Don’t Neglect End-of-Year COBRA Duties

Now that the COBRA subsidy program under the American Rescue Plan Act (ARPA) is largely behind us, it would seem OK to put COBRA administration on the back burner. After all, there are bigger compliance fish to fry. Correct?

Incorrect.

The reality is that ARPA work will continue, COVID-19 Outbreak Period relief continues and we are entering COBRA’s busiest time of the year. Your COBRA To Do List should include these 4 tasks:

  • Open Enrollment. Qualified beneficiaries enrolled in COBRA coverage must have the same rights as similarly situated active employees participating in the group health plan. That means they should receive an open enrollment packet and have the same rights to switch or add group health plan options (e.g., medical, dental, vision, EAP) and/or add or drop dependents. Employers may not limit a qualified beneficiary’s enrollment choices to only the benefit options that the individual was enrolled in and/or that were available at the time of the qualifying event (or limit a qualified beneficiary’s choices in any other manner). If the plan allows passive, evergreen or default enrollment for active employees, the same holds true for the COBRA population. Qualified beneficiaries should receive the same annual notices (e.g., HIPAA special enrollment, Medicare Part D, Women’s Health and Cancer Rights Act) as well. While health FSAs typically do not need to be offered beyond the end of the plan year in which the qualifying event occurs, qualified beneficiaries enrolled in a health FSA as of the last day of the plan year are entitled to access unused health FSA balances during any carryover or grace period.
  • New COBRA Rates. COBRA rates must be computed and fixed once every 12 months. It is important to provide timely notice to qualified beneficiaries of the new rates to ensure that their payment of the applicable premium reflects the total cost of coverage. For fully insured plans, the COBRA rates are based on the insurance premium. For self-funded plans, the COBRA rates are based on either the past cost method or reasonable actuarial factors.
  • Outbreak Period Relief. Recall that qualified beneficiaries have an extended period of time to elect COBRA, make payments and provide notices of certain qualifying events and disability extensions. Plan sponsors should ensure COBRA-qualified beneficiaries have extended time during the COVID-19 emergency to meet certain time-sensitive tasks, such as electing and paying for COBRA coverage. Prior guidance requires plans to pause counting down the deadlines for these COBRA actions during the “outbreak period”. The outbreak period runs from March 1, 2020, through 60 days after the end of the COVID-19 national emergency. The current national emergency will expire on February 24, 2022, unless ended earlier or extended again. Individual and plan deadlines subject to outbreak period relief will be paused until the earlier of (i) one year from the date a particular individual or plan was first eligible for relief or (ii) 60 days from the end of the COVID-19 national emergency (i.e., the end of the outbreak period). It is wise to ensure that this relief is being followed, regardless of whether COBRA is handled in-house or outsourced. Notice 2021-58 clarifies the application of this relief to several situations related to COBRA payment timeframes. The guidance provides affected qualified beneficiaries until Nov. 1st to make payments that would otherwise be viewed as past due.
  • ARPA Subsidies. The ARPA subsidy period ended on Sept. 30th. Because COBRA election periods are 60 days in length and take effect retroactively, there will likely be some ARPA subsidy activity in the 4th quarter. Employers will need to seek reimbursement for the subsidies, primarily through the 4th quarter Form 941.

Once 2021 is done, it is a good idea to add one more COBRA activity to your list: an audit. COBRA is often taken for granted. This presents an ongoing litigation and DOL audit risk for employers. A good internal audit could focus on:

  • Ensuring all qualifying events have triggered a timely sent COBRA election notice
  • Reviewing the four major COBRA notices (general/initial notice, election notice, notice of unavailability of COBRA coverage, notice of early termination of COBRA coverage) for compliance with the content requirements

Wouldn’t it be great if governmental auditors provided a blueprint of what they examine? Fortunately, this document exists. Page four provides five key areas that auditors probe: qualifying event identification; notice distribution method; qualifying event processing; elections; and payments.

Dorian Z. Smith
by Dorian Z. Smith

Partner, Mercer’s Law & Policy Group

Rich Glass
by Rich Glass

Principal, Mercer Health

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