COBRA Training 101

COBRA Training 101

COBRA Administration Procedures

(Reprinted with permission from our partner COBRA Solutions)

As we enter a new year, we receive numerous phone calls regarding COBRA administration procedures. And with the addition of many new users, our staff felt it important to go through the basics of COBRA administration so everyone has a clear understanding as to “what needs to be done when” and your administration responsibilities. We know that this may be elementary for many of our seasoned professionals but we still recommend that you take the time to read through it.

  • What is COBRA?
  • What is a qualifying event?
  • What are the required notifications?
  • What about COBRA Premiums?
  • What is a disability extension?
  • What is a Multiple Qualifying Event?

Q: What is COBRA? 
A: In July of 1986, Congress passed the Consolidated Omnibus Budget Reconciliation Act, commonly known by its acronym COBRA. In the 1980’s (as with today), the population of uninsured Americans was growing at an alarming rate. Congress determined that many of these uninsured individuals have some relationship to an employer. Their thought was to create legislation that would allow employees and covered dependents the ability to temporally continue their group coverage for a reasonable amount of time when they experience a “qualifying event.”

Q: What is a qualifying event? 
A: There are two types of qualifying events; ones that affect employees and others that affect an employee’s dependents. The two qualifying events that affect employees are Termination of Employment (for reasons other than “gross misconduct”) and a Reduction in Work Hours. To be considered a qualifying event, the employee must have a loss of coverage. (Example: If an employee has a reduction in work hours but is still eligible to continue under the group plans, there is no qualifying event.) Employees experiencing one of these events are eligible to continue coverage (for themselves and their covered dependents) for up to eighteen months under federal COBRA. (Some states such as California have extended the maximum time frame but have placed the burden of administration on the insurance company.)

Dependents have their own qualifying events; Death of the Employee, Divorce or Legal Separation, Employee’s Medicare Entitlement and Dependents that no longer meet the definition of a “Dependent” under the group insurance contract. As you can see, covered dependents that experience these qualifying events (in most cases) will experience a loss of coverage and should be offered the right to continue for up to thirty-six months.

Members losing coverage upon experiencing one of these events is classified as a “qualified beneficiary.” Each qualified beneficiary has independent rights under COBRA. This means a spouse or dependent child may continue singularly on the group plan as if they were an employee of the company. They may only enroll on the plan(s) they were enrolled on the day prior to the qualifying event (unless they move from a specific service area and another plan is available). At Open Enrollment time, the qualified beneficiary has the same rights as “similarly-situated active employees” and may add/change plans, even add dependents. Dependents added during open enrollment do not receive the same rights as a qualified beneficiary but merely may continue coverage with the qualified beneficiary.

Q: What are the required notifications?
A: COBRA requires employers (with twenty or more employees – some states have similar state continuation laws with a minimum of two employees) to provide written notifications to inform employees and their covered dependents of their rights to continuation coverage. The law requires five notices; the “General Notice,” Qualifying Event Notice, notice of Conversion rights under eligible group plans, Unavailability of COBRA notice and a Termination letter when the qualified beneficiary terminates coverage prior to the end of his COBRA term. All notifications may be sent by first class mail but some employers prefer to send them in a form that offers proof of mailing. (Administrators are not responsible to see the qualified beneficiary receives the notice but merely prove it has been sent to the last known address.) The General Notice is designed to be sent to newly-hired employees as they enroll on one or more of the group plans. This notification explains COBRA and the steps necessary for notifying the Plan Administrator of a qualifying event. This notice should be sent to both the employee and covered spouse. Many insurance companies include the General Notice in their certificate of coverage but it is recommended a notice be sent via mail. The 2004 Final Regulations state the General Notice should be sent within ninety days from the date coverage becomes effective. We recommend it be sent within 30 days to eliminate other potential issues. Since all employees should have been provided this notification at some time; if you cannot prove they receive it you should send another and place a copy in their file.

The COBRA Qualifying Event Letter is the notice sent when an employee/dependent experiences a qualifying event. This letter is similar to the General Notice in that it explains COBRA but it also details the cost for coverage and the enrollment procedures. Anytime you remove someone from the insurance plan, you should examine if a qualifying event has occurred. If so, you need to send a Qualifying Event Letter. This notice must be sent within forty-four days of the later of the qualifying event date or the date coverage is lost. (Employers using a Third Party Administrator must provide notice within thirty days to the TPA and then the TPA has fourteen days to produce and send the letter.)

The Conversion Notification explains an qualified beneficiary’s right when they lose coverage at the end of their COBRA term. Not all plans offer a conversion right and the appropriate box should be checked under the insurance plan information screen.  A conversion policy is an individual plan whereby the employee/dependent does not have to qualify (by medical underwriting) for coverage. Usually, conversion policies are age-rated and have higher rates than standard individual plans.

The Unavailability of COBRA notification is sent to former qualified beneficiaries who are not eligible to continue under COBRA. For example, a spouse contacts the Plan Administrator ninety days after his/her divorce of their desire to continue coverage. The law provides sixty days for the qualified beneficiary to notify the Plan Administrator; therefore the person did not meet the deadline and have become ineligible for continuation coverage. In the past, the individual would be under the assumption they had coverage (until they submitted a claim and it was denied). For this reason the Department of Labor (DOL) requires Plan Administrators to send a notification explaining they were not re-activated and they do not have coverage.

In the event you are removing a qualified beneficiary from the group plan (voluntarily or not) prior to the end of their COBRA time frame, the 2004 Final Regulations require you send a termination notice. Produce the letter and send as soon as possible (because time frames will vary based upon the type of termination experienced).

COBRA Acceptance – The natural progression of events is that Active employees and covered dependents become qualified beneficiaries who then become COBRA Participants (when they agree to pay for premiums for continuation coverage). As part of the COBRA Qualifying Event Letter, a Summary and Election Form is provided so the qualifier may notify you of their desire to continue coverage. If you receive this form or are contacted directly, you should have them complete a COBRA application for the insurance carrier(s) and set-up a billing account. Qualifiers have sixty days from the later of date they lose coverage or the date on the Qualifying Event Letter to notify you of their desire to accept COBRA.

Since COBRA coverage is continuation coverage, you must add them back onto the group plan with no lapse in coverage. This could mean going back a few months to retro-actively add them back onto the plan(s). There is one exception when you would not retro-actively enroll the qualifier and that is when the employee removes a dependent from the plan “in anticipation of a future qualifying event.” The most common situation is when an employee removes a spouse and later they are divorced. In that situation, you would offer COBRA to the spouse effective on the date of the divorce.

The most important procedure with COBRA administration is to document or have a paper trail of all COBRA-related events. A 2006 court case demonstrated the importance of maintaining a copy of sent notifications as well as a log detailing all notifications sent, when they were placed in the mail and have the administrator initial it was mailed.

Q: What about COBRA Premiums?
A: Once a qualifier elects COBRA and becomes a participant, they are required to make payments to your organization. Premiums are based upon the group rates your firm is charged. As an administration fee, you may add two percent to help cover costs. The participant is required to make payments in a timely fashion. They have a forty-five day grace period to make their initial premium payment. Thereafter, they have a thirty-day grace period. If they do not pay within these time frames, you may terminate their coverage.  Once notified, you should prepare the termination notice and then terminate them from the plan effective the last day premiums were paid through. If no payments were ever made, terminate coverage back to the original date they were terminated from the group plan. You will want to make sure you notify the insurance companies as soon as possible because most of them have implemented a maximum retro-termination policy, only allowing you to receive premium credits back sixty days. If an employee notifies you they wish to continue coverage but do not submit a premium payment, send the carrier the COBRA enrollment form with a note stating you have not received payment. With this information, the carrier will show the individual enrolled under COBRA but will not pay claims until premium is received.

There will be times when participants will not pay you prior to the company submitting group premiums to the insurance carriers. If you have not received COBRA payments, it is recommended you do not pay the carrier for their premiums.

Q: What is a disability extension? 
A: If a qualified beneficiary is disabled on a date that is earlier than the 61st day under COBRA and later considered “disabled” by Social Security, the law provides for that individual and all others covered under the same policy to extend their coverage from eighteen to twenty-nine months. This eleven month extension comes with a price. Employers may (or may not) charge a fifty percent administration fee during this extension.

Q: What is a Multiple Qualifying Event?
A: If an employee initially experiences a termination of employment or reduction in work hours and later a covered dependent experiences another qualifying event, the dependent should be offered the right to continue up to thirty-six months from the original COBRA start date. If employment termination follows a reduction in work hours, the law does not consider it a multiple qualifying event, therefore the qualified beneficiary would only receive the eighteen months continuation coverage offered upon the reduction of work hours.

This is a very brief summary of COBRA. The actual law is hundreds of pages and is very complex.

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Employee Benefits from FosterThomas

Reprinted with permission from our partner COBRA Solutions.

About COBRA Solutions

With over twenty years of experience in the Employee Benefits software sector, COBRA Solutions is the recognized industry leader and takes great pride in providing our customers with a “security blanket” in terms of support. We strive to give the best technical support and will accept nothing less than 100% success for our software installations. Continued reinvestment in our products, listening to our customers input, and incorporating their ideas sets us apart from our competitors. We want you to turn to us first, last and always for all of your COBRA solutions. COBRA Solutions can be found on the web at www.cobrasolutions.com

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About the Author

FosterThomas is a leading professional services company that provides solutions in the areas of Human Resources Consulting and Outsourcing, HR Staffing, Outsourced Recruiting, Employee Benefits Brokerage, Payroll Implementation and Services, HR for Government Contractors, Business Insurance, HR Compliance and Risk Management. We help organizations by providing solutions designed with a focus on cost containment strategies and increasing HR efficiency. FosterThomas HR Consulting was established in 1993 with offices in Annapolis, Maryland (Corporate), McLean, Virginia and Raleigh, North Carolina. Today, FosterThomas occupies a unique position as a full service provider of HR services.

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