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COBRA, Health Care Continuation Coverage Requirements (amended by the Health Insurance Portability and Accountability Act of 1996 (HIPAA))

 

 29 U.S.C. § 1161 et seq., 26 USC § 4980B; 42 U.S.C. § 300-bb-1, et seq.

 

The Law:  This law requires covered employers (20 or more employees) offering group health plans to provide employees and certain family members the opportunity to continue health coverage under the group health plan in a number of instances when coverage would otherwise have lapsed.  The employee or qualified beneficiary may be charged 102% of the applicable premium for this benefit.

 

Notices Required:

 

There are several different notice obligations under the law. First, a health plan administrator has an obligation under the law to provide a general notice of COBRA rights to an employee and his/her spouse when health coverage begins. Second, the employer of a covered employee must notify the plan administrator within 30 days when a qualifying event occurs.  A qualifying event includes:

• an employee's termination of employment;
• reduction of hours in employment;
• death;
• enrollment in Medicare; or
• the employer's bankruptcy filing.

 

Third, the qualified beneficiary (employee or his/her spouse or dependent) must provide notice (within 60 days) to the plan administrator of a divorce, legal separation, child losing dependent status, second qualifying event, or Social Security disability determination. Fourth, the  plan administrator in turn must notify (within 14 days) the qualified beneficiary ((notice to spouse covers dependents residing with that spouse) of his/her COBRA rights. See 29 CFR § 1166 for further  permutations of the rules, for example, how determination of disability affects the timing under the third notice requirement.

 

Qualified beneficiaries have 60 days to elect continuation coverage.  The maximum period that this continued coverage must be provided is generally 18 months, but in some cases it is 36 months. Under a new law (The Trade Act of 2002) there will be a second 60 day election period for individuals who become eligible for trade adjustment assistance.See the proposed regulations linked below.

 

The employer must keep detailed records of COBRA notifications, including the dates sent, and detailed records of COBRA rejections or acceptance.   Failure to comply with the law subjects the employer to excise taxes, in addition to damages under ERISA, as well as possible attorney's fees and the liability for any of the beneficiary’s medical expenses that were due to the gap in coverage. 

For an example of how one university employer utilizes the web as a supplement to getting the required notice information to their employees see the University of California Continuation of Group Insurance Coverage Web Page.

 

 

Publication of Model Notices for COBRA Continuation Coverage: 75 Fed. Reg. 2562, Jan. 15, 2010: The Model Notices page, which has information for both employers and employees includes a premium reduction Fact Sheet, notices, and a summary of changes in the law, as set forth below.

The American Recovery and Reinvestment Act of 2009 (ARRA), as amended on December 19, 2009 by the Department of Defense Appropriations Act, 2010 (2010 DOD Act) provides for premium reductions for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly called COBRA. Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. To qualify, individuals must experience a COBRA qualifying event that is the involuntary termination of a covered employee's employment. The involuntary termination must occur during the period that began September 1, 2008 and ends on February 28, 2010. The premium reduction applies to periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 months.

The Temporary Extension Act of 2010 extended the COBRA subsidy eligibility period to include individuals who are involuntarily terminated on or before March 31, 2010. See the Seyfarth Shaw March 4, 2010 article on this topic.

IRS Notice 2009-27: Internal Revenue Service (IRS) Notice providing guidance on the COBRA premium subsidy provided under Title III Section 3001 Division B of the American Recovery and Reinvestment Act of 2009 (ARRA).

 

COBRA Subsidy Extension

Fiscal Year 2010 Defense Appropriations Act Statement by Assistant Secretary of the Employee Benefits Security Administration on the extension of the COBRA subsidy to include those involuntarily terminated on or before Feb. 28, 2010. The maximum period for receiving the subsidy is extended from 9 months to 15 months. See also the Jackson Lewis article of Dec. 22, 2009 titled COBRA Subsidy Eligibility Extended by Two Months.

 

ARRA Amendment and COBRA notices, 74 Federal Register 11971 (March 20, 2009)

This document announces the availability of the model health care continuation coverage notices required by ARRA.  These models are for use by group health plans and other entities that, pursuant to ARRA, must provide notices of the availability of premium reductions and additional election periods for health care continuation coverage.

 

 

CHIP Reauthorization Act and Group Health Plan Enrollment, Notice and Disclosure Obligations
The sponsor of a group health plan must, commencing April 1, 2009 allow employee and dependents who are eligible but not enrolled for coverage to enroll in two additional circumstances: 

   1.   the employee’s or dependent’s CHIP or Medicaid coverage is terminated due to loss of eligibility  

   2.   the employee or dependent becomes eligible for a subsidy under Medicaid or CHIP.

The employee must request coverage within 60 days of the termination from assistance. Plan documents will have to be reviewed and amended. Notice requirements on this new rule will be developed by HSS by Feb. 4, 2010, and plans will have to distribute the notices during the first plan year beginning after the notices are first issued (so January 1, 2011 for calendar year plans). The penalty for non-compliance is $100 for failure to comply with the notice/disclosure requirements. The $100 penalty applies to each violation per participant or beneficiary. See the Seyfarth Shaw One Minute Memo (2/18/09) on this topic as well as the Ford and Harrison Legal Alert.

 

Changes to COBRA in the ARRA
Section 3000 in Title III of the ARRA contains changes called Premium Assistance for COBRA benefits. A key resource on these changes is the  U.S. Department of Labor COBRA page. The DOL page links to the Conference Committee summary of the COBRA Premium Reduction Provision.
See also the Seyfarth Shaw memo titled COBRA Subsidy in Stimulus Package to Benefit Involuntariliy Terminated Employees.  Individuals who would have qualified as an Eligible Individual except that they had not elected COBRA as of February 17, 2009 have a special 60-day election period under the Act. The Stimulus Act provdies that eligible employees may receive 65% of the premium amount for COBRA coverage for up to 9 months, as long as the employee pays 35%. Employers will be reimbursed for their portion of the coverage either through a credit to payroll taxes or by seeking the money by a credit or refund from the Treasury Secretary. Employees are eligible for premium assistance if they are or were involuntarily terminated between September 1, 2008 and December 31, 2009, but cease to be eligible if they are eligible for other coverage, including Medicare or other employer coverage. This change in the law necessitates new notices to employees who were terminated after Sept. 1, 2008. Forms should be updated to reference the premium assistance, the extended election for certain terminated employees, and the obligation of the employee to provide notice of eligibility for other coverage. Employers are also directed to the IRS Q and A on the COBRA Health Insurance Continuation Premium Subsidy.

Veterans' Benefit Improvement Act of 2004
This law increases from 18 to 24 months, the period of employer sponsored health coverage that an employee covered by USERRA may elect, by amending section 4317 of USERRA which provides for health benefit contination coverage for those employees serving in the military, even if not covered by COBRA. The extension of the coverage period under the new act applies to all continuation elections made after December 10, 2004. For more on this see the Jackson Lewis article entitled Veterans' Benefits Improvement Act of 2004 creates new responsibilities from Employers.

Final Rules on COBRA Notice Procedures

69 Fed. Reg. 30083 (May 26, 2004)  amended at 69 Fed. Reg. 34920 (June 23, 2004)

These final regulations on Health Care Continuation Coverage Notice requirements apply to notices that must be sent out on or after the first day of the first plan year on or after Nov. 26, 2004, so for calendar year health plans, this means January 1, 2005. There are a number of changes between the proposed and final rules.

The new rules require Plan Administrators to take the following steps:

• Revise initial COBRA notices
• Revise COBRA election notices
• Revise employer provided notice of qualifying event
• Update Plan Documents to reflect new rules
• Update Summary Plan Descriptions to reflect new rules

Generally, the initial notice must be furnished to each covered employee and to the employee's spouse (if covered under the plan) not later than the earlier of: (1) either 90 days from the date on which the covered employee or spouse first becomes covered under the plan or, if later, the date on which the plan first becomes subject to the continuation coverage requirements; or (2) the date on which the administrator is required to furnish an election notice to the employee or to his or her spouse or dependent. The new regulations clarify that where an individual is required to be furnished an election notice within the 90-day period for furnishing general notices, the plan administrator may satisfy its general notice obligation by furnishing an election notice in accordance with the final regulation. The notice must include the name of the plan and a contact (name, address and phone number) for further information.

The DOL has modified the proposed regs to eliminate the requirement that the notice describe how
qualified beneficiaries who are receiving continuation coverage must provide notice of a second qualifying event. If the summary plan description is furnished at a time that would satisfy the notice requirements for the general notice, and contains the required information, the notice requirements will be deemed to have been met.

On the issue of employee notice to the employer of a qualifying event, the final regs provide that, for any plan under which continuation coverage begins with the date of loss of coverage, the 30-day period for providing the notice of qualifying event must also begin with the date of loss of coverage, rather than the date of the qualifying event.  A plan's procedures for qualified beneficiary notices that must be given to the employer generally will be considered reasonable if they are described in the plan's SPD, specify who is designated to receive notices, and specify the means qualified beneficiaries must use for giving notice and the required content of the notice.

The employer must give the beneficiary at least 60 days to provide notice of a qualifying event that is divorce, legal separation, a child's ceasing to be a dependent under the plan, or a second qualifying event.  The 60-day period begins to run from the latest of: (1) The date of the qualifying event; (2) the date on which there is a loss of coverage; or (3) the date on which the qualified beneficiary is informed, through the plan's SPD or the general COBRA notice, of his or her obligation to provide notice and the procedures for providing such notice.

Section 606(a)(2) of ERISA requires an employer to provide notice to the plan administrator of a qualifying event that is either the employee's termination of employment or reduction in hours of employment, the employee's death, the employee's becoming entitled to Medicare, or the commencement of a proceeding in bankruptcy with respect to the employer. This section of the final regulation was not changed from the proposed regulation.

Upon receipt of a notice of qualifying event, the administrator shall furnish to each qualified beneficiary, not later than 14 days after receipt of the notice of qualifying event, notice that meets a list of 14 requirements spelled out in the final regulations [see page 30104 of the regs at (b)(4)]. The preamble to the regulations states that a required notice generally should be considered "furnished" by a plan administrator as of the date of mailing, if mailed by first class mail, certified mail, or Express Mail; or as of the date of electronic transmission, if transmitted electronically.

Model Notices are included in the Rules, however, there is no model notice for the two new notices; one for unavailability of coverage and the other for termination of coverage. See the Seyfarth Shaw Management Alert: New COBRA Notice Procedures Will Soon Apply . See also Jackson Lewis Newsletter on the final regulations.

Note that the final model election notice published in May provided that COBRA coverage would be terminated before the end of the maximum coverage period if, among other things, "a covered employee becomes entitled to Medicare benefits (under part A, Part B, or both)" after electing COBRA. The term "covered employee" is incorrect, and the June 23, 2004 correction replaces it with the term "qualified beneficiary."

Model General Notice of COBRA Continuation Coverage Rights

Model COBRA Continuation Coverage Election Notice

Frequently Asked Questions about COBRA Continuation Coverage

HIPAA Amendments to COBRA:

• Disability.  Prior to the 1996 amendments enacted pursuant to HIPAA, the COBRA rule required that the 18-month maximum coverage continuation period is extended to 29 months if the qualified beneficiary is determined under the Social Security Act to have been disabled at the time of the qualifying event.  Effective January 1, 1997, if the disability exists at any time during the first 60 days of COBRA coverage, then the 29-month period applies.  The new law clarifies that the 29-month period also applies to a non-disabled qualified beneficiary of the covered employee.

• Newborns and adoption.  Also effective January 1, 1997, a newborn infant or child placed for adoption with the covered employee during the period of COBRA coverage will be entitled to receive COBRA continuation coverage as a qualified beneficiary.  Under the prior law, individuals who became dependents after the qualifying event were eligible for coverage, but did not acquire the rights of other COBRA beneficiaries.  If a dependent child was added during the first 18 months of COBRA coverage and coverage is in effect on January 1, 1997, the child will become a qualified beneficiary on January 1, 1997.

• Pre-existing condition exclusion.  HIPAA modifies the law with respect to the early termination of COBRA coverage for individuals who are covered under another group health plan.  Coverage may be cut short even if the new plan has a pre-existing condition exclusion unless the exclusion applies to a condition for which they receive treatment.

• Notification.  All current COBRA beneficiaries must be notified of the new law by November 1, 1996.

 

Selected  Case Law Under COBRA:

 

Geissal v. Moore Medical Corp., 524 U.S.74 (1998).  In Geissal, the Supreme Court held that an otherwise eligible beneficiary who is covered under another group health plan at the time of his/her COBRA election could not be denied COBRA continuation coverage.  In order for the beneficiary to become ineligible for continuation coverage, the event of becoming covered by another plan is significant only if it occurs, and "first" occurs, at a time after the date of the election. See also IRS Announcement 98-22 (in accord), which was issued in March 1998, and reversed a longstanding IRS position. 

For an overview of HIPAA and COBRA, see IRS Notice 98-12.