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Friday, 07 February 2020 11:10

The Ten Most Common COBRA Mistakes

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The Consolidated Omnibus Budget Reconciliation Act, or COBRA, allows employees to continue their group health insurance at their own cost after they’ve been terminated from employment. COBRA is an employer law and there are significant penalties for non-compliance (up to $100/day for single coverage and $200/day for family coverage). Because of the substantial risk of those fines, Fall River highly recommends paying a TPA to administer COBRA. For those companies that choose to administer COBRA on their own, there are ten common mistakes made. 

1. Not Providing the COBRA General Notice or Providing it Improperly

This is the most common mistake made by employers who are self-administering their COBRA. The General Notice must be provided to all new enrollees in the health plans, and it outlines their COBRA rights when they are terminated from the plans.

Some employers are not aware of this Notice at all. The other common mistake is to consider the Notice a “new hire” Notice, when in reality it is a “new enrollee” Notice. The best practice is to send the Notices via first-class mail to their home address when they elect a health plan.

It’s incredibly important for employers to keep up with providing this Notice throughout the year in the event of new hires and qualifying life events that result in a coverage election. For example, if an employee enrolls a dependent as a result of a qualifying event during the year, the dependent should receive a General Notice at that time.

2. Not Understanding the 60-day Election Period

Employees have 60 days to elect COBRA, but there can be confusion about when that 60 days starts. The countdown begins from the later of the date of loss of coverage or the date of notification based on the postmarked date. If the 60th day falls on a Saturday, Sunday, or legal holiday, the employee has until the next business day to elect COBRA coverage. Without this clarity, an employer could easily allow a late election or deny a timely one.

3. Not Offering All Required Coverages

COBRA applies to group health plans including medical, dental, vision, some EAPs, some wellness programs, some voluntary plans, HRAs, and FSAs (these last two are missed frequently). COBRA does not apply to life, disability, HSAs, or long-term care plans.

Employers that have a Health Reimbursement Arrangement (HRA) should offer it to COBRA-eligible members and can charge an extra premium that is added to the COBRA medical rate.

Whether an FSA has to be offered with COBRA depends on whether the FSA is said to be “underspent” (https://www.flexiblebenefit.com/blog/its-tricky-fsas-carryover-cobra). If the amount available to be reimbursed for the remainder of the plan year exceeds the COBRA premium for the same time period, the FSA must be included in COBRA.

As an example, let’s look at an FSA that runs on a calendar year basis. The employee has elected $1,000 for their FSA, which would make their COBRA premium $85 per month. If the employee were terminated on February 28th, there would be 10 months remaining in the plan year and the total remaining premium would be $850.

If the employee did not use any of their FSA money between January 1st and February 28th, the amount available to be reimbursed would still be $1,000. Since that exceeds the COBRA premium, the FSA would need to be included in the COBRA offering.

If the employee had been reimbursed $200 between January 1st and February 28th, the amount available would be $800 which is less than the COBRA premium, and thus the FSA would not need to be offered.

4. Missing COBRA Termination Dates

For employers who choose to self-administer COBRA, they must track dates to ensure that COBRA coverage doesn’t continue past the length of time specified by the law.

COBRA eligibility exists for a period of 18 months or more from the date of termination. Since most insurance carriers do not track COBRA time frames, it falls to the employer to track when the COBRA period comes to an end. Failure to do so can result in COBRA fines as well as higher claims exposure, which could lead to a higher premium increase at renewal. It could also set the precedent for other employees in COBRA situations and could be seen as introducing a discriminatory practice.

5. Offering COBRA Incorrectly with a Severance Package

Sometimes an employer will offer to pay for health insurance for a specified time as part of an employee severance package. Members who are no longer employed by the company are technically not eligible to remain as an active member of the group health plan. The mistake commonly made is leaving the employee active on the plan during their severance period.

In reality, offering to cover a former employee’s insurance premiums as part of a severance package is an offer to cover their COBRA premiums for a set period of time. The best practice is to terminate them with the carriers and reinstate them once you receive the COBRA Election Form from the ex-employee. At that point, you’ll want to notify the carrier of their COBRA election and begin paying the premiums for the agreed-upon duration.

COBRA should always be offered at the time of termination regardless of the severance agreement, as opposed to leaving them on the plan as an active employee. The latter approach could result in uncovered claims by the insurance company.

6. Misapplying the Gross Misconduct Event Exception

The law is crystal clear: an employee is not eligible for COBRA if they were terminated as a result of gross misconduct. Unfortunately, there is no clear definition of gross misconduct in federal law.

Employers should avoid the common mistake of assuming that the termination was due to gross misconduct, regardless of how clear it may seem. If a company believes it was gross misconduct, they should talk to an employment attorney to confirm. If the employment attorney cannot provide a clear-cut answer, it’s advisable to err on the side of caution and assume it was not a termination due to gross misconduct. With this approach, the worst-case scenario is that the employee elects the COBRA coverage and is responsible for the premiums themselves.

7. Failure to send a Notice of Early Termination

COBRA coverage can end early for the following reasons:

  • The employee does not pay the full COBRA premium by the grace period (end of the month)

  • The employee becomes covered by another group health plan or by Medicare

  • The employee is deemed as no longer disabled

  • The employer cancels all group health plans

The Notice of Early Termination must explain why the coverage was terminated and outline the employee’s rights to any other coverage they may have available to them.

8. Insufficient or Absent Written Procedures

The Technical and Miscellaneous Revenue Act (TAMRA) requires that the employer has written COBRA procedures in place. Written procedures allow for consistency and continuity in administering COBRA. More importantly, written procedures are necessary to prove in an audit that COBRA is administered the same way every time, and can help to mitigate or eliminate penalties.

9. Not Keeping Proper Documentation

It’s key for employers to keep documentation of everything related to COBRA, as that will be the difference between winning and losing in an audit. In a recent case, Randolph vs. East Baton Rouge Parish School Board, the employer did not have the required documentation to prove that COBRA Notices were sent. Their claim was that the Notices are automatically generated and there is no reason to believe that the ordinary process would not have been completed. With that being their only evidence, the case has been scheduled for trial.

The best practice for employers is to send COBRA Notices via first class mail, which is deemed received unless returned. The United States Postal Service will provide a certificate or proof of mailing which will suffice as the required documentation if proof is needed. E-mail can be used if the employee has agreed to be sent legal documents via e-mail, but first-class mail is the best option.

10. Applying a Medicare Entitlement Qualifying Event Incorrectly

Another mistake made by employers is regarding the offer of COBRA when an employee becomes entitled to Medicare. While Medicare entitlement is listed as a COBRA triggering event, there must be an event and a loss of coverage for COBRA to be triggered.

If Medicare entitlement does not cause a loss of coverage under your group health plan, then COBRA does not need to be offered. Generally, employees who reach Medicare entitlement and are still employed by the company will not lose coverage. (https://tax.thomsonreuters.com/blog/is-medicare-entitlement-a-cobra-qualifying-event-for-active-employees-who-do-not-lose-group-health-plan-coverage-when-they-become-entitled-to-medicare/)

Most often employers misapply this rule when the employee turns 65 and voluntarily drops the group plan to enroll in Medicare. As a result, the spouse also loses coverage through the group plan. Since the coverage loss was voluntary and not caused by Medicare entitlement, this is not a true COBRA event and it would not need to be offered to the spouse.

With all the moving parts and intricacies of COBRA, it can be very difficult for employers to administer and track it effectively. It is highly advised that employers use TPAs to handle COBRA administration, and Fall River has several partners that we work with to ensure compliance. For employers continuing to self-administer, be sure to avoid these common mistakes!

If you need help choosing a COBRA vendor or have specific COBRA questions please contact your Client Manager today!

Source: Except as cited above, all information came from the January 23, 2020, Infinisource webinar, “The Top Ten COBRA Mistakes and How to Avoid Them”.

Read 1701 times Last modified on Friday, 11 September 2020 13:38