COBRA Procedures Template for Help Desk Subscribers Integrated with the Instant Click Notices These COBRA Procedures are being provided to you as a template in Adobe Acrobat pdf format in order to protect the original content. Neither COBRA Management Services, LLC. or the Instant Benefits Network represents these procedures to be adequate to meet your obligations under COBRA. It is your responsibility to modify these procedures to conform to your company s policies and practices and any changes to the COBRA regulations that necessitate a modification in procedures. If necessary, we suggest that you modify these procedures through addendum. The following pages outline frequently performed administrative procedures for COBRA administration. They should be used in combination with the CCH COBRA Basics Manual and the CCH COBRA Connections Newsletter or any other resource guides that may be available in the future or independently through your company. Due to the complexity of COBRA, the necessity for making a judgment in the face of a particular compliance issue, and the possibility of changes to the Regulations or reinterpretation of the Regulations by the IRS or the courts, we cannot guarantee that these procedures will assure your compliance with COBRA. They are not intended to provide guidance in every situation and should be updated as appropriate. Furthermore, we encourage you to review these procedures for accuracy and compliance with the Regulations, make any necessary changes to fit your particular practices and those of your insurance carriers, and adopt the final procedures as your company s practices. When completed, they should constitute a workable procedures manual as required by the Internal Revenue Service. Please remember, you are the Plan Administrator and have full responsibility for COBRA compliance. If these reference materials do not provide adequate guidance, please contact an attorney. The COBRA Management Services Team November, 2003 1
General Rights Notice Issued to Newly Covered Employees and Covered Spouses Using Notices On-Line If you decide to issue the General Rights Notice as a separate document in addition to inclusion in your SPD (a recommended procedure), the 2004 COBRA notice rules requires that the Plan provide notice of COBRA rights and obligations to covered employees and covered spouses within 90 days of when coverage is first effective. Legal counsel indicates that the notice must be sent by first class mail to the home and attention of the covered employee and, if any, the covered spouse. It is very important that the spouse be named on the envelope and on the notice or cover sheet. If you are ever audited by the IRS or become involved in a court case, you will need to prove you provided the Notice. The Plan Administrator is notified that an employee and, if any, a spouse is newly covered. The Plan Administrator is notified that a spouse is being added as a dependent. There are substantive changes in the COBRA regulations or regulatory guidance that prompts a re-issuance of the Notice. Request a Notice within 90 days. Request a Notice within 90 days. In this instance, you can set up the spouse as the employee if you don t wish to send a second Notice to the employee. Request a Notice for each covered employee and, if any covered spouse. Or, contact us by email at help@cobramanagement.com to request a special mass mailing. 2
Receive Notice of an Initial Qualifying Event Issue the COBRA Election Notice Using Notices On-Line Issue the Notice of Non-Entitlement COBRA requires that you send a COBRA Election Notice to all persons losing coverage under your health plans due to a COBRA Qualifying Event. This can be an employee, a spouse or a child. These COBRA entitled persons are called Qualified Beneficiaries. The Notice must be sent to the last known address. If you are ever audited by the IRS or become involved in a court case, you will need to prove you provided the Notice. For certain COBRA Qualifying Events, you have a total of 44 days to issue the Election Notice. A more technical breakdown is as follows: the Employer has 30 days to notify the Plan Administrator of a Qualifying Event due to termination, loss of hours, death of employee or employee entitlement to Medicare. The Plan Administrator has 14 days to issue the Notice. If the employer is also the Plan Administrator (as defined by ERISA), the time requirements can be combined for a total of 44 days. To be safe, always issue the Election Notice ASAP. For other Qualifying Events, you must first be notified that it has occurred and then, you have 14 days to issue the Election Notice. An employee or the Qualified Beneficiary experiencing the Qualifying Event, such as a spouse or child, has 60 days to provide notification of a Qualifying Event due to divorce or legal separation or a loss of dependent status. The Plan Administrator has 14 days to issue the Notice. New rule in 2004: If you receive notice of a qualifying event from any covered person and that person is not COBRA entitled, you must send them a notice of non-entitlement. Before issuing the Notice: Verify that coverage was in effect the day before the Qualifying Event and that it will be terminated. If notice is required from the employee or Qualified Beneficiary, verify that it is made within the 60-day notice requirement. Finally, notify insurance carrier(s) that coverage is terminated. You will not reinstate coverage until both the election and the initial premium is received within the deadlines. If you receive notice of a qualifying event from any covered person and that person is not COBRA entitled, you must send them a notice of non-entitlement. See chart on next page. 3
Receive Notice of an Initial Qualifying Event, continued The Plan Administrator receives notice of a Qualifying Event. The Plan Administrator is notified that a spouse has been dropped from the plan during open enrollment or mid-year. The Plan Administrator is notified more than 60 days after the Qualifying Event of divorce or loss of dependent status. Order the Election Notice within the 44 or 14-day deadline. Or, issue a notice of non-entitlement. Notify the spouse that they are being dropped from coverage and suggest that they review their Initial Notice for information pertaining to the anticipation of qualifying event rule. Create a letter notifying them that they are not COBRA eligible due to notification outside of the 60-day requirement. 4
COBRA Elections COBRA election can be a two-step process. You don t reinstate coverage until you have both a signed Election Form and the Initial Premium. COBRA requires that an Election be made within 60 days from the date of RECEIPT or the date active coverage ends, whichever is later. This means that if you issue the Election Notice after the date coverage ends, the COBRA Qualifier will have 60 days from the date of receipt. The COBRA Initial Premium must be paid 45 days from the date of election. Both elections and premiums are considered made on the day the form is sent. A verbal election should be treated as an election. Scenario #1: You Receive Both the COBRA Election Form and the Initial Premium If the initial premium is received at the same time as the Election Notice, reinstate coverage retroactively for the months for which payment was made. Depending on the carrier, it may be necessary to have a new carrier enrollment form completed. Although not required, it is good practice to send a confirmation letter to the electing Qualified Beneficiaries indicating your receipt of the election, any premium, and restate their COBRA Plan elections. A prototype is available to you. As a part of the Confirmation Letter, you will also provide them with information on how to pay future premiums. Scenario #2: Your Receive the COBRA Election Without the Initial Premium Issue the Confirmation and Payment Instructions prototype that is described in the prior section. Once payment is received within the 45-day deadline, review the instructions in the prior section and reinstate coverage. If the initial premium arrives after the 45-day deadline, examine and document the postmark and other facts, and, if appropriate, do not reinstate coverage. If the end of the Grace Period falls on a weekend or holiday, you may want to permit a postmark on the next day the Post Office is open. If disallowing the election, it may be prudent to advise the Qualified Beneficiary and, if any, their spouse that COBRA coverage is not in effect. 5
Receive and Administer COBRA Premiums After the initial premium payment, COBRA requires that Qualified Beneficiaries have a minimum 30-day Grace Period from the beginning of the billing period for payment of premiums. COBRA premiums can be paid monthly or in advance. YOU CANNOT REQUEST PAYMENT IN ADVANCE OF THE END OF THE GRACE PERIOD. Due to the inherent lag in receipt of COBRA payments, you may find it necessary to pay the COBRA premiums for the Qualified Beneficiaries and consider their payment as reimbursement. Partial Payments: The Final Regulations stipulate that premiums paid within the Grace Period that are within 10% (to a maximum of $50.00) of the total amount due, will be considered insignificantly less than the amount due. You must give the Qualified Beneficiary at least 30 days to make-up the difference after notification that the payment was short. Alternatively, the employer can accept the insignificant payment as payment in full. Partial payments outside of the insignificant threshold can be returned and, after the Grace Period expires, COBRA can be terminated. NSF checks, if not replaced within the Grace Period, can be grounds for termination. Verify that payment is made within the Grace Period. Premiums are considered made on the date sent. Use the postmark if available. Record the payment. If a partial payment is made within the insignificant threshold, record and allocate premium, create a Partial Payment Letter and mail to the Qualified Beneficiary. If it is your stated policy, you can issue a Late Payment Letter towards the end of the Grace Period. If termination occurs due to non-payment, issue a Termination letter advising that COBRA coverage has been cancelled and the date. Notify the insurance carrier that COBRA coverage has terminated. 6
Receive Notice of a Second Qualifying Event Extension from 18 to 36 Months Typically, this extension affects a spouse or a child on COBRA due to an ex-employee s termination or reduction in hours. They must be a Qualified Beneficiary. The total number of months cannot exceed 36 months beginning with the original COBRA effective date. Rule: COBRA requires an extension to 36 months if, during the original 18-month period, a Qualified Beneficiary would lose coverage due to the following Qualifying Events: Divorce, Legal Separation, Death of the Employee, or Loss of Dependent Status. The Plan Administrator must receive notification within 60 days of the Qualifying Event. Notification can be written or verbal. If verbal or written information comes from a third party, it should be followed-up. Once notification is received, the Plan Administrator should issue a letter advising the affected Qualified Beneficiaries of their rights to an extension and the amount of the COBRA premium. Please be aware that, for example, a change of status from dependent child or spouse to a single COBRA enrollee might result in a change in COBRA premium. If the notification is not received within the 60 days and after carefully evaluating all of the facts, notify the employee or Qualified Beneficiary that the extension is not allowed. If you did NOT issue the Initial Notice to employee or spouse, we suggest obtaining additional legal advice. The courts have waived the 60 notification requirement if an Initial COBRA Rights Notice is not provided that informs the Qualified Beneficiaries of their rights and obligations. Advise the Qualified Beneficiary that they are eligible for an extension. The letter can include the new COBRA premium amount, if applicable, and the rules for premium payment. Check with your carriers or insurance broker if you are unsure of the premium amount. Modify the premium due for the ex-employee. For example, if the spouse is no longer under the ex-employee s record due to divorce, then the ex-employee s premium will, in all likelihood, change. Notify insurance carriers of extension. 7
Receive Notice of Disability from the Social Security Administration Extension from 18 to 29 Months If a Qualified Beneficiary is disabled, all of the Qualified Beneficiaries in the family unit are eligible for an extension. The rules are detailed and you may need to review them carefully before granting an extension. Rule: COBRA requires an extension to 29 months if, during the original 18-month period, a Qualified Beneficiary is disabled as determined by the Social Security Administration. Disability must exist during the first 60 days of COBRA coverage and a determination made prior to the end of the original 18-months. In other words, if the Qualified Beneficiary becomes disabled after the first 60 days of COBRA, they may not be entitled to the extension. The Qualified Beneficiary (or another party) must present the Plan Administrator with the SSA Determination Letter within 60 days of the date of the letter and prior to the expiration of the first 18-month period. During the extension period, premium may be increased to 150% of the applicable active plan premium as long as the disabled Qualified Beneficiary is part of the coverage group. Contact your insurance carrier(s) for information on the their policy. Note: All Qualified Beneficiaries in the unit have an independent right to elect the extension. The disabled Qualified Beneficiary does NOT have to participate. If the SSA determines that the individual is no longer disabled, the Qualified Beneficiary is required to notify the employer within 30 days and COBRA coverage can be terminated for all Qualified Beneficiaries. If you have not done so previously, contact the Insurance Carrier to confirm their policy for COBRA rates for SS Disabilities. Upon receipt of SSA Determination Letter, confirm receipt in writing. Approximately, 60 days prior to the expiration of the first 18-month period, contact the disabled Qualified Beneficiary and determine if they are still disabled and provide them with, if any, the new COBRA premiums that will be applied during the 11- month extension. If the Disability Extension is accepted by any of the Qualified Beneficiaries, you will need to notify the insurance carrier. Because of the complex rules surrounding SS Disability Extension, you may need to seek more detailed advice. 8
Termination of COBRA Irrespective of the reason for COBRA termination, be sure to notify the carrier(s) as soon as possible. General Process: If COBRA is terminating for ANY reason, a notice must be mailed to the PQB and, if any, the spouse. If the Plan is subject to any State mandated COBRA extension regulations, they should be explained in the notice. You can refer the Qualified Beneficiaries to the insurance carrier or SPD for details. Tip: If an adult child is a Qualified Beneficiary, it may be prudent to send them a termination notice, too. A. Expiration of COBRA: If COBRA is terminating due to the expiration of the continuation period, then a notice must be mailed to the PQB and Spouse within three months prior to the expiration date. B. Early Terminations of COBRA: Send a notice advising of COBRA termination, the reason, the last day of coverage and provide general information on other continuation programs available to them. You can refer them to the SPD or other documentation. Voluntary termination. Premium not paid within the Grace Period. Premiums are paid on the date sent. Typically, this is measured by the postmark. If the full premium is not paid within the grace period, you may terminate coverage retroactively to the last period for which premiums were timely paid. An exception to this rule is discussed earlier under Partial Payments. Entitlement to Medicare after the date of the COBRA election. Coverage by another group plan after COBRA election. If the new plan has pre-existing limitations or exclusions that apply to the Qualified Beneficiary, COBRA can be terminated only after the limitation or exclusion is satisfied. Employer ceases to maintain any group health plan. Stock or asset sales fall into another category and you should obtain legal counsel. No Longer Disabled. If coverage has been extended under the Disability Extension and the Qualified Beneficiary who had been determined to be disabled is no longer disabled by determination of the SS Administration, then coverage ceases for all Qualified Beneficiaries. For cause. COBRA participant violates some contractual provision in a health plan that would cause termination for non-cobra beneficiaries, e.g. fraudulent submission of claims. 9