The following is general information provided to assist employers and plan sponsors with their potential COBRA obligations. This is not legal, tax or financial advice. As always, we strongly encourage employers and plan sponsors to consult their legal or benefits counsel for conclusive guidance on how any actions apply in their circumstances.
The COVID-19 pandemic has forced millions of employers to close their doors, tighten their budgets, and unfortunately, implement reductions in force across their organization. Since the virus reached the United States, more than 36 million Americans have experienced a job loss and – consequently – lost their employer-sponsored health coverage.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives many individuals the option of remaining enrolled in their employer’s group health plan.
Through effective management of COBRA compliance, employers can help alleviate their former employees’ stress of finding new health coverage. Here are five questions employers can ask themselves when evaluating how they approach COBRA.1. do employees understand their eligibility for cobrA?
Generally, employees, their spouses, and dependent children are eligible for COBRA if they were actively enrolled in employer-sponsored health coverage for at least one day before the employee was terminated or experienced a reduction in hours.
When qualifying events occur (like loss of employment), employers are generally required to provide notice to qualified beneficiaries explaining their COBRA rights and obligations, including:
- Their eligibility to elect COBRA continuation coverage
- The terms and amount of their premium payment (which is generally the full cost to the plan and an administrative fee of up to two percent)
- The beginning and ending dates of maximum coverage periods (generally capped at 18 months in cases of termination or loss in hours)
- The contact information of the party responsible under the plan for the administration of COBRA
- The logistics of electing COBRA coverage and making premium payments
Employees may want information that extends beyond the notice, however. They may also have questions on:
- Using health savings account (HSA) funds to pay for COBRA premiums
- How COBRA applies to health flexible spending accounts (FSAs)
- The existence of other health coverage options, including Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP)
2. do employees know they have other options?
Choosing COBRA continuation coverage helps departing employees maintain health coverage during an uncertain time. It allows them to keep their primary care physicians and other in-network doctors, as well as any progress made toward meeting deductibles and out-of-pocket maximums.
COBRA continuation coverage is not the only option, however. Departing employees who want health coverage may not know they have several alternative options, including:
- Their spouse’s employer’s health plan. A spouse with employer-sponsored health coverage may be able to add the departing employee to their plan.
- Medicare. Depending on the departing employee’s age and/or disability status, Medicare coverage may be available.
- Medicaid. Depending on the departing employee’s household income, they may be eligible to enroll in Medicaid.
- Short-term insurance. If the departing employee needs coverage for only a few months, a short-term policy could be a good option – provided the typically less comprehensive coverage is acceptable.
- An individual policy from the Affordable Care Act (ACA) exchanges. Job loss entitles employees to a special enrollment period on the ACA exchanges. Departing employees can shop for comprehensive coverage that meets their needs, and – depending on household income – they may be eligible for premium tax credits, too.
- The Children’s Health Insurance Program (CHIP). CHIP coverage is available to children under 19 in low-income homes not otherwise eligible for Medicaid. Depending on household income, CHIP may be an option for the departing employee’s children.
3. how will employees evaluate cobra and other coverage options?
Deciding how to secure health coverage after job loss is tricky. Departing employees will need to consider several items, including:
- What they can afford
- How long they anticipate they’ll need coverage
- Whether they’d like to keep their network
- Any progress they’ve made toward deductibles and out-of-pocket maximums
- How their choice will affect other health benefits, like their HSA or FSA coverage
Informational resources on coverage options can help employees get answers to their questions. Employees may connect with a health benefits advisor to review their situation, or they could access this new, easy-to-use tool from HealthEquity. This short assessment helps employees explore their health coverage options and provides personalized ideas for next steps. The results are downloadable, so employees can save and refer to them throughout the process.
4. are my organization's cobra processes up to date with the latest guidance?
Recent guidance from the Department of Labor and Internal Revenue Service extended certain COBRA timeframes in light of the COVID-19 pandemic. These extensions provide some relief to employers, employees, and other family members seeking COBRA coverage.
In general, health plans subject to ERISA or the Internal Revenue Code must now disregard the Outbreak Period, defined as beginning March 1, 2020 and ending 60 days after the end of the national emergency (which has yet to be announced), when calculating certain COBRA deadlines, including:
- The 60-day period for electing coverage
- The date by which qualified beneficiaries must pay premiums
- The date by which an individual must notify the plan of a COBRA qualifying event or a Social Security disability determination (used to extend COBRA coverage in certain circumstances)
COBRA plan sponsors and administrators also receive an extension during the Outbreak Period when determining the date for providing a COBRA election notice, which would normally be within 14 days after the plan administrator receives notice of a qualifying event (or within 44 days if the employer is the plan administrator).
For more information on the recent guidance, see “New federal guidance extends deadlines for employee benefit plans.”
5. are cobra qualified beneficiaries receiving the communication they need?
After qualified beneficiaries elect COBRA coverage, they’re responsible for paying premiums in full and on time and informing the plan of any change in status until coverage ends.
There are also circumstances in which employers (or plan administrators) may need to connect with qualified beneficiaries, including:
- Missing premium payments. Employers must allow qualified beneficiaries a 30-day grace period following a premium payment due date (which is usually the first of the month). If premium payments aren’t made by the end of the grace period, the employer can cancel coverage and must inform the member through a written notice. This time period is subject to the extension of time described above during the Outbreak Period.
- Insufficient premium payments. Employers that want to remedy an insignificant shortfall in payment (that is, the lesser of $50 or 10 percent of the amount due) must send a notice that the amount is due and allow at least 30 days for the payment to be made. Otherwise, the payment must be accepted in full. Again, this time period is subject to the extension of time described above during the Outbreak Period.
- Early termination. If a qualified beneficiary enrolls in Medicare or another group health plan while on COBRA, the employer can cancel COBRA continuation coverage. The employer must inform the qualified beneficiary through a written notice.
- A second/multiple qualifying event. Qualified beneficiaries may experience a second (or multiple) qualifying event that affects their coverage needs, such as divorce or the loss of dependent child status that occurs during a period of COBRA coverage. Employers can send affected qualified beneficiaries a letter with the new end date for COBRA coverage (coverage is extended to 36 months from the original start date). Employers must notify qualified beneficiaries of any new premiums due as a result of this second qualifying event.
healthequity can help
Resolving health coverage questions after job loss is a difficult process, especially during uncertain times like these.
Let HealthEquity help your employees make the decisions that are right for them. With our health coverage assessment tool, departing employees can learn about their benefit options and evaluate next steps.
HealthEquity also makes overseeing COBRA simple and effective, with a full-service offering that allows you to manage your program with confidence.
HealthEquity does not provide legal, tax or financial advice. Always consult a professional when making life changing decisions.