CALIFORNIA

COBRA
    Comparison of Federal and California Continuation Laws 
  FEDERAL (COBRA) CALIFORNIA
Covered Employers and Plan Coverage Group health plans maintained by private-sector employers with 20 or more employees, employee organizations, or state or local governments; coverage must be identical to that available to similarly situated beneficiaries who are not receiving COBRA coverage under the plan (generally, the same coverage that the qualified beneficiary had immediately before qualifying for continuation coverage) Employers with 2 to 19 employees not covered by federal COBRA.  Only indemnity policies, PPOs, HMOs, and church plans are eligible.Employers with more than 20 employees, once employee has exhausted federal COBRA, but employee had less than 36 months of federal COBRA coverage.
Qualified Beneficiaries (Employee / Dependents) Individual covered by a group health plan on the day before a qualifying event - either an employee, the employee's spouse, or an employee's dependent child.  In certain cases, a retired employee, the retired employee's spouse, and the retired employee's dependent children may be qualified beneficiaries.  In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary.  Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries. Any individual who, on the day before the qualifying event, is covered under a group benefit plan offered by a disability insurer, and has a qualifying event (without evidence of insurability).
Continuation Period 18 months - COBRA beneficiaries generally are eligible for group coverage during a maximum of 18 months for qualifying events due to employment termination or reduction of hours of work.29 months - Disability can extend the 18 month period of continuation coverage for a qualifying event that is a termination of employment or reduction of hours.  If certain requirements are met, the entire family qualifies for an additional 11 months of COBRA continuation coverage.  Plans can charge 150% of the premium cost for the extended period of coverage.36 months - Certain qualifying events, or a second qualifying event during the initial period of coverage, may permit a beneficiary to receive a maximum of 36 months of coverage.36 months - Under COBRA, participants, covered spouses and dependent children may continue their plan coverage when they would otherwise lose coverage due to divorce (or legal separation) for a maximum of 36 months. Up to 36 months – regardless of the qualifying eventPlans can charge not more than 110 percent of the applicable rate charged for covered employee or dependent.In the case of a qualified beneficiary determined to be disabled under the United States Social Security Act, plans can charge no greater than 150% of the group rate after the first 18 months of continuation coverage.
Qualifying Events Qualifying Events for Employees: Voluntary or involuntary termination of employment for reasons other than gross misconduct – 18 monthsReduction in the number of hours of employment – 18 monthsQualifying Events for Spouses: Voluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct – 18 monthsReduction in the hours worked by the covered employee – 18 monthsCovered employee's becoming entitled to Medicare – 36 monthsDivorce or legal separation of the covered employee – 36 monthsDeath of the covered employee – 36 monthsQualifying Events for Dependent Children: Loss of dependent child status under the plan rules – 36 monthsVoluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct – 18 monthsReduction in the hours worked by the covered employee – 18 monthsCovered employee's becoming entitled to Medicare – 36 monthsDivorce or legal separation of the covered employee – 36 monthsDeath of the covered employee – 36 months Any of the following events that would result in a loss of coverage under the group benefit plan:Death of the covered employeeTermination of employment or reduction in hours of the covered employee’s employment (except for gross misconduct)Divorce or legal separation of covered employee from spouseLoss of dependent status by dependentWith respect to covered dependent only, the covered employee’s entitlement to benefits under Medicare
Eligibility To be eligible for COBRA coverage, must have been enrolled in employer's health plan when employed and health plan must continue to be in effect for active employees.  COBRA continuation coverage is available upon the occurrence of a qualifying event that would, except for the COBRA continuation coverage, cause an individual to lose his or her health care coverage.

“Continuation coverage” means extended coverage under the group benefit plan under which an eligible employee or eligible dependent is currently covered, or, in the case of a termination of the group benefit plan or an employer open enrollment period, extended coverage under the group benefit plan currently offered by the employer.

Notice Requirements Employers or health plan administrators must provide an initial general notice when employee is hired if entitled to COBRA benefits.When no longer eligible for health coverage, employer has to provide a specific notice regarding rights to COBRA continuation benefits.Employers must notify their plan administrators within 30 days after an employee's termination or after a reduction in hours that causes an employee to lose health benefits.The plan administrator must provide notice to individual employees of their right to elect COBRA coverage within 14 days after the administrator has received notice from the employer.Employee must respond to this notice and elect COBRA coverage by the 60th day after the written notice is sent or the day health care coverage ceased, whichever is later.  Otherwise, employee will lose all rights to COBRA benefits.Spouses and dependent children covered under such health plan have independent right to elect COBRA coverage upon employee’s termination or reduction in hours. A plan’s evidence of coverage must disclose the rules of continuation coverage and miscellaneous notice requirements, including a statement that individuals should examine their options carefully before declining continuation coverage.Employers are required to notify the insurer in writing of any employee who has had a qualifying event within 30 days of the qualifying event.Insurer/employer shall provide election information to qualified beneficiary within 14 days of receiving notice of qualifying event. Employers are required to notify qualified beneficiaries currently receiving continuation coverage whose coverage will terminate under a group plan prior to the beneficiary’s full coverage period of the ability to continue coverage under a new group benefit plan for the balance of the full coverage period.  This notice must be provided the later of 30 days prior to termination or when all enrolled employees are notified.Qualified beneficiaries must notify insurer/employer in writing of qualifying events within 60 days, or be disqualified from continuation coverage.
Termination of Coverage Coverage begins on the date that coverage would otherwise have been lost by reason of a qualifying event and will end at the end of the maximum period.  It may end earlier if:Premiums are not paid on a timely basis.The employer ceases to maintain any group health plan.After the COBRA election, coverage is obtained with another employer group health plan that does not contain any exclusion or limitation with respect to any pre-existing condition of such beneficiary.  However, if other group health coverage is obtained prior to the COBRA election, COBRA coverage may not be discontinued, even if the other coverage continues after the COBRA election. After the COBRA election, a beneficiary becomes entitled to Medicare benefits.  However, if Medicare is obtained prior to COBRA election, COBRA coverage may not be discontinued, even if the other coverage continues after the COBRA election. Continuation coverage requirements do not apply to the following individuals:Individuals who are entitled to Medicare benefits or become entitled to Medicare benefits (entitlement to Part A only constitutes entitlement to benefits)Individuals who have other hospital, medical or surgical coverage, or who are covered or become covered under another group benefit plan that provides coverage and does not impose any pre-existing condition exclusion or limitationIndividuals who are covered, become covered, or are eligible for federal COBRA coverage or coverage under Ch. 6A of the PHSAQualified Beneficiaries who fail to timely meet notification requirementsQualified beneficiaries who fail to timely submit correct premium amount, or fail to satisfy other terms/conditions of policy/contract
Conversion Rights Some plans allow participants and beneficiaries to convert group health coverage to an individual policy.  If this option is generally available from the plan, a qualified beneficiary who pays for COBRA coverage must be given the option of converting to an individual policy at the end of the COBRA continuation coverage period.  The option must be given to enroll in a conversion health plan within 180 days before COBRA coverage ends.  The premium for a conversion policy may be more expensive than the premium of a group plan, and the conversion policy may provide a lower level of coverage.  The conversion option, however, is not available if the beneficiary ends COBRA coverage before reaching the end of the maximum period of COBRA coverage. Employee is eligible upon termination of group coverage; spouse is eligible upon change in marital status.  No evidence of insurability is required.Employers must notify employees of their conversion coverage rights within 15 days of termination of group coverage.Individuals have 63 days after group coverage ends to apply and make a first premium payment for conversion coverage.  
Other   Labor Dispute – during a labor dispute, coverage may continue for up to six months after the cessation of work if employees covered by the policy timely pay both the individual and employer contribution of the premium.
Applicable Statutes IRC § 4980B, ERISA §601 et seq. CA Insurance Code § 10128.50-.59, CA Health and Safety Code § 1366.20-.29, 1373.621
Government Agency Contact Depts. of Labor and Treasury (private sector plans); Dept. of Health and Human Services (public sector plans) CA Department of Insurance (Indemnity Policies) and Department of Managed Health Care (HMO/Managed Care Plans)
 This Chart is provided to you for general informational purposes only.  It broadly summarizes state and federal statutes, but does not include references to other legal resources (e.g., supporting regulations, or formal or informal opinions of state offices of commissioners of insurance) unless specifically noted.  Please seek qualified and appropriate counsel for further information and/or advice regarding the application of the topics discussed herein to your employee benefits plans.


 

Federal Update

COBRA
 Update of Federal COBRA 

FEDERAL COBRA PREMIUM SUBSIDY

 The American Recovery and Reinvestment Act of 2009 (ARRA), as amended, created new temporary rights to COBRA premium assistance for employees and their dependents who are involuntarily terminated from employment between September 1, 2008 and February 28, 2010. 

Eligibility/Premium Assistance:  An individual who is involuntarily terminated from employment between September 1, 2008 and February 28, 2010, and timely elects COBRA, is an “assistance eligible individual” or “AEI” eligible for a 65% government COBRA premium subsidy. The subsidy lasts for up to 15 months of the maximum COBRA coverage period, or until the individual is eligible for other group health plan coverage or Medicare, if earlier. 

Extended Election Period:  If an employee who was involuntarily terminated from employment on September 1, 2008 or later did not have a COBRA election in effect on February 17, 2009, the individual could have elected COBRA coverage during a special extended election period, beginning February 17, 2008 and ending 60 days after notice of the election opportunity was given. 

Plan Enrollment Option:  A plan may permit an individual to enroll in different coverage if offered to active employees, is major medical coverage, and the premium does not exceed the premium of the individual’s prior coverage. 

Notice Provisions:   Plan administrators must provide information about the premium subsidy to all individuals who have qualifying events from September 1, 2008 through February 28, 2010. They must also provide notice of the subsidy extension to individuals who already received COBRA election notices (unless the notice included information about the subsidy extension). Individuals who are AEIs must be given the notice by February 17, 2010. Individuals who are involuntarily terminated on or after October 31, 2009 and lose health coverage must be given the notice within the normal election notice timeframe. The new law also requires notices to: (a) those who are eligible to make retroactive premium payments because they let their COBRA coverage expire once their 9-month subsidy period ended, and (b) those who are entitled to receive reimbursement or credit because they paid the full amount of the premium for coverage when the subsidy ended. The plan administrator must notify these individuals of the subsidy extension within the first 60 days of the individual’s transition period.  The transition period includes any period of coverage beginning before December 19, 2009 to which the subsidy extension would apply.   

Application to States:  Continuation coverage under a state program providing comparable coverage (i.e., state “mini-COBRA” laws applicable to employers with fewer than 20 employees) is subject to the COBRA premium subsidy and notice provisions of ARRA. ARRA does not change any requirement of a State continuation coverage program. ARRA only allows Assistance Eligible Individuals who elect continuation coverage under State insurance law to receive a premium reduction for up to 15 months. It also allows Assistance Eligible Individuals to switch to other coverage offered to active employees if permitted by the plan provided that the new coverage is no more expensive than the prior coverage. States were permitted, but not required, to offer an extended election period.  

This Chart is provided to you for general informational purposes only.  It broadly summarizes federal statutes, but does not include references to other legal resources (e.g., supporting regulations, or formal or informal opinions) unless specifically noted.  Please seek qualified and appropriate counsel for further information and/or advice regarding the application of the topics discussed herein to your employee benefits plans.(3/09; EAS 12/09)

The information contained in this newsletter is not intended as legal or medical advice.  Please consult a professional for more information.

 The Top 10 Cobra Mistakes And How To Avoid Them!

  The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires that employers provide former employees and dependents who lose group health benefits with an opportunity to continue group health insurance coverage for a limited period of time.  Compliance with the complex rules regarding COBRA coverage can be difficult and mistakes can be costly.  Penalties for non-compliance can include IRS excise taxes and ERISA statutory fines.  This article provides practical information and tips for avoiding these penalties and other risks, such as lawsuits to compel coverage and adverse selection of COBRA coverage. 

#10 – Assuming COBRA Doesn’t Apply to YouA threshold issue for COBRA compliance is whether COBRA even applies to you as an employer.  The general rule is that COBRA applies to group health plans maintained by employers that have 20 or more employees.  This includes private-sector employers, as well as state and local government employers.   The rule includes a built-in exemption for those employers that have fewer than 20 employees.  Employers may be aware that there is an exemption, but may not know exactly how it works.  Depending on the circumstances, determining how many employees you have for COBRA purposes can be a complicated calculation.  In general, COBRA will apply to employers that have 20 or more employees on more than 50% of the typical business days in the previous calendar year.  This means that the calculation will apply for the entire calendar year; it does not change if the number of employees goes up or down.  So it can be dangerous to assume that you don’t have to offer COBRA if your staff levels decrease.  Also, take care to count employees of companies that are under common control and both full- and part-time employees.  A part-time employee counts as a fraction: divide the number of hours the employee worked by the number of hours required to be full-time.     

#9 – Assuming COBRA Doesn’t Apply to Your PlanOnce you have determined that COBRA applies to you as an employer, the next step is to figure out whether your health plan is subject to COBRA.  As noted above, COBRA applies to group health plans maintained by employers.  A group health plan is an arrangement established to provide medical care to employees and their families and can be provided in a number of ways, including through insurance or a self-funded arrangement.  A key point to note is whether the plan provides medical care.  Examples of health plans that may be subject to COBRA include:

•   Medical, dental, vision and prescription drug plans;

•   Drug and alcohol treatment programs;

•   Employee assistance plans or wellness programs that provide medical care;

•   On-site health care;

•   Health FSAs and HRAs; and

•   Self-funded medical reimbursement plans. 

The following are examples of plans that may not be subject to COBRA if they do not offer medical care:

•   Long-term care plans;

•   Accidental death & dismemberment plans;

•   Group term life insurance plans;

•   Long-term and short-term disability plans;

  •   Wellness programs or employee assistance programs that do not provide medical care;

•   Exercise or fitness centers; and

•   On-site first-aid facilities. 

Another potential pitfall to keep in mind is assuming that cancelling or terminating a health plan means that COBRA obligations terminate as well.  If an employer terminates one plan, but continues to provide any group health plan, the obligation to provide COBRA coverage continues.  Determining COBRA obligations in this type of situation can be especially complex when there is a merger or acquisition involved. 

#8 – Not Knowing Who Gets COBRA and WhenEmployers and plan administrators should make sure to know who is entitled to COBRA coverage.  Problems can arise if COBRA is not offered to someone who is eligible or if it is offered to a person who is not eligible to elect COBRA coverage. Under the COBRA rules, a “qualifying event” triggers COBRA coverage for “qualified beneficiaries” (QBs).  A QB is an individual covered by a group health plan on the day before the qualifying event.  A QB can be the employee, the employee’s spouse and/or the employee’s dependent child(ren).  In some cases, a retired employee (and his/her spouse and/or dependent children) and be a QB.  In addition, a child born to or placed for adoption with the covered employee during the COBRA coverage period will become a QB.  Depending on the plan’s eligibility rules, agents, independent contractors and directors could also be QBs.A qualifying event is a specified triggering event that:

•   is listed in the COBRA statute,

•   causes a loss of coverage under the plan, and

•   occurs within the “maximum coverage period” (this is discussed below) while the plan is subject to COBRA.   The triggering events that will give rise to COBRA coverage depend on who is affected.  The following chart shows which events are qualifying events for each type of individual.

TRIGGERING EVENT QUALIFING EVENT FOR:
Termination of covered employee’s employment (for reasons other than gross misconduct) ·      Covered employee·      Spouse·      Dependent children
Reduction in hours of covered employee’s employment ·      Covered employee·      Spouse·      Dependent children
Covered employee becoming entitled to Medicare ·      Spouse·      Dependent children
Divorce or legal separation of covered employee ·      Spouse·      Dependent children
Death of covered employee ·      Spouse·      Dependent children
 
Loss of dependent child status under plan rules ·      Dependent child
In addition to being familiar with the rules provided by the COBRA statute, it is important to look at the terms of the plan document.  To be a qualifying event, the event must cause a loss of plan coverage.  Just because a certain event is permitted to be a triggering event under COBRA does not mean it will cause a loss of coverage under the plan.  For example, COBRA allows legal separation of the employee and his or her spouse to be a qualifying event, but the plan may only terminate coverage if the employee and spouse are divorced. 

  #7 – Giving No InformationOnce it is determined that a plan has to provide COBRA coverage, it is important to make sure that plan participants and beneficiaries are given adequate information about COBRA.  The COBRA notice rules, which became effective for many plans on January 1, 2005, provided guidelines and consistency to COBRA’s general mandates regarding notice obligations, but did not otherwise change the substantive COBRA rules.  However, they are important because failure to comply can lead to penalties under ERISA.  Also, if participants and beneficiaries are not notified of their obligations, the plan’s rules cannot be enforced.  The following are the required COBRA notices:

·         General (or Initial) Notice.  This notice provides general information to plan participants regarding COBRA and the plan’s procedures.  It must be provided within 90 days after plan coverage begins and must be written to be understood by the average plan participant.  It may be provided as part of a Summary Plan Description.  The COBRA notice rules specify the required content (see below) and also provide a model notice.

·         Election Notice.  The election notice is the most important notice for participants and beneficiaries who will be electing COBRA.  It provides information about a QB’s rights and obligations regarding a specific qualifying event and available COBRA coverage.  It must be provided to QBs within 14 days after the plan administrator is notified of the qualifying event.  However, if the employer is the plan administrator, the notice must be provided within 44 days of the qualifying event or the loss of coverage (whichever is later).  The COBRA notice regulations include a model election notice as well.

·         Notice of Unavailability.  This is a new notice mandated by the COBRA notice rules.  If an individual gives notice of a qualifying event, but for some reason is not entitled to COBRA coverage, the plan administrator must give the individual an explanation of why coverage is not available.  The deadline for this notice is the same as for the election notice.

·         Notice of Early Termination.  Normally, COBRA coverage will terminate at the end of the maximum coverage period.  If coverage terminates early, QBs must be notified.  This notice must be provided “as soon as practicable” after it is known that coverage will terminate (or has terminated).  It must contain the reason for the early termination, the date coverage terminated or will terminate and a description of any available conversion rights.

·         Employer’s Notice of Qualifying Event.  For certain qualifying events, the employer has the responsibility to notify the plan administrator of the event’s occurrence.  However, if the employer is the plan administrator, this notice is not required.  If the event is the employee’s death, termination of employment, reduction in hours of employment or Medicare entitlement, the employer must notify the plan administrator within 14 days of the qualifying event or the loss of coverage, whichever is later.  The notice must include sufficient information to determine the plan, the employee, the qualifying event and the date it occurred. 

#6 – Giving Bad InformationUnfortunately, making sure you are providing notices in certain situations is not always enough.  It is important to make sure that the notices you provide contain all the required information and that the information is accurate.  This section describes the content requirements for the two major COBRA notices – the general notice and the election notice. The general notice must contain the following information to be compliant:

•         The plan name;

•         The name, address and phone number of a contact person who can provide information about the plan and COBRA;

•         A description of COBRA coverage under the plan (including who can be a QB, the types of qualifying events under the plan, a description of the maximum coverage period and ways to extend it, and the plan’s requirements for payment);

•         The plan’s procedures for QBs to provide notice of certain qualifying events or Social Security Administration (SSA) disability determinations;

•         A statement that the notice does not fully describe COBRA coverage or other rights under the plan and that more information is available from the plan administrator or the SPD; and

•         A statement regarding the importance of advising the plan administrator of any change of address.  The election notice is the most detailed notice, since it relates to a specific qualifying event for specific QBs.  It must contain the following elements:

•         The plan name;

•         The name, address and phone number of a contact person who can provide information about the plan and COBRA;

•         Identification of the specific qualifying event;

•         The date plan coverage will terminate;

•         Identification of the QBs by status or name;

•         A statement that each QB has an independent right to elect COBRA coverage;

•         A description of the COBRA coverage under the plan;

•         The amount that each QB is required to pay for coverage and the procedures for making payments;

•         An explanation of how to elect coverage and the date by which the election must be made;

•         The consequences of failing to elect or of waiving COBRA coverage;

•         The duration of COBRA coverage and how coverage may be extended;

•         An explanation of the QB’s responsibility to provide notice of a second qualifying event or SSA disability determination (or determination that the QB is no longer disabled), including a description of the procedures for providing notice;

•         A statement that the notice does not fully describe COBRA coverage or other rights under the plan and that more information is available from the plan administrator or the SPD; and

•         A statement regarding the importance of advising the plan administrator of any change of address.  

#5 – Not Following Your Own RulesThere are several COBRA rules that require a plan to have procedures in place, whether by statute or necessity.  Not following its procedures can put a plan in the position of being out of compliance with COBRA’s requirements or extending coverage for too long or unnecessarily.  Notice ProceduresWith respect to the notice rules, plans must have reasonable procedures in place for covered employees and QBs to notify the plan administrator of certain events:

•         Qualifying events that are the divorce or legal separation of the covered employee or a dependent child losing dependent status under the plan;

•         Second qualifying events (triggering events that occur during the period of COBRA coverage that would have caused a loss of coverage under the plan if the QB were still covered); and

•         SSA disability determinations (or cessation of disability).   In order to be reasonable, the procedures must:

•       Be described in the SPD;

•       Specify the individual or entity that should receive the notice;

•       Specify how notice is to be given (for example, in writing or on a specific form);

•       Describe the information required (such as the QBs involved, the date of the event, the nature of the event, the plan name and any additional documentation the plan administrator might want, such as a copy of a divorce decree);

•       Specify the timeline for giving notice; and

•       Provide for the proper handling of incomplete notices.  In general, individuals must provide a notice of a qualifying event or disability determination within 60 days.  Disability determination notices must also be given before the end of the original 18-month COBRA coverage period.  In addition, QBs must notify the plan administrator within 30 days of a determination that they are no longer disabled. If the plan does not have reasonable procedures for these notices, a QB may be deemed to have given notice if he or she has communicated a specific event in a manner reasonably calculated to inform those customarily considered responsible for the plan.  Election ProceduresA plan should also have procedures in place for complying with rules for election of COBRA coverage.  For example, a QB must be given at least 60 days to elect COBRA.  The election period begins on the date the election notice is provided or the date on which coverage would be lost (whichever is later).  Also, each qualified beneficiary has an independent right to elect COBRA, a covered employee or spouse can elect on behalf of all other QBs, and a parent or guardian can elect on behalf of a minor child.  A QB may also revoke a prior waiver of COBRA coverage during the election period.  A plan administrator that fails to follow the procedures regarding elections is at increased risk for claims by QBs. Payment ProceduresAs discussed below, a plan may charge a premium for providing COBRA coverage.  QBs must make premium payments in a timely manner and a plan administrator has some leeway in designing its procedures.  However, the COBRA rules set some guidelines for payments.  The initial premium is due 45 days after the COBRA election is made.  After that, the premium due date is usually the first day of the month.  However, the plan must allow a 30 day grace period for payment.  In addition to complying with the COBRA rules, a plan should have procedures in place for dealing with issues that may arise in the day-to-day administration of COBRA coverage.  For example, a plan will need a process for ensuring that premium payments are forwarded to insurers in a timely manner.  Also, it should prepare for a situation where a QB makes late payments or short payments. 

#4 – Not Giving Enough CoverageThe continuation coverage provided to QBs under COBRA must be the same as coverage provided to “similarly situated” individuals who are covered under the plan (not through COBRA).  This coverage is intended to be the same coverage the QB had before the qualifying event.  This means that COBRA coverage cannot be scaled back just for QBs and not other plan participants.  QBs are also entitled to the same benefits, rights and privileges that similarly-situated participants and beneficiaries receive under the plan, such as special enrollment rights and the ability to make changes at open enrollment.  If the plan’s terms are amended, those amendments apply equally to active participants and QBs.

#3 – Charging Too Much (or Not Enough)A health plan may charge COBRA QBs for the cost of providing COBRA coverage.  It may require QBs to pay up to 102% of the “applicable premium” for the plan.  In the case of a disability extension, it may charge up to 150% of the applicable premium for certain QBs.  The applicable premium is the cost to the plan of providing coverage.  For insured plans, the applicable premium is usually equal to the insurance premium paid to the insurance carrier.  However, the calculation can be more difficult for self-funded plans and can be determined using past costs or an actuarial estimate of future costs.  The applicable premium is the total cost to the plan for providing coverage, so it includes both employer- and employee-paid portions and can also include the administrative cost of providing COBRA coverage.The plan must calculate the COBRA applicable premium in advance for a 12-month “determination period.”  The plan can choose any 12-month period to be the determination period, but it must remain consistent every year.  The COBRA premium may be changed for a new determination period if the applicable premium changes and there are certain limited situations where the COBRA premium may be changed during the determination period (for example, if the QB changes coverage to another benefit package with a higher applicable premium).  The plan administrator should use caution in calculating the COBRA premium as well as in communicating that premium to QBs.  Fixing mistakes that result in over- or undercharging QBs for COBRA premiums can be administratively burdensome and raise COBRA compliance issues.

#2 – No DocumentationNo matter how good your COBRA compliance track record is, you can still run into trouble if you can’t prove it.  Adequate documentation is important because it brings together all other elements of COBRA administration and compliance.  Having thorough and accurate records will help streamline administration and support the plan in the event of a claim.  There are many different areas where documentation can help avoid COBRA compliance issues.  For example, a plan’s COBRA notice information and procedures can be documented in the Summary Plan Description and notice documents themselves, as well as the plan document if necessary.  A plan administrator should also keep records of notices sent to and received from participants and QBs.  Keeping track of payments received from QBs and made to insurers, as well as the deadlines for payments, will also assist in the proper administration of COBRA coverage. 

#1 – Bad TimingIn the context of COBRA, paying attention to the timing of providing coverage can be crucial for reducing exposure to COBRA costs and being compliant with the rules.  The duration of COBRA coverage is controlled by the COBRA statute.  Complying with these rules by providing the length of coverage required is important.  At the same time, many plan sponsors want to minimize the likelihood of being responsible for large claims by COBRA QBs by only providing the minimum duration of coverage.  The period of COBRA coverage offered to QBs is known as the “maximum coverage period.”  The length of the maximum coverage period depends on the type of qualifying event that has occurred.  The maximum coverage period is 18 months for a termination of employment or reduction in hours and 36 months for all other qualifying events.  There are situations where the maximum coverage period can be extended or terminated early.  Expanding COBRA Coverage  There are several ways that the standard maximum coverage period can be extended. 

•         Extended notice rule – permits the maximum coverage period to run from the date of the loss of coverage, instead of the date of the triggering event, if the employer also sends notice to the plan administrator within 30 days after the loss of coverage (instead of after the triggering event). 

•         Disability extending rule – extends 18-month period to 29 months for all related QBs. 

•         Multiple qualifying event rule – extends 18-month coverage period to 36 months for spouse and children when a 2nd qualifying event (such as divorce from or death of the covered employee or loss of dependent status) occurs during the initial 18-month coverage period. 

•         Medicare entitlement rule – extends 18-month period for spouses and children when the covered employee becomes entitled to Medicare within 18 months before the qualifying event. Terminating COBRA CoverageCOBRA coverage usually terminates at the end of the maximum coverage period.  It is important to keep track of each QB’s period of coverage to be able to tell when coverage should be terminated.  In addition, coverage can be terminated early for the following reasons:•         The QB fails to make timely premium payments;

•         The employer ceases to make any group health plan available to any employee;

•         The QB becomes covered under another group health plan;

•         A disabled QB is determined not to be disabled; or

•         For cause.  If coverage is to be terminated before the end of the maximum coverage period, notice to the QB is required.  Keep in mind that the COBRA rules can be very complex and this is not intended to be an exhaustive discussion of the legal requirements.  If you have questions regarding these legislative requirements, please contact your broker representative.EAM 10/08This Legislative Brief is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice.  Readers should contact legal counsel for legal advice.