Tag: COBRA

COVID Stimulus Bill provides Free COBRA Coverage

On March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA”) was signed into law by President Biden. The ARPA includes several significant health, pension funding, executive compensation and other tax changes. Notably, the ARPA provides temporary COBRA and Affordable Care Act subsidies intended to help people maintain health insurance during the pandemic.

Six months of free cobra

The ARPA provides employers a 100% COBRA subsidy for “assistance eligible individuals” where the qualifying event is an involuntary termination of employment or reduction in hours. An “assistance eligible individual” is any COBRA qualified beneficiary who loses group health coverage on account of a covered employee’s reduction in hours of employment or involuntary termination of employment. The subsidy applies not only to federal COBRA coverage, but also to state law programs that provide comparable continuation coverage.

For a period of up to six months, an “assistance eligible individual” is treated as having paid their COBRA coverage in full if the individual timely elects COBRA coverage. This means the person to whom the premiums are usually paid cannot collect the premium from the assistance eligible individual. One hundred percent of the premium is subsidized by the federal government via a tax credit mechanism.

Tax Credit

The tax credit works by allowing the “person to whom premiums are payable” (the employer for a self-insured plan and the insurer for a fully insured plan) to claim a tax credit for the COBRA premium assistance that was provided to an assistance eligible individual for any period of COBRA coverage during the subsidy period of April through September 2021.

This credit applies against that entity’s liability for the Medicare Hospital Insurance (“HI”) tax (i.e., the 1.45% Medicare payroll tax). It also applies as a credit against any applicable similar tax under the Railroad Retirement Tax Act (“RRTA”) imposed on compensation paid to railroad employees and representatives. The amount of the credit generally cannot exceed the HI tax (or RRTA tax), reduced by any credits otherwise allowed under other COVID-19 relief acts (the Coronavirus Aid, Relief, and Economic Security Act or the Families First Coronavirus Response Act).

The ARPA provides that the IRS could allow such credits to be advanced, and the IRS may issue further guidance about the mechanics of such an advance.

DURATION OF SUBSIDY PERIOD

The ARPA COBRA subsidy period is between April 1, 2021 and September 30, 2021. Importantly, the ARPA subsidy is available only to those whose initial COBRA period ends (or would have ended if COBRA had been elected/did not lapse) either during or after this six-month period.  The subsidy does not lengthen the COBRA period.

OPTIONAL New Election Right

Employers are permitted to allow individuals who are eligible for ARPA COBRA relief to change elections to other plan options that have the same or lower cost premiums. This election right is optional and employers are not required to offer it.

Notification Requirement

Plan administrators must notify eligible employees by May 31, 2021 (60 days after April 1, 2021), and the notice must include a description of the extended election options as well as certain plan information. The U.S. Department of Labor is required to issue model COBRA notices addressing the subsidy, and we expect the government agencies to issue guidance on various issues related to the subsidy in the coming weeks.

Please reach out to your ERISA Benefits Law contact if you have any questions about the implementation of this COBRA relief.

American Rescue Plan Act of 2021, H.R. 1319

DOL and IRS Extend Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak

On May 4, 2020, the Employee Benefits Security Administration (EBSA, which is part of the U.S. Department of Labor) and the Internal Revenue Service (IRS) issued joint guidance extending certain timeframes otherwise applicable to group health plans, disability and other welfare plans, pension plans, and their participants and beneficiaries under ERISA and the Code.

This guidance will require Plan Sponsors to temporarily revise their administrative practices and their form notices used in connection with COBRA, HIPAA’s Special Enrollment rights, and ERISA Claim Procedures.

I. Background

HIPAA requires group health plans to provide special enrollment rights for certain people upon the loss of eligibility for other coverage, or upon the addition of a dependents due to birth, adoption, etc. Generally, group health plans must allow such individuals to enroll in the group health plan if they are otherwise eligible and if enrollment is requested within 30 days of the occurrence of the event.

COBRA permits qualified beneficiaries who lose coverage under a group health plan to elect continuation health coverage. COBRA generally provides a qualified beneficiary a period of at least 60 days to elect COBRA continuation coverage under a group health plan. Plans are required to allow payment of premiums in monthly installments, and plans cannot require payment of premiums before 45 days after the day of the initial COBRA election. COBRA continuation coverage may be terminated for failure to pay premiums timely.

Under the COBRA rules, a premium is considered paid timely if it is made not later than 30 days after the first day of the period for which payment is being made. Notice requirements prescribe time periods for employers to notify the plan of certain qualifying events and for individuals to notify the plan of certain qualifying events or a determination of disability. Notice requirements also prescribe a time period for plans to notify qualified beneficiaries of their rights to elect COBRA continuation coverage.

ERISA requires plans to establish and maintain reasonable claims procedures and imposes additional rights and obligations with respect to internal claims and appeals and external review for non-grandfathered group health plans.

II. Temporary Extensions Under the Guidance

All of the foregoing provisions include timing requirements for certain acts in connection with employee benefit plans, some of which have been temporarily modified by the new guidance. These changes, and the implications for Plan Sponsors, are summarized below.

A. Relief for Plan Participants, Beneficiaries, Qualified Beneficiaries, and Claimants

Subject to a one year statutory duration limitation, all group health plans, disability and other employee welfare benefit plans, and employee pension benefit plans subject to ERISA or the Code must disregard the period from March 1, 2020 until sixty (60) days after the announced end of the National Emergency (the “Outbreak Period”) for all plan participants, beneficiaries, qualified beneficiaries, or claimants wherever located in determining the following periods and dates—

(1) The 30-day period (or 60-day period, if applicable) to request special enrollment under ERISA section 701(f) and Code section 9801(f)

Implications for employers:

  • Work with your third-party administrator and insurance carriers to ensure the extended special enrollment period is implemented for the duration of the Outbreak Period, which could require retroactive coverage as far back as March 1.
  • Determine whether and how to communicate the extension to employees.

(2) The 60-day election period for COBRA continuation coverage under ERISA section 605 and Code section 4980B(f)(5)

(3) The date for making COBRA premium payments pursuant to ERISA section 602(2)(C) and (3) and Code section 4980B(f)(2)(B)(iii) and (C)

(4) The date for individuals to notify the plan of a qualifying event or determination of disability under ERISA section 606(a)(3) and Code section 4980B(f)(6)(C)

Implications for Employers:

  • This exacerbates the adverse selection issue inherent in COBRA because Plans may have to provide retroactive coverage for many months.
  • The problem is made worse by the fact that, even though qualified beneficiaries theoretically have to pay for the retroactive coverage, if they elect COBRA right after the qualifying event, they do not have to pay until after the Outbreak Period ends. This means a qualified beneficiary could elect COBRA and receive the coverage) and then subsequently decide not to pay for it. Plan Sponsors and insurers will then have the option of retroactively terminating the coverage and trying to adjust the claims already paid.
  • Work with your third-party administrator and insurance carriers to ensure they have implemented the extended COBRA periods.
  • Either temporarily revise your COBRA notices and forms or ensure a temporary cover is added to all COBRA communications as necessary to inform employees and qualified beneficiaries of the extended timeframes.

(5) The date within which individuals may file a benefit claim under the plan’s claims procedure pursuant to 29 CFR 2560.503-1

(6) The date within which claimants may file an appeal of an adverse benefit determination under the plan’s claims procedure pursuant to 29 CFR 2560.503-1(h)

Implications for Employers:

  • Work with your third-party administrator and insurance carriers to ensure they have implemented the extended claims periods.
  • Either temporarily revise your claims notices and forms or ensure a temporary cover is added to all claims communications as necessary to inform employees and qualified beneficiaries of the extended timeframes.
  • This will impact health flexible spending accounts (“FSAs”) and health reimbursement arrangements (“HRAs”) that have run-out periods that extended beyond March 1, 2020. Because the Outbreak Period began on March 1, 2020, any health FSAs and HRAs that have March or April deadlines for submitting prior-year expenses for reimbursement, will need to extend the deadline until 60 days after the Outbreak Period ends to submit expenses for reimbursement for the 2019 plan year.

(7) The date within which claimants may file a request for an external review after receipt of an adverse benefit determination or final internal adverse benefit determination pursuant to 29 CFR 2590.715-2719(d)(2)(i) and 26 CFR 54.9815-2719(d)(2)(i), and

(8) The date within which a claimant may file information to perfect a request for external review upon a finding that the request was not complete pursuant to 29 CFR 2590.715-2719(d)(2)(ii) and 26 CFR 54.9815-2719(d)(2)(ii)

Implications for employers:

  • Work with your third-party administrator and insurance carriers to ensure they have implemented the extended claim review periods.
  • Either temporarily revise your claims notices and forms or ensure a temporary cover is added to all claims communications as necessary to inform employees and qualified beneficiaries of the extended timeframes.

B. Relief for Group Health Plans

With respect to group health plans, and their sponsors and administrators, the Outbreak Period shall be disregarded when determining the date for providing a COBRA election notice under ERISA section 606(c) and Code section 4980B(f)(6)(D).

Implication for Employers:

  • Plan administrators are not required to provide the COBRA election notice during the Outbreak Period. As a practical matter, however, plan administrators likely will want to timely provide election notices to encourage qualified beneficiaries to timely elect and pay for COBRA coverage.

Question: Do we Need to Offer COBRA Coverage to the Domestic Partner of a Terminated Employee?

Hypothetical: Employer’s self-insured medical plan covers domestic partners. An employee with EE + Domestic Partner coverage terminates employment. We offer the employee COBRA coverage, but do we need to also offer COBRA to the domestic partner?

Answer: COBRA does not require you to offer continuation coverage to the domestic partner. The COBRA regulations at 26 CFR 54.4980B-3 provide that only a covered employee, or their spouse or their dependent child is a qualified beneficiary under COBRA (plus any child who is born to or placed for adoption with a covered employee during a period of COBRA coverage).

While COBRA does not require the employer to offer continuation coverage, the employer ought to check their plan documents to see whether the Plan Documents provide continuation coverage to domestic partners. If the Plan document provides continuation coverage for domestic partners, then the Plan must offer it.

Be Careful Before Denying COBRA to Employee Terminated for Gross Misconduct

The Ninth Circuit Court of Appeals has rendered a decision in Mayes v. WinCo Holdings that reminds employers to be very cautious about denying COBRA coverage based on the gross misconduct exception.

Facts
Defendant grocery store fired the plaintiff, who supervised employees on the night-shift freight crew, for taking a stale cake from the store bakery to share with fellow employees and telling a loss prevention investigator that management had given her permission to do so. The employer deemed these actions theft and dishonesty, and determined that the plaintiff’s behavior rose to the level of gross misconduct under the store’s personnel policies. Therefore, the employer fired the employee and did not offer COBRA coverage to her or her dependents. Plaintiff sued asserting gender discrimination claims under Title VII, a claim under COBRA, and wage claims.

The Law
Under COBRA, an employer does not have to offer COBRA coverage to an employee and their covered dependents if the employee is terminated for “gross misconduct.” Unfortunately, the COBRA statute does not define “gross misconduct,” and court decisions do not provide clear guidance on what that term means.

The Case
The trial court in this case initially ruled in favor of the employer, finding that theft and dishonesty can constitute gross misconduct under COBRA, regardless of the amount involved. The Ninth Circuit reversed, finding that there was sufficient evidence of the employer’s discrimination to allow the discrimination case to go to trial, and reasoning that if the employer fired the plaintiff for discriminatory reasons then that could not constitute termination for gross misconduct. Therefore, if the termination was discriminatory the employee and her dependents would be entitled to COBRA benefits and the employee could prevail on her COBRA claims.

Lessons for Employers
An employer terminating someone for violating company policy (such as theft), may be reluctant to offer them COBRA coverage, particularly where the employer’s plan is self-insured and, therefore, the employer sees the potential for large medical claims. However, denying COBRA coverage based on the gross misconduct exception is risky for a number of reasons.

First, if the employer is ultimately found to have denied COBRA incorrectly it is exposed to penalties for failing to offer coverage, and the employee and their dependents can get COBRA coverage retroactive all the way back to the initial termination of coverage. That scenario could happen in the Mayes case.

Second, if a terminated employee foresees having large medical claims, they will have a bigger incentive to sue to secure coverage. If they do file suit for COBRA coverage, they will invariably include other claims attacking the termination decision. Therefore, denying COBRA coverage increases the likelihood of a costly lawsuit challenging the termination decision.

Third, defending a case that includes a COBRA claim is also more difficult than a straight wrongful termination claim. It is easier for a judge to grant an employer summary judgment on a wrongful termination claim, which only affects the employee plaintiff, than it is to uphold a denial of COBRA, which directly affects the employee and her children, who are innocent bystanders. In most cases, therefore, an employer is better off defending a wrongful termination suit alone, and not also defending a claim that the employer failed to offer COBRA coverage.

For these reasons, in most cases discretion is the better part of valor and employers should not invoke the gross misconduct exception.

Some employers may be concerned that offering COBRA coverage after terminating someone for gross misconduct may undermine their defense of the termination decision (on the theory that offering COBRA means the termination must not have been for gross misconduct). This can be mitigated by including a self-serving cover letter on the COBRA offer indicating that while the reasons for termination most likely amount to gross misconduct, the employer is voluntarily choosing to offer the employee and their dependents COBRA coverage.

Significant Changes Proposed for Form 5500

On July 21, 2016 the Department of Labor (DOL), the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC) published proposed rules that would make significant revisions to the Form 5500 Annual Return/Report as of the 2019 filing year.

DOL explains in a Fact Sheet that the proposed form revisions and the DOL’s related implementing regulations are intended to address changes in applicable law and in the employee benefit plan and financial markets, and to accommodate shifts in the data the DOL, IRS and PBGC need for their enforcement priorities, policy analysis, rulemaking, compliance assistance, and educational activities.

The major proposed changes are summarized below:

  • Retirement Plan Changes– The new Form 5500 will request more information about participant accounts, contributions, and distributions. It will also ask about plan design features, including whether the plan uses a safe harbor or SIMPLE design and whether it includes a Roth feature. The form will also ask about investment education and investment advice features, default investments, rollovers used for business start-ups (ROBS), leased employees, and pre-approved plan designs. Schedule R will include new questions about participation rates, matching contributions, and nondiscrimination.
  • Group Health Plan Changes– The most significant change for health plans is that all ERISA group health plans, including small plans that are currently exempt from filing, will be required to file a Form 5500. The new filing requirement includes a new Schedule J (Group Health Plan Information), which will list the types of health benefits provided, the plan’s funding method (self insured or fully insured), information about participant and employer contributions, information about COBRA coverage, whether the plan is grandfathered under health care reform, and whether it includes a high deductible health plan, HRA, or health FSA. In addition, most filings (except those for small fully insured plans) would have to provide financial and claims information, disclose stop-loss carriers, third party administrators and other plan service providers, and provide details regarding compliance with HIPAA, GINA, health care reform and other compliance issues.
  • Other Changes– The proposed changes affect many of the existing Form 5500 schedules, including:
    • Schedule C would be revised to coordinate with the service provider fee disclosure rules.
    • Schedule C would be required from some small plans currently exempt from filing it.
    • Schedule H would be expanded to include questions on fee disclosures, annual fair market valuations, designated investment alternatives, investment managers, plan terminations, asset transfers, administrative expenses and uncashed participant checks.
    • Schedule I would be eliminated.
    • Small plans that currently file Schedule I would generally need to file Schedule H.

Effective Date– The new Form 5500 is expected to be required as of the 2019 plan year filings.

Proposed Rule Making Form 5500 Changes

IRS Notice 2015-87 Provides Further Guidance on the Application of ACA Market Reforms to Employer Payment Plans, Employer Mandate and COBRA

On December 16, 2015, the Department of Treasury and IRS issued Notice 2015-87 which provides further guidance on the application of the market reforms that apply to group health plans under the Affordable care Act (ACA) to various types of employer health care arrangements. The notice includes guidance that covers:

(1) health reimbursement arrangements (HRAs), including HRAs integrated with a group health plan, and similar employer-funded health care arrangements; and

(2) group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, such as a reimbursement arrangement described in Revenue Ruling 61-146, or an arrangement under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee (collectively, an employer payment plan). The notice supplements the guidance provided in Notice 2013-54; FAQs about the Affordable Care Act Implementation (Part XXII) issued by the Department of Labor on November 6, 2014; Notice 2015-17; and final regulations implementing the market reform provisions of the ACA published on November 18, 2015.

iconsee our previous post on this topic.

Notice 2015-87 also clarifies certain aspects of the employer shared responsibility provisions of § 4980H, and clarifies the application of the COBRA continuation coverage rules to unused amounts in a health flexible spending arrangement (health FSA) carried over and available in later years pursuant to Notice 2013-71, and conditions that may be put on the use of carryover amounts.