Rethinking COBRA After Health Care Reform

by Snell & Wilmer
Contact

The Health Care Reform Act made many changes to health plans, but one thing it did not do was expressly eliminate or change the COBRA rules. Although health care reform does not expressly change COBRA, it does, in many ways, impact COBRA, making it important to rethink various aspects of COBRA. The purpose of this newsletter is to highlight some of the COBRA issues plan administrators may need to reconsider. 

  • Interplay of COBRA Coverage and Health Exchange Coverage: Each state’s Health Exchange must permit special enrollment (outside the Exchange’s annual open enrollment period) when specified triggering events happen, such as an employee losing employer coverage due to a termination of employment. When a qualified beneficiary (QB) loses employer coverage and does not elect COBRA coverage, the QB may take advantage of the Health Exchange’s 60-day special enrollment opportunity. If a QB elects COBRA, the QB is also entitled to special enrollment, but not until he or she exhausts COBRA coverage. Accordingly, a QB who elects COBRA coverage may only be able to enroll in the Health Exchange during the Health Exchange’s annual open enrollment period or upon the expiration of the COBRA maximum coverage period. For many employees, coverage through a Health Exchange may be less expensive than COBRA coverage, but electing COBRA coverage may render an employee ineligible for Health Exchange coverage for some period of time.
  • New Model COBRA Notices: In May 2014 the Department of Labor (DOL) issued new model general and election notices. The general notice now includes basic information about the Health Exchanges. The model election notice has been substantially revised to include detailed information about Health Exchanges, enrollment opportunities and restrictions, financial assistance and factors to consider in deciding whether to elect COBRA, Health Exchange coverage, Medicaid or other coverage. There is no specific date the two new model notices take effect, however, employers may wish to consider updating their COBRA notices, sooner rather than later, so individuals understand these new, rather complicated, rules. Providing this information may also encourage QBs to elect Health Exchange coverage rather than COBRA coverage. When updating COBRA notices, we caution employers to use the new model notices as a starting point. For example, the new model election notice omits details about extending COBRA coverage due to disability or a second qualifying event. Many employers will want to retain such information in their election notices. The model general notice and model election notice are available on the DOL website here
  • Severance Agreements:  Many employers, under their severance agreements, offer to subsidize COBRA premiums if the individual elects COBRA coverage. Given the interplay between COBRA coverage and Health Exchange coverage (as explained in the first bullet above and in the new COBRA election notice), this approach may no longer be a best practice.  If an employer offers to temporarily subsidize COBRA coverage, forcing the employee to elect COBRA coverage to obtain the subsidy, the employee may not be able to elect Health Exchange coverage in lieu of COBRA coverage when the employer subsidy ends. It is interesting to note that the new COBRA election notice even directs employees who have been offered a severance package, including employer subsidized COBRA coverage, to contact the DOL to discuss their options. Due to these recent developments, employers might instead provide an equivalent taxable cash payment to the employee, allowing the employee to choose COBRA coverage, Health Exchange coverage, other coverage or no coverage. Providing taxable cash compensation also avoids potential nondiscrimination issues under Code Section 105(h) if the employee is highly compensated. Please watch our blog later this week, or early next week, for more information about COBRA and severance agreements. Our blog can be accessed here.
  • Large Employers Using the Look-Back Measurement Method to Determine Full-Time Employee Status: For purposes of the large employer shared responsibility penalties, which take effect January 1, 2015, if the employer decides to use the look-back measurement method to determine full-time employee status, it will affect COBRA administration. The affected employees will be those who experience a reduction in hours of service during a stability period, because the reduction of hours will occur mid-year, but the loss of coverage will not occur until sometime later, for example, at the end of the plan year. A reduction in hours that causes a loss of coverage is a COBRA qualifying event. Employers using the look-back measurement method will need to determine when the qualifying event occurs and when the COBRA maximum coverage period begins. Plan amendments could be required. For more information about the large employer penalties, please see Health Care Reform’s Employer Shared Responsibility Penalties: A Checklist for Employers.
  • Retroactive Cancellation of COBRA Coverage: The Health Care Reform Act includes a provision prohibiting rescission of health coverage. Rescission is defined as the cancellation or discontinuance of coverage having a retroactive effect. However, rescission of coverage is permitted, upon giving 30 days advance notice, when a participant commits fraud or an intentional misrepresentation of material fact, if the plan’s terms permit it. This “no rescission” rule potentially conflicts with COBRA administration, which often requires retroactive cancellation of coverage. The “no rescission” regulations clarify that a cancellation of coverage is not a rescission of coverage if it has a prospective effect or if it is retroactive due “to a failure to timely pay required premiums or contributions toward the cost of coverage.” The ability to terminate coverage retroactively for failure to pay premiums is helpful in the COBRA context. Nevertheless, the “no rescission” rule complicates COBRA administration, and plan administrators may wish to consider the impact of this rule.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Snell & Wilmer | Attorney Advertising

Written by:

Snell & Wilmer
Contact
more
less

Snell & Wilmer on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!