COBRA

“Something Old & Something New”October 12, 2006Presented by:Paul J. Routh Weprin Folkerth & Routh LLCAttorneys at Law3931 South Dixie DriveDayton, Ohio 45439

(937) 296-0650

Source of Law and Other Guidance

Enacted in 1985 but effective 1986

COBRA – Statutes

Internal Revenue Code § 4980B

ERISA §§ 601-608

Public Health Safety Act §§ 2201-2208

Statutes have been amended nine times!

Source of Law and Other Guidance

Regulations

Internal Revenue Service Reg. § 54.4980B

Department of Labor § 2590.606

Other

Court Cases

IRS Revenue Rulings, Procedures, Announcements and Private Letter Rulings

Department of Labor Advisory Opinions, Information Letters and Fact Sheets

What Employers are Subject to COBRA

All employers EXCEPT (1) "small employers" and (2) churches

Small employer - Employer with less than 20 employees during previous calendar year - Note calendar year not plan year

Rules are applied on a "controlled groups basis." Related employers are treated as one employer and workforces are combined when counting employees. SEPARATE FEDERAL IDENTIFICATION NUMBERS ARE IRRELEVANT!!

Count employees not plan participants

What Employers are Subject to COBRA (cont.)

Can fractionalize employees

Look to previous calendar year to see if 20 or more employees on "at least 50% of its typical business days." Use payroll records, etc. for count

Note the determination is prior to the current calendar year and subject (or not subject) to COBRA for that entire calendar year. So look to 2004 to determine if subject to COBRA for all of the 2005 calendar year. People on COBRA do not lose their COBRA coverage if employer changes status to a "small employer."

What Plans are Subject to COBRA

Health Plans - Subject to COBRA Medical Plans Insured Plans Self Funded Plans HMOs

Dental Plans Insured Plans Self Funded Plans

Vision Plans Health FSAs - Special Rules Apply HRAs EAP - Could if provides medical care

What Plans are Subject to COBRA (cont.)PROGRAMS NOT SUBJECT TO COBRA

Long Term Care Plans

Group Term Life Insurance and AD&D

Long and Short Term Disability Plans

Hospital Indemnity Plans - e.g. $ 100 Per Day While in Hospital Regardless of Reason

HSAs

Qualifying Events – Dictates Who Gets COBRA and For How Long QUALIFYING EVENT - TWO STEP PROCESS Five Enumerated Events

Change in Employment Status Voluntary or Involuntary Termination of Employment Except Gross

Misconduct Gross Misconduct Is Rare

Reduction in Employment - Most Overlooked! Employee's Divorce or Legal Separation

State Law Governs Domestic Partners Do Not Count

Employee's Death Child's Loss of Dependency Status Under Plan

Terms of Plan Control Employee Becomes Entitled to Medicare

See IRS Rev. Rul. 2004-22

Qualifying Events – Dictates Who Gets COBRA and For How Long Loss of Coverage

Any Change in Terms or Condition of Coverage

Not All Losses of Coverage Due to Specified Event Plan Amendment or Termination Employee Drops Spouse During Open Enrollment

Special Rules - Loss In Anticipation of Qualify Event Termination of Coverage Prior to Termination of

Employment Drop Spouse Prior to Divorce

Who Gets COBRA and for How LongWho Gets COBRA - Qualified Beneficiaries

Change in Employment Status Employee and Family Members

All Other Events Except Loss of Dependency Status Spouse and Children

Loss of Dependency Status Child

Qualified Beneficiary - Must Be on Plan Day Before Qualifying Event Unless (1) Loss is in Anticipation of Qualifying Event or (2) Newborn Child

Duration of COBRA

Duration of COBRA Coverage

Change in Employment Status - 18 Months Disabled at Time - 29 Months -Tag Alone Rule Multiple Qualifying Event - 36 Months Total

All Other Qualifying Events - 36 Months

Duration of COBRA (cont.)COBRA Coverage Can Be Terminated Early Failure to Pay COBRA Premiums on Time

Employer Terminates All Group Health Plans

Subsequent Coverage Under Other Group Health Plan No Pre-Existing Conditions

Subsequent Coverage Under Medicare

Termination of Disability if in 29 Month Extension

NEW NOTICE REQUIREMENTS -EARLY TERMINATION! WHAT ABOUT EXTENDING COBRA COVERAGE - CAN NOT!

People on COBRA – Not Qualified Beneficiaries Each Qualified Beneficiary is Like Active Employee

Add New Spouse HIPAA Special Enrollment Periods Add Person During Open Enrollment Periods

Lose Coverage When Qualified Beneficiary Loses Coverage

Domestic Partners - Not Entitled to COBRA Coverage

Newborn Child IS Qualified Beneficiary

Newborn Grandchild IS NOT Qualified Beneficiary

COBRA Coverage

COBRA COVERAGE General Rule - Same Coverage as Before

Qualified Beneficiary Can Select Different Coverage if Under Region Specific Plan Like HMO

Plan Changes for Active Employees (e.g. Switch Carriers) Plan Terminated But Other Plan Available

COBRA Coverage (cont.)

COBRA COVERAGE Special Rules for FSAs

No Longer Can Spend Down Account Maximum Benefit 2 times salary deferrals Employer Sponsors Other Health Plan

If Yes - Then COBRA to Those Who Underspent Account - i.e. Have Money in Their Account

Then Offer COBRA Till End of Current Plan Year Rather Than Keep Track - Just Offer COBRA to All FSA

Participants Till End of Current Plan Year Special COBRA Rules in Mergers and Acquisitions – Note They are Simply Fall Back Position – Should be Addressed in Buy – Sell Agreement!!!!!!!

COBRA Notices – The New!!!

DOL - Responsible for Notice Provisions - Regs Issued on May 26, 2004 - Effective Plan Years Beginning On or After November 26, 2004

General Notice - Used to be Initial Notice Most Important Notice! DOL Has Sample Notice - Must Be Customized Biggest Change - Have 90 Days to Provide Notice This Means Can be in SPD One Notice to Employee & Spouse if (1) Enter Plan at

Same Time and (2) At Same Address - Should be Addressed to “Employee and Spouse”

COBRA Notices – The New!!! (cont.) By First Class Mail or Second or Third Class Mail if

Return/Forwarding Postage is Guaranteed and Address Correction is Requested - Can be Electronic But Special Rules Apply - Certified Mail - Not Required and Not Good - Will Not Sign

Permissible (But Not Recommended) Hand Delivery - But What About Spouse

Notice Must be Customized - (1) That Plan Will Charge for COBRA Coverage (2) Name, Address and Telephone # of Plan Administrator (3) Plan’s Procedure for Notifying Plan

Failure to Identify Plan Procedures for Notification Means Oral Notice is Sufficient - This is a Loser for the Plan

Can Require Them to Use Form if (1) Form is Free and (2) Easy to Get

Employer Notice Obligations • If Qualifying Event is –

Employee’s Change in Employment Status Employee’s Death Employee’s Entitlement to Medicare

• Then 30 Days to Notify Plan Administrator

Employee Notice Obligations Employee and/or Qualified Beneficiary Notice Obligation

If Qualifying Event is - Divorce of Legal Separation Loss of Dependency Status

Then Employee and/or Qualified Beneficiary Has 60 Days Notify Plan Administrator

It is Critical That General Notice Be Provided (1) To Tell People of Their Notification Obligations and (2) To List How They Must Comply With Notice Obligations

Employee Notice Obligations (cont.) If General Notice is Given and Employee and/or Qualified

Beneficiary Fail to Timely Notify Plan Administrator of Event Within 60 Days Then They Lose COBRA Rights!

On Other Hand, No General Notice, Then Employee and/or Qualified Beneficiary Not Required to Give Notice to Plan Administrator and They are Entitled to COBRA – Employer Will Get Stuck – Could Bankrupt the Company!!!!!

Plan Administrator Notice Obligations

Election Notice - 14 Days After Notice of Qualifying Event - If Plan Administrator and Employer Are Same Then Have 44 Days to Supply Election Notice of Certain Qualifying Events

New Notice - Notice of Unavailability of COBRA - Due Within 14 Days of Request for COBRA - Tells Person Not Entitled to Elect COBRA

Election Notice – DOL has Sample Notice Notice Has to Be Customized

One Notice to All Qualified Beneficiaries at Same Address

The Notice Must Either List Each Person by Name or By Status (i.e. Employee, Spouse and/or Dependent Child)

By First Class Mail or Second or Third Class Mail if Return/Forwarding Postage is Guaranteed and Address Correction is Requested - Can be Electronic But Special Rules Apply - Certified Mail - Not Required and Not Good - Will Not Sign - May Want to Use Proof of Mailing

Election Notice – DOL has Sample Notice (cont.)

Each Person has Independent Right to Elect COBRA

Have Sixty Days to Elect COBRA Coverage

Failure to Identify Plan Procedures for Notification Means Oral Notice is Sufficient - This is Loser for Plan

Can Require Them to Use Form if (1) Form is Free and (2) Easy to Get

Waivers & Alternative Coverage Can Have Waivers - But Bad Idea

Must Have Right to Revoke

Alterative Coverage But Must Be Structured Properly Must Make Sure No New COBRA Rights at End of

Alternative Coverage Also HIPAA - Special Enrollment Concerns

Qualified Beneficiary’s COBRA Election

Employee Can Elect for Family Spouse Can Elect for Children Each Qualified Beneficiary has Independent Right to

Elect COBRA One Spouse CAN NOT Decline Coverage for Other

Spouse 60 Day Election Period - Date Sent vs Date Received

Do Not Want to Take Hard Line Approach BUT Be Careful About Carrier Issues

Qualified Beneficiary’s COBRA Election (cont.)

No Required Format of Notice BUT Can (and Should) Require Notice be Given in Writing

Coverage During Election Period - Two Options Cancel Coverage and Retroactive Reinstatement

(Better Option) Have Coverage and Retroactive Termination

Employer Has to Accurately Respond to Provider Questions During This Period

Other Notices

Conversion Notice - If Plan has Conversion Option Must Tell Qualified Beneficiary Six Months Prior to COBRA Projected Termination Date

Early Termination Notice - NEW Notice Requirement! If COBRA Terminates Early for Any Reason Plan Administrator Must Provide Written Notice

Notice Must Explain Reason for Early Termination, Date Coverage Terminated and Any Conversion Options Available

COBRA Premiums Can Charge 102% of "Applicable Premiums" Can Charge 150% of "Applicable Premiums" for 11 Month

Disability Extension Can Require Family Rate vs Two Single Rates Anyone Can Pay COBRA Premiums (New Employer, Family

Member) Applicable Premiums

Insured Plan - Premiums Self Funded - Two Options

Actuarial Estimates Last Year's Costs to Plan + Inflationary Factor

COBRA Premiums (cont.) Premiums Stay Fixed for Twelve Months - Few

Exceptions Increase to 150% Due to Disability Qualified Beneficiary Elects Different Coverage Carrier Mid-Year Increase IS NOT Reason to Change

"Applicable Premiums Change Carrier Mid-Year NOT CLEAR But Probably

Could Big Issue if Wrong "Applicable Premiums" - Lawsuit is

Those Who Declined Coverage

Payment Deadlines 45 Days to Pay for Initial COBRA Period Payments Due Monthly With Grace Period

Longer of 30 Days or Employer's Grace Period Shortfalls

Insignificant = Lesser of $ 50 or 10% Two Options - (1) Ignore Shortfall or (2) Notify

Person and Give 30 Days to Make it Up

Other Payment Issues Bounced Check - Is Non-Payment Big Issues Taking Late Payments No Need to Send Out Reminders of Coupons Maximum “LIMBO” Period = 30 Days Employer Notify

Plan Administrator + 14 For Plan Administrator to Send COBRA Election + 60 Days to Elect + 45 Days to Pay Total 149 DAYS!

COBRA Penalties Never Happy Time Up To $ 110 Per Day Penalty for Failing to Provide

General Notice & Election Notice Sue to Have Claims Paid - Amounts Can Be Huge

Qualified Beneficiary Sues Providers Sue on Behalf of Qualified Beneficiary

Have Your Worked in Last 18 Months? Lawsuit for Breach of Fiduciary Duty Can Offset Premiums Owed - Small Consolation

Take Care of This by January 1, 2005!

Review and Update COBRA Forms and Procedures If You Use a TPA for COBRA Administration, Review

Agreement with TPA Review SPD

For DOL Sample Forms (Note: Forms Have to be Customized) http://www.dol.gov/ebsa/modelelectionnotice.doc http://www.dol.gov/ebsa/modelgeneralnotice.doc

COBRA

Thank You!