in status:

  • Change in marital status
  • Change in the number of dependents
  • Change in employment status
  • A dependent satisfying or ceasing to satisfy dependent eligibility requirements
  • Change in residence
  • Commencement or termination of adoption proceedings

Plans may also allow participants to change elections based on the following changes that are not a change in status but nonetheless can trigger an election change:

  • Significant cost changes
  • Significant curtailment (or reduction) of coverage
  • Addition or improvement of benefit package option
  • Change in coverage of spouse or dependent under another employer plan
  • Loss of certain other health coverage (such as government provided coverage, such as Medicaid)
  • Changes in 401(k) contributions (employees are free to change their 401(k) contributions whenever they wish, in accordance with the administrator’s change process)
  • HIPAA special enrollment rights (contains requirements for HIPAA subject plans)
  • COBRA qualifying event
  • Judgment, decrees, or orders
  • Entitlement to Medicare or Medicaid
  • Family Medical Leave Act (FMLA) leave
  • Pre-tax health savings account (HSA) contributions (employees are free to change their HSA contributions whenever they wish, in accordance with the their payroll/accounting department process)
  • Reduction of hours (new under the ACA)
  • Exchange/Marketplace enrollment (new under the ACA)

Together, the change in status events and other recognized changes are considered “permitted election change events.”

Common changes that do not constitute a permitted election change event are: a provider leaving a network (unless, based on very narrow circumstances, it resulted in a significant reduction of coverage), a legal separation (unless the separation leads to a loss of eligibility under the plan), commencement of a domestic partner relationship, or a change in financial condition.

There are some events not in the regulations that could allow an individual to make a mid-year election change, such as a mistake by the employer or employee, or needing to change elections in order to pass nondiscrimination tests. To make a change due to a mistake, there must be clear and convincing evidence that the mistake has been made. For instance, an individual might accidentally sign up for family coverage when they are single with no children, or an employer might withhold $100 dollars per pay period for a flexible spending arrangement (FSA) when the individual elected to withhold $50.

Plans are permitted to make automatic payroll election increases or decreases for insignificant amounts in the middle of the plan year, so long as automatic election language is in the plan documents. An “insignificant” amount is considered one percent or less.

Plans should consider which change in status events to allow, how to track change in status requests, and the time limit to impose on employees who wish to make an election.

Cafeteria plans are not required to allow employees to change their elections, but plans that do allow changes must follow IRS requirements. These requirements include consistency, plan document allowance, documentation, and timing of the election change. For complete details on each of these requirements—as well as numerous examples of change in status events, including scenarios involving employees or their spouses or dependents entering into domestic partnerships, ending periods of incarceration, losing or gaining TRICARE coverage, and cost changes to an employer health plan—request UBA’s ACA Advisor, “Cafeteria Plans: Qualifying Events and Changing Employee Elections”.

By Danielle Capilla
Originally published by

On December 13, 2016, former President Obama signed the 21st Century Cures Act into law. The Cures Act has numerous components, but employers should be aware of the impact the Act will have on the Mental Health Parity and Addiction Equity Act, as well as provisions that will impact how small employers can use health reimbursement arrangements (HRAs). There will also be new guidance for permitted uses and disclosures of protected health information (PHI) under the Health Insurance Portability and Accountability Act (HIPAA). We review the implications with HRAs below; for a discussion of all the implications, view UBA’s Compliance Advisor, “21st Century Cares Act”.

The Cures Act provides a method for certain small employers to reimburse individual health coverage premiums up to a dollar limit through HRAs called “Qualified Small Employer Health Reimbursement Arrangements” (QSE HRAs). This provision will go into effect on January 1, 2017.

Previously, the Internal Revenue Service (IRS) issued Notice 2015-17 addressing employer payment or reimbursement of individual premiums in light of the requirements of the Patient Protection and Affordable Care Act (ACA). For many years, employers had been permitted to reimburse premiums paid for individual coverage on a tax-favored basis, and many smaller employers adopted this type of an arrangement instead of sponsoring a group health plan. However, these “employer payment plans” are often unable to meet all of the ACA requirements that took effect in 2014, and in a series of Notices and frequently asked questions (FAQs) the IRS made it clear that an employer may not either directly pay premiums for individual policies or reimburse employees for individual premiums on either an after-tax or pre-tax basis. This was the case whether payment or reimbursement is done through an HRA, a Section 125 plan, a Section 105 plan, or another mechanism.

The Cures Act now allows employers with less than 50 full-time employees (under ACA counting methods) who do not offer group health plans to use QSE HRAs that are fully employer funded to reimburse employees for the purchase of individual health care, so long as the reimbursement does not exceed $4,950 annually for single coverage, and $10,000 annually for family coverage. The amount is prorated by month for individuals who are not covered by the arrangement for the entire year. Practically speaking, the monthly limit for single coverage reimbursement is $412, and the monthly limit for family coverage reimbursement is $833. The limits will be updated annually.

Impact on Subsidy Eligibility. For any month an individual is covered by a QSE HRA/individual policy arrangement, their subsidy eligibility would be reduced by the dollar amount provided for the month through the QSE HRA if the QSE HRA provides “unaffordable” coverage under ACA standards. If the QSE HRA provides affordable coverage, individuals would lose subsidy eligibility entirely. Caution should be taken to fully education employees on this impact.

COBRA and ERISA Implications. QSE HRAs are not subject to COBRA or ERISA.

Annual Notice Requirement. The new QSE HRA benefit has an annual notice requirement for employers who wish to implement it. Written notice must be provided to eligible employees no later than 90 days prior to the beginning of the benefit year that contains the following:

  • The dollar figure the individual is eligible to receive through the QSE HRA
  • A statement that the eligible employee should provide information about the QSE HRA to the Marketplace or Exchange if they have applied for an advance premium tax credit
  • A statement that employees who are not covered by minimum essential coverage (MEC) for any month may be subject to penalty

Recordkeeping, IRS Reporting. Because QSE HRAs can only provide reimbursement for documented healthcare expense, employers with QSE HRAs should have a method in place to obtain and retain receipts or confirmation for the premiums that are paid with the account. Employers sponsoring QSE HRAs would be subject to ACA related reporting with Form 1095-B as the sponsor of MEC. Money provided through a QSE HRA must be reported on an employee’s W-2 under the aggregate cost of employer-sponsored coverage. It is unclear if the existing safe harbor on reporting the aggregate cost of employer-sponsored coverage for employers with fewer than 250 W-2s would apply, as arguably many of the small employers eligible to offer QSE HRAs would have fewer than 250 W-2s.

Individual Premium Reimbursement, Generally. Outside of the exception for small employers using QSE HRAs for reimbursement of individual premiums, all of the prior prohibitions from IRS Notice 2015-17 remain. There is no method for an employer with 50 or more full time employees to reimburse individual premiums, or for small employers with a group health plan to reimburse individual premiums. There is no mechanism for employers of any size to allow employees to use pre-tax dollars to purchase individual premiums. Reimbursing individual premiums in a non-compliant manner will subject an employer to a penalty of $100 a day per individual they provide reimbursement to, with the potential for other penalties based on the mechanism of the non-compliant reimbursement.

By Danielle Capilla
Originally published by

Get the Facts on COBRA Coverage – Who, When and How Long? | Ohio Employee Benefits

Categories: ACA, COBRA, Health Care Reform, Team K Blog
Comments Off on Get the Facts on COBRA Coverage – Who, When and How Long? | Ohio Employee Benefits

ubablog0503As we mentioned in the first edition of this mini-series on the Federal Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), “marketplaces” or “exchanges” created by the Patient Protection and Affordable Care Act (ACA) did not make COBRA obsolete. Rather, COBRA is still going strong. And while the general rule of COBRA is not necessarily that difficult to understand, the timeframes, notice requirements, intricacies, and the ways in which COBRA interacts with other laws presents employers with potentially extremely expensive outcomes.

In the March 29 blog, I introduced COBRA, with a general guide to determine which employers are subject to federally mandated continuation coverage – generally, private sector employers sponsoring group health plans that have 20 or more employees on more than half of the business days in the previous calendar year. In this edition, I will discuss the who, when, and how long of COBRA – who is eligible, when is that person entitled to coverage, and how long the federally-mandated continuation coverage lasts.

Who is eligible for COBRA?

Group health plans subject to COBRA must offer continuation coverage to “qualified beneficiaries.” To be a qualified beneficiary, the individual must have been covered under the group health plan the day before the qualifying event and must be a covered employee, a covered spouse of the employee, a covered dependent of the employee, or a child born to or placed for adoption with a covered employee during a period of COBRA continuation coverage.

A qualified beneficiary might also be a covered employee who had retired on or before the date of substantial elimination of group health plan coverage due to the bankruptcy of the employer. Any spouse, surviving spouse, or dependent child of such a covered employee is also a qualified beneficiary if, on the day before the bankruptcy qualifying event, the spouse, surviving spouse, or dependent child is a beneficiary under the plan.

Let’s take a closer look at a couple of the common COBRA missteps.

A covered employee might not be an employee.

A “covered employee” is a defined term and means an individual who is (or was) provided coverage under a group health plan by virtue of the performance of services by the individual for one or more persons maintaining the plan. Therefore, agents, independent contractors, and directors who participate in the group health plan may be covered employees.

Be careful of domestic partner coverage.

Although plans may allow for domestic partner eligibility, COBRA is available to a “covered spouse of the employee.” Because domestic partners are not “spouses,” they are not qualified beneficiaries.

What does “placed for adoption” mean?

A child that is born to, adopted by, or placed for adoption with a covered employee during the covered employee’s COBRA continuation period becomes a qualified beneficiary when enrolled in the benefit. “Placement for adoption or being placed for adoption” means that the covered employee has assumed a legal obligation for total or partial support of a child in anticipation of the adoption of the child. The child’s placement for adoption with the covered employee terminates upon the termination of the legal obligation for total or partial support.

In contrast, if a covered employee who is a qualified beneficiary does not elect COBRA continuation coverage during the election period, then any child born to or placed for adoption with the former qualified beneficiary (covered employee) on or after the date of the qualifying event is not a qualified beneficiary.

Qualified beneficiaries can forfeit their status.

A qualified beneficiary who does not elect COBRA continuation coverage in connection with a qualifying event ceases to be a qualified beneficiary when the election period ends. This lost right generally cannot be resurrected.

When is the individual entitled to coverage?

Only certain events, called “qualifying events,” trigger an entitlement to continuation coverage. The qualifying events and the respective qualified beneficiaries affected are:

  • Termination of employment for any reason other than gross misconduct – for the covered employee, covered spouse, and covered dependent children
  • Reduction in working hours of a covered employee – for the covered employee, covered spouse, and covered dependent children
  • The death of a covered employee – for the covered spouse and covered dependent children
  • Divorce or legal separation of a covered employee from the employee’s spouse – for the covered spouse and covered dependent children
  • Loss of coverage due to election of Medicare – for the covered spouse and covered dependent children
  • Loss of dependent child status under the terms of the plan – for covered dependent children
  • Chapter 11 bankruptcy of an employer – for retirees

How long does the continuation coverage last?

Generally, the maximum continuation coverage period is determined by the qualifying event and is measured from the qualifying event date.

If the qualifying event is loss of coverage due to a covered employee’s reduction in hours or termination of employment other than by reason of gross misconduct, the maximum coverage period for all qualified beneficiaries is 18 months.

The maximum coverage period is 36 months for a spouse and dependent children who are qualified beneficiaries when the qualifying event is the death of a covered employee, the divorce or legal separation of a covered employee from the employee’s spouse, or the covered employee’s becoming entitled to Medicare benefits.

There may be times when the 18-month maximum continuation coverage due to the employee’s reduction in hours or termination of employment is extended.

  • Under the extended notice rule, also known as the delayed employer notice rule, the maximum coverage period runs from the date of loss of coverage, rather than from the date of the triggering event. For example, if a qualifying event occurs on April 5, 2016, and the plan provides for coverage to extend through the end of the month, the loss of coverage does not occur until April 30, 2016. If the plan requires that the employer notify the plan administrator within 30 days of the loss of coverage – rather than within 30 days of the triggering event – then the coverage period will be through October 30, 2017, instead of October 5, 2017.
  • The disability extension rule is applicable in certain situations where a qualified beneficiary is determined to be disabled. The coverage period is extended from 18 months to 29 months for the disabled qualified beneficiary.
  • The multiple qualifying event rule extends the maximum coverage period to 36 months for spouses and children of the covered employee when a second qualifying event occurs during the initial period. The second qualifying event must result in a loss of coverage and will typically be either a covered employee’s death, divorce or legal separation from the covered employee, or a dependent child’s loss of eligibility.
  • The pre-termination (or pre-reduction of hours) Medicare entitlement rule extends the 18-month period for spouses and children when the covered employee becomes entitled to Medicare within 18 months of the date of the triggering event.

When the qualifying event is the bankruptcy of the employer, the coverage period for the retired covered employee ends on the date of the retired covered employee’s death. The maximum coverage period for a qualified beneficiary who is the spouse, surviving spouse, or dependent child of the retired covered employee is 36 months from the death of the retired covered employee.

Administration Procedures

It is extremely important that employers have procedures in place to examine potential COBRA situations. Regardless of whether the employer contracts COBRA administration to a third party, the plan sponsor/employer is the liable party. Employers should have processes in place for identifying which individuals are entitled to coverage when coverage terminates, and ensuring proper identification of potential qualified beneficiaries. Failure to properly identify COBRA qualified beneficiaries can be very expensive. In the next segment, we will look at the notice requirements and potential liabilities for employers.

For an in-depth look at qualifying events that trigger COBRA, the ACA impact on COBRA, measurement and look-back issues, health FSA carryovers, and reporting on the coverage offered, request UBA’s ACA Advisor, “COBRA and the Affordable Care Act”.

Originally published by United Benefit Advisors – Read More

uba0330picIn the earlier days of the Patient Protection and Affordable Care Act (ACA), a common question among employers and benefit advisors was whether there would still be a need for COBRA, the Federal Consolidated Omnibus Budget Reconciliation Act of 1985. Many people speculated that COBRA would be a thing of the past. This was a logical step for those in the insurance industry. When an employee was faced with the option of paying full cost for continued employer coverage or possibly qualifying for heavily subsidized care on the Marketplace, it seemed to be a “no brainer.” Six years after the passage of the ACA, which was signed into law on March 23, 2010, and three years after the initial launch of the Marketplace in October 2013, COBRA is still a law with which to be reckoned. In a series of articles, I will address COBRA in general and also delve into other related issues, such as mini-COBRA, COBRA and account-based plans, and the interaction of COBRA and Medicare.

First, let us begin with the legal framework and general rule of COBRA, note the exceptions, and perform the basic analysis to see which employers and group health plans are subject to COBRA.

What is COBRA?

COBRA is a federal law which amended the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code (Code), and the Public Health Service Act (PHSA). The provisions found in ERISA and the Code apply to private-sector employers sponsoring group health plans; the PHSA provisions apply to group health plans sponsored by state and local governments. COBRA regulations have been issued by the Internal Revenue Service (IRS) and the Department of Labor (DOL).

The general rule is that COBRA applies to group health plans sponsored by employers with 20 or more employees on more than 50 percent of its typical business days in the previous calendar year. This rule must be broken into its elements, applying the exceptions, and determining whether an employer is subject to COBRA. After that determination is made, it must be determined what plans must be available for continuing coverage and what individuals are entitled to an election of coverage.

Who is an employer?

Most employers are subject to COBRA. An “employer” is a “person for whom services are performed.” Employers include those with common ownership or part of a controlled group pursuant to Code sections 414(b), (c), (m), or (o). Successors of employers, whether by merger, acquisition, consolidation, or reorganization, are also employers. Many times, COBRA issues, and benefits issues in general, are overlooked when companies are merged or acquired.

What group health plans are subject to COBRA? Does not being covered by COBRA relieve employers of the obligation to offer continuation coverage?

The general rule is that group health plans are subject to COBRA. A group health plan is any arrangement that provides medical care, within the meaning of Code section 213 and is maintained by an employer or employee organization.

The first requirement is that the arrangement must provide medical care. This includes medical, dental, vision, and prescription benefits. It does not include life, disability, or long-term care insurance or amounts contributed by an employer to a medical or health savings account (Archer MSA or HSA).

The second prong is that the arrangement must be maintained or established by the employer. This includes multiemployer plans, an employee benefit plan that is maintained pursuant to one or more collective bargaining agreements and to which more than one employer is required to contribute. More than just insurance plans are subject to COBRA. The arrangement may be provided through insurance, by a health maintenance organization (HMO), out of the employer’s assets, or through any other means.

Examples of group health plans subject to COBRA include:

  • Plans provided by an HMO
  • Self-insured medical reimbursement plans
  • Health reimbursement arrangements (HRAs)
  • Health flexible spending accounts (health FSAs)
  • Wellness programs to the extent they provide medical care
  • Treatment programs or health clinics
  • Employee assistance programs (EAPs)

However, there are several group health plan exceptions to COBRA, and the plans excepted by the general rule may still be obligated under another law to provide some sort of continuation coverage.

Exception #1. COBRA does not apply to plans sponsored by the federal government or the Indian tribal governments, within the meaning of Code section 414(d). Although COBRA does not apply to federal governmental plans, the PHSA, amended by COBRA and overseen by the Department of Health and Human Services (HHS), generally requires that state or local government group health plans to provide parallel continuation coverage. Additionally, the Federal Employees Health Benefits Amendments Act of 1988 requires a similar continuation of coverage for federal employees and their family members covered under the Federal Employees Health Benefit Program.

Exception # 2. COBRA does not apply to certain plans sponsored by churches, or church-related organizations, within the meaning of Code section 414(e).

Exception #3. COBRA does not apply to small-employer plans. Generally, a small-employer plan is a group health plan maintained by an employer that normally employed fewer than 20 employees on at least 50 percent of its typical business days during the preceding calendar year.

For multiemployer plans, all contributing employers must have employed fewer than 20 employees on at least 50 percent of its typical business days during the preceding calendar year. The determination of whether a multiemployer plan is a small-employer plan on any particular date depends on the contributing employers on that date and the size workforce of those employers during the preceding calendar year. The regulations clarify:

“If a plan that is otherwise subject to COBRA ceases to be a small-employer plan because of the addition during a calendar year of an employer that did not normally employ fewer than 20 employees on a typical business day during the preceding calendar year, the plan ceases to be excepted from COBRA immediately upon the addition of the new employer. In contrast, if the plan ceases to be a small-employer plan by reason of an increase during a calendar year in the workforce of an employer contributing to the plan, the plan ceases to be excepted from COBRA on the January 1 immediately following the calendar year in which the employer’s workforce increased.”

Who are employees and what employees count toward the threshold?

All common law employees of the employer are taken into account when determining if an employer is subject to COBRA. Therefore, self-employed individuals, independent contractors and their employees and independent contractors, and directors of corporations are not counted.

The threshold number of employees is 20, counting both full-time and part-time common law employees.

Each part-time employee counts as a fraction of a full-time employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.

Next Step: The who, when, and how long for COBRA coverage

Now that we know generally who is subject to COBRA from an employer standpoint and what group health plans must be offered, the next step is to determine – from an individual’s standpoint – who is eligible for COBRA coverage, when that person is entitled to coverage, and how long the continuation coverage lasts.

For an in-depth look at qualifying events that trigger COBRA, the ACA impact on COBRA, measurement and look-back issues, health FSA carryovers, and reporting on the coverage offered, request UBA’s ACA Advisor, “COBRA and the Affordable Care Act”.

Originally published by United Benefit Advisors – Read More

COBRA and the Affordable Care Act | Ohio Benefits Broker

Categories: COBRA
Comments Off on COBRA and the Affordable Care Act | Ohio Benefits Broker

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers to offer covered employees who lose their health benefits due to a qualifying event to continue group health benefits for a limited time at the Employee benefitsemployee’s own cost. COBRA provisions are found in the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code (Code), and the Public Health Service Act (PHSA). Employers with 20 or more employees and group health plans are subject to COBRA provisions. Most governmental plans, church plans, and certain plans of Indian tribal governments are exempt from COBRA. Employers should always consult with counsel about state continuation laws that are similar to COBRA and apply to small employers.

Only seven events can trigger COBRA obligations and offers of coverage. They are:

  • Termination of employment
  • Reduction of hours
  • Divorce or legal separation
  • Death of the covered employee
  • A dependent child ceasing to be a dependent under the plan
  • Entitlement to Medicare
  • Bankruptcy

These events must lead to an individual’s loss of coverage. For example, if a reduction of hours or entitlement to Medicare did not result in an employee’s loss of benefit eligibility, there would be no obligation to offer COBRA coverage. Conversely, employees might experience a loss of coverage that does not trigger COBRA; for example if they fail to pay their portion of the premium or their employer stops offering coverage to spouses.

Affordable Care Act Impact on COBRA

The Patient Protection and Affordable Care Act (ACA) did not directly impact or change COBRA obligations for employers, but other changes in related regulations will determine how and when employers offer COBRA coverage to employees.

Beginning in 2015, to comply with the ACA large employers must offer their full-time employees health coverage, or pay one of two employer shared responsibility (play or pay) penalties. An employer is considered large, or an applicable large employer (ALE), if it has 50 or more full-time or full-time equivalent employees. Full-time employees are employees that average 30 hours a week or more. There are two methods that an ALE can use to determine which employees must be offered coverage to avoid penalties: the monthly method, and the measurement and look-back method. ALEs are also required to report on coverage that they did or did not provide.

For an in-depth review of the measurement and look-back methods and options, as the reporting obligations and FSA carryovers, request UBA’s ACA Advisor, “Cobra and the Affordable Care Act”.


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Negotiating over COBRA Coverage – Use EXTREME CAUTION! | OH Employee Benefits

Categories: COBRA
Comments Off on Negotiating over COBRA Coverage – Use EXTREME CAUTION! | OH Employee Benefits

By Elizabeth Kay, Compliance & Retention Analyst AEIS Advisors, A UBA Partner Firm

Have you ever overheard the new employee in the break room, bragging about how good their health insurance was with their previous employer, and how much less expensive it was than the coverage they are currently being offered?Proceed with caution

You may think ”If it was so good, then why give it up?” There are always a number of factors that can lead to someone making a job change, but what happens when COBRA becomes a part of the negotiating process when they are working out the terms of employment with the new company?

We know that, as of November 2014, the Department of Labor (DOL) made it very clear that an employer cannot pay the premium for an individual plan of an employee or an employee’s dependents, period. If they do, the employer could pay an excise tax of $100 per day they are out of compliance per employee affected. That could be up to $36,500 for ONE employee, for ONE year!

But what if a prospective employee were coming to work for you, and the plan with their current employer had similar coverage but lower premiums because the employer was a larger company, the employees were in very good health overall and the employer had negotiated very low rates with its carrier as a result, or the employer was based in a different state where health care costs were lower? What if that prospective employee tells you that you could pay their COBRA premiums and pay less premium for them than if they enroll in your plan? Many employers would love to save $500 a month for one employee. But the deal is not nearly as sweet as it sounds, and here’s why.

While it is not illegal for an employer to pay for COBRA premiums, if it is for a group plan and not an individual plan, it can create other problems with regard to ERISA and COBRA compliance.

As soon as an employer pays the premium on a pre-tax basis on behalf of an employee for its company policy or another policy, an employer-sponsored plan is created, and is therefore subject to both ERISA and COBRA regulations.

ERISA requires that the plan sponsor distribute notifications to enrollees of the plan, including a Summary Plan Description, and other documents that contain specific plan details. If the employee’s plan benefits were under another employer’s plan, it may be difficult to get that information and distribute it to your employee.

Federal COBRA regulation requires that the employee have access to the same coverage for up to 18 months after he or she loses eligibility for the plan due to termination of employment, for example. What happens if the COBRA plan terminates because that previous company goes out of business and its group plan dissolves? Now the current employer is obligated to continue the employee’s coverage, perhaps without a means to do so.

Or, what if this employee terminates from your company after 12 months? It now becomes your responsibility to provide the employee with 18 months of COBRA coverage, except the employee has already used a portion of his or her COBRA eligibility while under your employment. Since COBRA is an employer obligation, you could be responsible for providing COBRA coverage to an employee who was never enrolled in your company’s group policy in the first place.

It becomes a sticky mess, indeed!

On the flip side, what about negotiating an employee’s severance package? If an employee is leaving your company and you are putting together a severance package, be careful when including paying for the employee’s COBRA continuation coverage. Many employers will offer to pay for three, six or 12 months of COBRA premiums on behalf of the terminated employee.

While this can be done, be careful how you word it in the severance agreement. Most employer sponsored plans are on a 12 month contract. If you make a very general statement saying you will pay to continue the employee’s COBRA coverage at your expense for 12 months, and your premiums skyrocket at renewal, or if you change carriers, and the terminated employee chooses a more expensive plan with richer benefits, you could be on the hook for the increase in premiums.

If you are clear in the severance agreement about the amount you will commit to pay on the employee’s behalf, or clear about the level of coverage to be provided (platinum, gold, silver, or bronze level plan, for example), then you will be better protected.

If you are paying COBRA premiums on a tax-exempt basis for a current employee, or you are concerned about a severance agreement that you made with a terminated employee, please seek advice from your ERISA or employment law attorney.


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