COBRA In the Time of COVID-19 and Beyond
The COVID-19 pandemic has caused the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS) to issue a joint rule suspending employer and employee notice and election deadlines related to health care continuation under the Consolidated Omnibus Budget Reconciliation Act (COBRA) during the COVID-19 National Emergency “Outbreak Period.” Relatedly, the DOL issued a new model COBRA continuation coverage notice on May 1, 2020 (https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/cobra/model-general-notice.docx). This article highlights these recent changes.
I. The Joint Rule extends the deadlines for the issuance of election notices and for employees to elect and pay for COBRA continuation coverage.
A. Pre-existing deadlines:
In general, COBRA allows an employee who is covered by a group health plan on the day before the occurrence of a qualifying event (e.g., employment termination, reduction in hours that causes loss of plan coverage) to elect COBRA continuation coverage upon the qualifying event. An employer subject to COBRA requirements (20 or more employees) must notify its group health plan administrator within 30 days after an employee’s qualifying event. Within 14 days of the notification, the plan administrator must notify the employee of his COBRA rights. If the employer also is the plan administrator and issues COBRA notices to employees directly, the employer has the entire 44-day period in which to issue a COBRA election notice to the employee. Normally, the employee has 60 days from the date of receipt of the COBRA notice to elect COBRA coverage and another 45 days after the date of the COBRA election to make his initial COBRA premium payment. COBRA coverage may be terminated due to the employee’s failure to pay premiums on time. A premium payment is considered timely if it is paid within a 30-day grace period.
B. New deadlines: The Joint Rule extends these pre-existing deadlines during the so-called “Outbreak Period.” The “Outbreak Period” is defined as the period beginning on March 1, 2020 and ending 60 days after the announced end of the National Emergency. For example, if the National Emergency end date is June 29, 2020, the Outbreak Period ends 60 days later, on August 29, 2020.
Example of COBRA election extension assuming Outbreak Period end date of June 29: Jim works for and participates in ABC’s group health plan. On March 31, 2020, he loses health coverage due to a reduction in hours. Although the Joint Rule allows ABC to disregard the 44-day deadline for issuing Jim his COBRA continuation election notice, ABC gives him a COBRA election notice on April 1, 2020. What is Jim’s deadline for electing COBRA?
Answer: Normally, Jim has until May 31, 2020, (60 days from April 1) to elect COBRA coverage. However, Jim’s election deadline is extended from April 1, 2020, to the new COBRA election deadline, which is 60 days from August 29, 2020 (end of the Outbreak Period), making his election deadline October 28, 2020. Jim has 45 days from his extended election date to make his first COBRA premium payment for all coverage retroactive to his original date of coverage loss.
The Joint Rule examples explain that coverage must remain active throughout the Outbreak Period despite the employee’s delay in electing COBRA coverage or delay in paying premiums until after the Outbreak Period ends.
Although the Joint Notice specifically states that an employer should disregard the Outbreak Period when it determines the date on which it provides the COBRA election notice, we suggest that employers issue election notices based on pre-existing timelines and not rely on extensions. Under the Joint Rule, participants already have an extension to elect and pay for COBRA coverage. Thus, employers and plan administrators may want to provide election notices as quickly as possible to limit the length of election and payment periods to the extent possible.
Employers and plan administrators also need to ensure that management and human resources staff know about and accordingly implement the new deadlines and rules. Plans and insurers are not required to pay claims during a period for which COBRA premiums have not been paid; however, they must advise providers that an individual is covered subject to payment of the premiums, and claims must be paid once the premiums have been paid. Most large employers have self-funded plans. They should be certain that claims processors and call handlers are aware of who is in the election period or payment grace period. Employers should also be sure that vendors do not pay claims until premiums are paid.
II. Employers should review their COBRA continuation coverage notice.
On May 1, 2020, the DOL issued the first update to its model COBRA notices since 2014. The continuation coverage model notice’s main change is that it answers questions about how Medicare eligibility affects COBRA rights.
Employer use of the model notice is not mandatory, but it is advisable. If appropriately completed and timely delivered to a participant, the DOL considers the employer to be in good-faith compliance with COBRA’s notice content requirements. This is important given the rash of class action litigation alleging that non-DOL notices are misleading and fail to provide a participant with enough information to make an informed decision on continued coverage. Although employers should generally follow the DOL model notice, they should also ensure that their notice is customized for their particular plans. The model notice is also available in Spanish and may be completed online.
Employers should contact their COBRA administrators to discuss the best practices in light of these developments. Employers are liable for improper notices, even if they use a third-party administrator to issue the notices. Employers should review their third-party contracts to ensure that they include the appropriate indemnification and defense provisions and sufficient insurance limits to cover them if their administrators fail to issue proper notices.