COBRA During the Pandemic: COBRA Election Opportunity Not Over For Most

The Compliance NOW! team would like to thank this post’s guest writer Michelle Turner, MBA, CEBS.  Michelle is a talented compliance professional and a good friend of the blog.  Her post below highlights an important issue that is still highly relevant for employer plans, even in the midst of the “tornado” of new rules and regulations we’ve been digesting as of late.

The Consolidated Omnibus Budget Reconciliation Act (COBRA) affords employees and their covered dependents (i.e. qualified beneficiaries) the option to elect continuation coverage when eligibility to the group health plan is lost due to certain qualifying events (QE). For example, employees whose employment was terminated due to a layoff, or hours reduced due to furlough.  

COBRA specifies a qualified beneficiary (QB) must be given at least 60 days to elect COBRA and 45 days to make the first premium payment, for a total of potentially 105 days after the later of: the QE, the date coverage was lost or when they received the election notice, before the initial payment is due. Subsequent COBRA premium payments are then due on a monthly basis with a 30-day grace period and under the regulations, COBRA continuation coverage may be terminated if premiums are not paid timely.

COVID-19 Twist to COBRA rules

Relief was issued (Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak) that requires group health plans to “pause” the clock for counting the days for these COBRA election and payment requirements from March 1, 2020, until 60 days after the announced end of the National Emergency or such other date announced by the Agencies in a future notification (known as the “Outbreak Period”), which remains in effect as of this writing.

The Outbreak Period is connected to the President’s National Emergency Declaration and unlike the Public Health Emergency declared by HHS, the National Emergency has no set end date. However, the statutory duration for the Outbreak Period under ERISA §518 and IRC §7508A is usually a maximum of 1 year. Therefore, unless there is additional congressional or executive action changing this statutory duration, the latest the Outbreak Period should last is February 28, 2021.

Impact on COBRA QBs Deadlines

QBs who experienced a qualifying event early during the pandemic, may have over a year from the date they lost coverage to elect coverage. 

              Example: Assume the Outbreak Period ends on February 28, 2021.

Kelsey was laid off on March 2, 2020 from Jam Master Sounds. Kelsey received a COBRA notice from the plan administrator on March 31, 2020. Under regular COBRA rules, Kelsey would have until May 30, 2020 to elect COBRA and July 14, 2020 to make her first initial payment.

However, due to the COVID-19 relief, Kelsey has until April 29, 2021 (60 days after the end of the Outbreak Period) to elect COBRA coverage, and until June 13, 2021 to pay premiums.

Similarly, QBs who experienced a qualifying event prior to the National Emergency was declared and Outbreak Period established, may also still have a right to elect and pay for COBRA.

              Example: Assume the Outbreak Period ends on February 28, 2021.

Mat was terminated from employment on January 15, 2020 from Ay Bee Cee Co. and received a COBRA election notice from the plan administrator on February 1, 2020. Under regular COBRA rules, Mat would have until April 1, 2020 to elect COBRA and May 16, 2020 to make his first initial payment.

However, due to the COVID-19 relief, Mat has until March 30, 2021 (31 days after the end of the Outbreak Period, the number of days remaining in his election period before March 1, 2020) to elect COBRA coverage, and until May 14, 2021 to pay premiums.

COBRA generally requires the initial premium to cover the premium due retroactive to the date coverage was lost for coverage to be reinstated. (i.e. the QB must pay for each month back to the loss of coverage date through the current month.) If a QB waits until the end of the Outbreak Period before electing and paying, they may owe more than a year’s worth of premiums, which may be unaffordable. If the QB pays only a portion of the premium due within the extended time period, they may have coverage for the number of months for which the premium was paid, retroactive to the date coverage was first lost.  However, they will not be eligible for additional coverage beyond the last month payment is made.

              Example: If Kelsey from the above example elects COBRA on April 1, 2021 and submits payment totaling 5 months of premiums on May 1, 2021. Kelsey’s coverage would be effective from the time she lost coverage (March 2, 2020) through the next 5 months (August 2, 2020) and all provider claims submitted during this time would be eligible to be processed according to the terms of the plan. As the rules stand today, Kelsey would not have nor is she eligible for continuation coverage beyond August 2, 2020.

Plan Administration Considerations

The COVID-19 twist to COBRA rules providing QBs an unusually long window to elect and pay for COBRA has also complicated the situation for plan administrators. However, the temporary extension relief was not intended to usurp the COBRA regulations for administering COBRA.  In non-COVID times:

  1. Coverage is provided during the election period and then retroactively revoked to the date when it otherwise would have been lost if the COBRA election is not made.
  2. Coverage during the election period is cancelled and retroactively reinstated upon timely election/payment. (If a provider asks for information regarding the COBRA beneficiary’s coverage during this election/payment period, the plan sponsor should explain that the individual is within the election/payment period and how coverage is handled during that period.)

Therefore, during the Outbreak Period whichever approach COBRA is usually administered, is acceptable during the “Outbreak Period” too.

Looking Ahead: Hopefully the DOL or IRS will provide additional guidance on handling COBRA when the Outbreak Period is over. However, until we get further guidance from the regulatory authorities, plan administrators need to consider the suspended COBRA election and payment timeframes and administer COBRA accordingly.

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