Discussing significant issues for plan sponsors stemming from the pandemic

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COBRA is a set of complex rules that relies upon clear communication between the participant and health plan sponsor. Both parties are bound to strict deadlines and parameters that, if not met, can result in significant injury. In response to COVID-19, COBRA administration for plan sponsors has been stretched to allow for longer periods for election and payment, creating additional compliance challenges. COBRA compliance has already been a recent target of class action suits, and the current environment may add fuel to the fire. Below we (re)connect with significant issues that arise daily with COBRA administration.

Be mindful of COVID-19 deadlines and extensions.

COBRA includes specific deadlines for providing notices and making payments. In response to COVID-19, last year the Department of Labor (DOL) extended several of those time frames: the 60-day time frame for individuals to notify their plan administrators of qualifying events or determinations of disability; the 60-day election period for qualified beneficiaries to make COBRA elections; the 45-day period for paying initial COBRA premiums; and the 30-day period for paying subsequent COBRA premiums. Under COVID-related regulations, group health plans subject to ERISA or the Internal Revenue Code (Code) must disregard what is called the "outbreak period" from these time frames. The DOL released Disaster Relief Notice 2021-01 that updated guidance (with the agreement of the IRS and HHS) stating that the outbreak period now runs on an event-by-event basis. While this is helpful to participants, this may be administratively burdensome for employers and COBRA administrators. The outbreak period to be disregarded is the earlier of (a) one year from the date a participant or beneficiary is eligible for relief provided by the DOL, or (b) 60 days after the announced end of the National Emergency (or other date announced by the regulators). Where a qualified beneficiary's election period is extended beyond the usual 60-day period (now up to a year), a COBRA election may result in coverage retroactive to the date of the COBRA Qualifying Event, which could result in the need to re-submit months of retroactive claims for plan administrators. How do you plan on keeping track of COBRA extensions on an event-by-event basis?

COVID-19 extensions for non-federal governmental employers.

Similar to the DOL relief for ERISA plans, the Centers for Medicaid and Medicare Services (CMS) issued a bulletin providing temporary relief to timeframes applicable to non-federal governmental group health plans, and their participants and beneficiaries under the group requirements imposed under the Public Health Service (PHS) Act. This relief is not required to be adopted, but CMS encourages sponsors of non-federal governmental plans to provide relief to participants and beneficiaries similar to that specified in the DOL guidance. What COBRA extensions are you providing to your employees?

Consider the cost of delayed premium payments.

The COVID-19 extended timeframe for paying COBRA premiums may also create challenges. Plan sponsors should determine how to handle COBRA continuation coverage when premium payments are outstanding. A plan administrator may choose to treat a qualified beneficiary as enrolled in COBRA coverage, but hold claims until premiums have been received. Once COBRA premiums have been received, the administrator would retroactively process claims. If a COBRA premium is not received by the new delayed deadline, the plan administrator may then terminate COBRA coverage retroactively and deny the claims. Alternatively, plan sponsors may choose to terminate coverage if premiums are not received by their original (i.e., non-extended) deadlines. If a COBRA premium is received on a timely basis under the new extended deadlines, a plan can reinstate coverage retroactively and process any claims. Such an election is also likely to impose a significant financial obligation on the qualified beneficiary, who would be required to pay retroactive premiums back to an original loss of coverage date in order for coverage to remain effective. How is your plan treating COBRA qualified beneficiaries' coverage during the outbreak period?

Keep up with federal COBRA subsidies.

Whether to terminate or furlough employees during the pandemic was a question many plan sponsors had to face, including what, if any, responsibility did they have to keep employees on their medical plans. Some plan sponsors may have the ability to subsidize the cost of COBRA for their employees. However, for most, the cost of COBRA will fall on employees. For some qualified beneficiaries paying for COBRA can be cost prohibitive, particularly if multiple family member’s simultaneously lose their jobs and/or coverage due to the pandemic. Congress passed the American Rescue Plan Act which provides COBRA subsidies for employees who are eligible for COBRA due to involuntary termination or reduction in hours. The amount of the subsidy will be the full COBRA premium amount. Premium assistance will be available to eligible workers (and spouses and dependents) beginning April 1, 2021 and will remain available through September 30, 2021. It also provides for an extended election period to allow individuals who previously experienced a qualifying event to enroll in coverage, requires plan sponsors to provide clear and understandable written notices to workers, and establishes an expedited review process for workers who are denied premium assistance. Plan sponsors will be provided a payroll tax credit equal to the amount not paid by eligible workers. Presumably, plan sponsors will have to absorb the cost of COBRA on the front end, and they will be required to provide additional notice to qualified beneficiaries who previously declined COBRA. The additional administrative work will likely be performed by COBRA vendors; thus, plan sponsors should initiate conversations to see what assistance their vendors will provide. What preparations does your organization need to take to administer COBRA continuation in light of newly subsidized coverage?

Beware of Medicare entitlement.

As a result of the extended deadlines to elect COBRA, one issue that might arise is the interaction between COBRA and Medicare. Generally, when an employee already entitled to Medicare has a qualifying event (i.e., termination of employment or reduction in hours), then the employee's dependents are allowed either 18 months from the qualifying event, or 36 months from the earlier Medicare entitlement, whichever is longer. The employee is entitled to 18 months due to the qualifying event. (Remember: There is an important distinction between a person being "entitled to" and "eligible for" Medicare. A person is generally eligible for Medicare at age 65 and is qualified to receive Social Security benefits. However, to be entitled to Medicare, a person must actually apply for Social Security benefits or enroll in Medicare). Qualified beneficiaries who become entitled to Medicare after electing COBRA can be terminated under COBRA early due to Medicare entitlement. Since the outbreak period is to be disregarded for electing COBRA, it is possible that a number of qualified beneficiaries may become entitled to Medicare before they have to make COBRA elections. Under the extension rules, beneficiaries are still entitled to elect COBRA coverage. Additionally, qualified beneficiaries may take this opportunity to test Medicare coverage prior to making a decision about COBRA which may result in some beneficiaries electing COBRA who require additional medical coverage. What are your procedures for handling Medicare entitlement under the extended COBRA timeframes?

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Compliance is a series of actions, not a final destination. As a trusted advisor, Gallagher has developed this Compliance Connections series to help you pursue a path through employee benefits compliance issues as part of an overall continuing compliance plan. Plan sponsors should carefully evaluate their health and welfare plans to determine if they are in compliance with both federal and state law. If you have any questions about one or more of the compliance requirements listed above, or would like additional information on how Gallagher constantly monitors laws and regulations impacting employee benefits in order to support plan sponsors in their compliance efforts, please contact your Gallagher representative.


The intent of this analysis is to provide you with general information. It does not necessarily fully address all your organization's specific issues. It should not be construed as, nor is it intended to provide, legal advice. Questions regarding specific issues should be addressed by your organization's general counsel or an attorney who specializes in this practice area.