The COBRA legislation is specific in its definition of premiums being offered to Qualified Beneficiaries. Premiums are based upon the amount the insurance carrier is charging the employer (or actuarial equivalent for self funded plans). The employer then has the right to add an administration fee of up to two percent (fifty percent for qualified beneficiaries deemed “disabled” by the Social Security Administration). These rates are to remain in effect for a twelve month period, commonly known as the “Determination Period.”

The question arises as to what COBRA Participants should be charged in the event there is a midyear change in plan(s) and/or rates. This may not occur often but it is important the Administrator understands it is an issue, and the best methods to handle it.

The IRS offers the following three instances which would allow the employer to change rates for COBRA Participants outside the “Determination Period.” The premiums may be changed,

1. if the employer was subsidizing all or a portion of the qualified beneficiary’s premiums for a term less than the maximum timeframe under COBRA (18, 29 or 36 months);
   
2. if the COBRA Participant has entered their 19th (through 29th ) month under the COBRA disability extension;
   
3. if the COBRA Participant changes his/her coverage. For example, the Participant removes a dependent and goes from Family to Single coverage; or
   
4. if the rates for the group are decreased. The law states COBRA Participants are to receive the rates of a similarly-situated active employee so if employees have received a decrease, COBRA Participants should also receive the decreased rate.
   

Since you cannot change rates, can you change the “Determination Period?” COBRA does not address changes to the Determination Period so it is assumed to be appropriate as long as the Administrator is “acting in good faith.” There are three approaches that an Administrator may consider. (The author provides these alternatives as options and does not recommend one over the other.)

• Example information to help explain the different methods:
  Current Determination Period: January 1 to December 31
  Current Premium: $300.00
  
  
• Implement a new insurance plan replacing current plan effective July 1st.
  New Determination Period: July 1 to June 30
  New Premium: $350.00
  

Alternative #1 – The employer creates a second “Determination Period” running concurrently with the initial Determination Period. Qualified Beneficiaries currently enrolled on the plan as of the date of the change (July 1st) would continue to receive the same premiums ($300.00) as originally offered for a year, changing (to $350.00) at the beginning of the original Determination Period (January 1st). The problem is the employer would end up subsidizing COBRA premiums [$50.00 ($350.00 - $300)] for these COBRA Participants for a portion of their COBRA timeframe.

New COBRA Participants would receive the new plan’s COBRA rates ($350.00 as designated under the “new Determination Period). Eventually, after all COBRA Participants under the initial Determination Period fall off the plan, the new Determination Period would be the sole determining period.

Alternative #2 – The second option would be to have the new determination period start and all new qualified beneficiaries would receive the new rates (or $350.00 based upon our example information). COBRA Participants who were enrolled on COBRA prior to the new Determination Period would continue with the same rate ($300.00) until the beginning of the new Determination Period (July 1st). Their rates would not change at the end of the “current Determination Period” (Jan 1st) but would continue and be subsidized by the employer until the beginning of the new Determination Period.

Alternative #3 – Change the Determination Period from the current to the new one based upon the change in plans for all COBRA Participants. In our example, the Administrator would change the Determination Period from January 1 – December 31 to July 1 to June 30. It could be argued the COBRA Participants did not receive a twelve month rate. On the other hand, the rate and plan had changed for similarly-situated employees therefore COBRA Participants would also be required to change. The risk this could be argued in court (and will be in time we venture to guess) is greater for self-funded plans because of the control employers have over setting the COBRA rates.

There is no set method for changing the Determination Period for COBRA premiums. We produce this article to illustrate the issues involved when a midyear change is made. It is recommended you seek the advice of a Benefit Attorney if your organization decides to implement a plan midyear.

Final regulations state that a third party (such as a parent, friend, hospital or new employer) may pay COBRA premiums for a Qualified Beneficiary. Employers should accept payments but a problem may arise when/if the third party does not make proper or timely payments. The case of Lloyd v.Harrington Benefit Services, Inc., 2006 WL 571862 (N.D. Miss., March 8, 2006) addresses this issue and how it can spiral out-of-control.

Clifton Lloyd resigned from North American Pipe (who was self-insured with a Third Party Administrator, Harrington Benefit Services) on May 28, 2003 and started a position with Cubicon shortly thereafter. Per COBRA requirements, North American Pipe notified Harrington Benefit Services of the termination and a qualifying event notice was prepared and sent in a timely fashion. (Employers have 30 days to notify the Plan Administrator of a COBRA qualifying event and the Plan Administrator has 14 days to prepare and send the qualifying event notice.)

Lloyd made an oral agreement with the new employer, Cubicon whereby they would pay for Lloyd’s COBRA premiums until he became effective on their group health plan sixty days later. After receiving the COBRA election form from Harrington Benefit Services, Lloyd completed the application and submitted it to his supervisor at Cubicon. The supervisor was to submit it to Cubicon’s Accounts Payable Department and send it directly to North American Pipe.

Unfortunately for the Lloyds, the election form and payment never made it to North American Pipe. Lloyd was under the assumption he had continuation coverage until he received a letter on August 23, 2003 from Harrington Benefit Services stating his time had elapsed to elect COBRA continuation coverage. Although the letter was sent stating benefits had been lost back to the date of termination, the TPA mistakenly paid $15,000 in medical claims for Lloyd’s spouse.

In March 2004, Lloyd was re-hired by North American Pipe who submitted Lloyd’s health plan enrollment forms which led to Harrington Benefit Services uncovering the error in the $15,000 claim being paid. Harrington went back to the Lloyd’s medical providers (doctors and hospitals) and asked for reimbursement. The providers then demanded payment from the Lloyds for their unpaid services.

With this, the Lloyds sued Harrington Benefit Services for paying the claim and then withdrawing its payment to providers without cause or justification. They sought reimbursement for the claims, attorney’s fees and costs. The Mississippi court found the Lloyds did not have claim to benefits because it was ultimately their responsibility to submit the COBRA election form to North American Pipe and to make sure premiums were paid in a timely fashion. The court found that neither North American Pipe nor Harrington Benefit Services were responsible for the paperwork and payment error.

It is our opinion that if a third party is paying premiums for a qualified beneficiary; caution should be taken by the Administrator. If a payment is not received, the Administrator may want to notify the qualified beneficiary of the delinquent payment. This is NOT required by law but it may eliminate a similar issue as demonstrated by this case.

Due to a legislative change that takes effect July 1, 2006 (California legislation AB 356) in the state of California, COBRA Solutions has updated three COBRA notices and changed the COBRA Administration Manager version to 10.5.

California legislation AB 356 makes amendments to the California Labor Code and imposes new disclosure requirements on employers.

COBRA Solutions recommends that you update your software and notifications immediately to prevent any legal ramifications due to the change.

COBRA Solutions - Staff

The "2006 State of Corporate Blogging," conducted by Harris Interactive, and sponsored by Makovsky + Company, found that Fortune 1000 business executives are reacting slowly to the idea of corporate blogs as a communications medium.

Not so, at Cobra Solutions! Today we are launching a blog that we hope will be of value to our customers and businesses across the U.S. as they grapple with the ins and outs of COBRA administration. As new developments arise, we will share those, as well as our thoughts and opinions!

COBRA Solutions - News

On December 19, 2005, the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) was amended and published in 70 Federal Register 75245 to be effective January 18, 2006. The following is a brief description of USERRA and how it differs from COBRA.

USERRA protects civilian job rights and benefits for veterans and members of Reserve components. USERRA also makes major improvements in protecting service member rights and benefits by clarifying the law, improving enforcement mechanisms, and adding Federal Government employees to those employees already eligible to receive Department of Labor assistance in processing claims.

USERRA establishes the cumulative length of time that an individual may be absent from work for military duty and retain reemployment rights to five years (the previous law provided four years of active duty, plus an additional year if it was for the convenience of the Government). There are important exceptions to the five-year limit, including initial enlistments lasting more than five years, periodic National Guard and Reserve training duty, and involuntary active duty extensions and recalls, especially during a time of national emergency. USERRA clearly establishes that reemployment protection does not depend on the timing, frequency, duration, or nature of an individual’s service as long as the basic eligibility criteria are met.

USERRA provides protection for disabled veterans, requiring employers to make reasonable efforts to accommodate the disability. Service members convalescing from injuries received during service or training may have up to two years from the date of completion of service to return to their jobs or apply for reemployment.

USERRA provides that returning service-members are reemployed in the job that they would have attained had they not been absent for military service with the same seniority, status and pay, as well as other rights and benefits determined by seniority. USERRA also requires that reasonable efforts (such as training or retraining) be made to enable returning service members to refresh or upgrade their skills to help them qualify for reemployment. The law clearly provides for alternative reemployment positions if the service member cannot qualify for a similar position. USERRA also provides that while an individual is performing military service, he or she is deemed to be on a furlough or leave of absence and is entitled to the non-seniority rights accorded other individuals on non-military leaves of absence.

Health and pension plan coverage for service members is provided for by USERRA. Individuals performing military duty of more than 30 days may elect to continue employer sponsored health care for up to 24 months; however, they may be required to pay up to 102 percent of the full premium. For military service of less than 31 days, health care coverage is provided as if the service member had remained employed. USERRA clarifies pension plan coverage by making explicit that all pension plans are protected.

The period an individual has to make application for reemployment or report back to work after military service is based on time spent on military duty. For service of less than 31 days, the service member must return at the beginning of the next regularly scheduled work period on the first full day after release from service, taking into account safe travel home plus an eight-hour rest period. For service of more than 30 days but less than 181 days, the service member must submit an application for reemployment within 14 days of release from service. For service of more than 180 days, an application for reemployment must be submitted within 90 days of release from service.

USERRA also requires that service members provide advance written or verbal notice to their employers for all military duty unless giving notice is impossible, unreasonable, or precluded by military necessity. An employee should provide notice as far in advance as is reasonable under the circumstances. Additionally, service members are able (but are not required) to use accrued vacation or annual leave while performing military duty. The Department of Labor, through the Veterans’ Employment and Training Service (VETS) provides assistance to all persons having claims under USERRA, including Federal and Postal Service employees.

If resolution is unsuccessful following an investigation, the service member may have his or her claim referred to the Department of Justice for consideration of representation in the appropriate District Court, at no cost to the claimant. Federal and Postal Service employees may have their claims referred to the Office of Special Counsel for consideration of representation before the Merit Systems Protection Board (MSPB). If violations under USERRA are shown to be willful, the court may award liquidated damages. Individuals who pursue their own claims in court or before the MSPB may be awarded reasonable attorney and expert witness fees if they prevail.Service member employees of intelligence agencies are provided similar assistance through the agency’s Inspector General.

Although USERRA deals with much more than continuing benefits and reemployment, this newsletter points out the differences between USERRA and COBRA. Because they are different laws, your COBRA software does not have prepared letters in the system describing USERRA. On the other hand, if an employee wishes to continue coverage for 24 months under USERRA, the system can track payments and notify the user of the end of the individual’s time under USERRA continuation coverage. To have the system track USERRA payments, enter the individual as an “Existing COBRA Participant” (under the FILE Menu/Unique Files to Create). Enter information on the employee/spouse/child and enter the start date for USERRA coverage in the COBRA Start textbox. Replace the 18 months (maximum number of months under COBRA) with 24 months. Lastly, enter the date prior to the COBRA Start date (i.e. If the COBRA Start Date is April 1, 2006, enter March 31, 2006) as your Paid Through date. You may want to open the file and enter a date in the Conversion Notice Sent textbox because the system will automatically want to send this notice in the 18th month and it will be referring to COBRA, not USERRA.

A major difference between USERRA and COBRA is that COBRA provides individual continuation rights to dependents that do not apply under USERRA continuation coverage. For example, if an employee has a spouse or child who experiences military leave, USERRA continuation does not apply meaning employers are not responsible for offering USERRA continuation coverage.

Another difference between USERRA and COBRA are the notification and election procedures. USERRA does not offer an example letter explaining an employee’s rights and does not offer specific time from to elect USERRA continuation coverage (i.e. 60 days to elect COBRA continuation coverage). Many employers asked for COBRA-like requirements for USERRA but legislators felt there may be military circumstances that may not offer an employee the ability to meet those requirements. Employers are asked to establish “reasonable” election standards, providing them to employees. Without written procedures, it is possible to have to reinstate a person’s coverage back 24 months.

Administrators may charge the USERRA beneficiary the applicable premium (plus a two percent administrative fee). However, if the individual is on leave for less than 31 days, he/she should only be held responsible for his/her current contribution towards health coverage. USERRA does not state specific requirements as to when payments are due or when they are considered late. The DOL stated employers should develop standards for receiving premium payments (and suggested that utilizing COBRA standards would be considered reasonable).

For further information regarding USERRA, we have made the .Fedearl Register available as well as the USERRA poster

COBRA Solutions - Staff

Virtually everyday, some employer group informs us that they only experience a few qualifying events per year and therefore “it’s not that big of a deal.” Be assured, COBRA’s mandate applies equally across the board; regardless if you have hundreds of qualifying events or just a few per year. A recent court case illustrates this exact scenario.

In the case of Tufano v. Riegel Transportation, Inc. [2006 WL 335693 (E.D.N.Y., Feb 11, 2006)], Robert Tufano was terminated from Riegel Transportation, accumulated large medical claims and sued for COBRA noncompliance. The court found that Riegel Transportation’s COBRA procedures were virtually nonexistent and awarded $10,233.00 in damages. The following description is being offered as an example of how NOT to administer COBRA.

Riegel Transportation never established who was the Plan Administrator but Dawn Salerno, the Office Manager was responsible for other administrative functions such as payroll, human resources, customer service and answering employee questions. The company was insured by GHI but Ms. Salerno, nor the firm’s President, could recall if the COBRA General Notice was provided to employees upon enrollment in the plan. The final COBRA regulations state that the General Notice should be mailed to the employee (and covered spouse) within ninety days from enrollment into the plan.

Riegel Transportation did not have written procedures on the handling of office documents but merely relied on oral instructions from the President, Robert Riegel. Most of insurance plan communication was from meetings, payroll notices, an insurance broker or packets sent directly to the employee by the insurance carrier. Ms. Salerno received minimal training on COBRA procedures from their insurance broker who also provided a Qualifying Event Election Notice. The insurance broker advised Ms. Salerno to send the QE notice within two weeks but Mr. Riegel informed her to send it within thirty days. (The law states you have thirty days to notify the Plan Administrator of the qualifying event and they have fourteen days to produce and send the document.)

In court, Ms. Salerno testified that she followed these procedures for COBRA qualifying events:

1) Opened a form letter in her computer and inserted the employee’s name, address and cost of premiums;

2) Prepared two copies, one on letterhead to be sent to the qualified beneficiaries and the other on plain paper;

3) Signed the letterhead copy, placed it in an envelop with postage; and

4) Placed it in a mailbox outside the office building.

In December of 2002, Mr. Tufano was hospitalized whereby he received authorization from the insurer, GHI. Initially, GHI paid some of the claims but later started denying them because they were informed by Riegel Transportation of his termination from the plan effective September 30, 2002. Riegel stated they continually notified GHI of the termination but it was not processed until December. Because of the situation, Tufano sued for COBRA noncompliance.

The court found fault in Ms. Salerno’s testimony because,

1) She testified that she did not specifically recall producing or sending the qualifying event election notice to Mr. Tufano. She also stated she could not recall the “class of postage” (i.e. first class) which was placed on the envelop.

2) She also testified that the copy she faxed to Tufano’s lawyer may or may not have been the copy of the notice she states “would have been” sent. The court reviewed the “sample” letter and found typographical errors and had no indication it had been mailed. Lastly, she could not recall placing the envelop in the mailbox.

Because of this inability to prove the notice was sent, the court found in favor of Mr. Tufano and awarded $10,233.00. This is just another example of an employer who did not have standards and procedures for handling COBRA. Your COBRA software can provide reports detailing when documents are produced but the user should maintain a record as to the actual mailing of the document.

COBRA Solutions - Staff

Every year, the American Bar Association’s Joint Committee on Employee Benefits (JCEB) establishes a meeting with Department of Labor (DOL) officials to ask for guidance on recent “gray issues” involved when administering employee benefits. The 2005 meeting addressed two COBRA-related issues; the Disability Extension and Multiple Qualifying Events.

The question proposed to the DOL was, “Could the eleven-month disability extension be denied to an individual if they did not provide Social Security Administration’s determination within the initial eighteen months IF the individual was never notified of this requirement?”

Before we address the question and how the DOL answered it, you need to have a complete understanding of the requirements to offer the COBRA Disability extension. Before offering the Disability Extension you should review your records to see if the following transpired.

1) Was the individual disabled on or before their 60th day on COBRA? Individuals enrolled on COBRA who become disabled after the 60th day are not eligible for the eleven month extension.
2) Was the qualifying event experienced either Termination of Employment or Reduction in Work Hours? The eleven month extension is only available to individuals who experienced a Termination or Reduction in work hours (and who have not experienced a secondary qualifying event).
3) Did the individual provide the Administrator with the Social Security Administration’s Disability Determination within the eighteen months under COBRA? To receive the extension, disabled individuals must provide the Administrator the Disability Determination from the SSA.
4) Did the individual receive the General Notice within the required ninety days from the insurance plan eligibility date? Administrators sometimes forget the importance of the General Notice and how it can “haunt” them if it is not provided as required by law. The notice states what the responsibilities are of the individual if/when they experience specific events.

If the answers to all these questions are “yes,” then the individual (as well as any enrolled family members) should be offered the eleven month extension. The question the JCEB requested guidance on deals with question #4 above. If the Administer did not provide (or could not prove they provided) the General Notice, would they have to offer the “disabled” individual the eleven-month extension without the SSA Disability Determination? An interesting issue that should not occur provided the General Notice is distributed per COBRA’s final regulation’s requirement.

The DOL stated that the plan must notify the individuals of the SSA Disability Determination notice requirement (to be provided to the Plan Administrator within the initial eighteen months under COBRA) before the plan may enforce its right not to offer the extension. This is what we would have expected and it just strengthens our position on how Administrators should be able to offer proof that the General Notice was sent in accordance with the law.

In regards to a multiple qualifying event, it was agreed the law states that dependents may be eligible for up to thirty-six months of COBRA coverage if they experience either a divorce, employee’s death or no longer meet the requirements of a “dependent” under the group plan. If this occurs, the plan may require qualified beneficiaries to notify the Plan Administrator within sixty-days after the later of:

1) the date of the qualifying event;
2) the date that the plan coverage is lost due to the qualifying event; and
3) the date on which the qualified beneficiary is informed of both the responsibility to provide the qualifying event notice and the plan’s procedures for doing so.

The JCEB ask DOL officials if the second condition (the date that the plan coverage is lost due to the qualifying event) was relevant because a qualified beneficiary on COBRA has already lost standard coverage due to the initial qualifying event and current COBRA coverage cannot be terminated due to the secondary qualifying event. The DOL agreed that the date was irrelevant. Although the DOL officials provided guidance, they also stated that their answers were “unofficial, nonbonding” answers.

COBRA Solutions - Staff

Qualified Beneficiary Sues Employer for Multiple Qualifying Event Notice Procedure Failure

A recent court case (Birkhead v. St. Anne’s-Belfield, Inc., 2005 WL 2100587, W.D. Va., April 18, 2005) shows how a lack of a cessation of dependent status notice procedures by the employer brought them to court. The employer interpreted the requirements of providing a multiple qualifying event notice incorrectly and the court found that the employer had not established proper notification procedures.

In this case, Janet Birkhead was an employee with St. Anne’s-Belfield, Inc. and had family coverage under the company’s group health plan. St. Anne’s was the Plan Sponsor and Plan Administrator. Ms. Birkhead retired in August 2002 and she elected COBRA coverage for herself and her family members including her son L. Douglas “Duffy” Birkhead.

On October 17th, 2002 Duffy Birkhead turned 25 and was no longer considered a dependent under the group health plan terms. This event was considered a multiple qualifying event and entitled Duffy up to 36 months of COBRA coverage from the date of the first event.

On November 15th, 2002 the insurer sent St. Anne’s-Belfield, Inc. a notice of the second qualifying event for Duffy. On or around November 20th, 2002 Duffy’s father, who himself was a COBRA qualified beneficiary, apparently contacted St. Anne’s and orally provided them with the notice that Duffy had turned 25 and was no longer considered a dependent under the terms of the group health plan.

St. Anne’s had 14 days to provide a COBRA election notice relative to this multiple qualifying event (of loss of dependent status) yet they never provided a COBRA election notice. Duffy Birkhead sued St. Anne’s for COBRA notice violations.

St. Anne’s argued that a written notice of the multiple qualifying event was not required because according to its interpretation of ERISA Section §606(a)(4)(B):

(B) in the case of a qualifying event described in paragraph (3) or (5) of section 603 where the covered employee notifies the administrator under paragraph (3), any qualified beneficiary with respect to such event, of such beneficiary's rights under this subsection.

In court St. Anne’s indicated, based on their interpretation of the above, that a Plan Administrator only has notice requirement responsibilities when “a covered employee” notifies the administrator of a cessation of dependent status, divorce or legal separation. Because Janet Birkhead, the covered employee in this case, at no time provided notice of the qualifying event directly to St. Anne’s, they argued that its COBRA coverage responsibilities were not triggered. St. Anne’s went on to argue that although the insurer and a qualified beneficiary (Duffy’s father) notified them of the qualifying event, neither of them were “a covered employee”.

The court found St. Anne’s argument less than compelling. The court stated that while §606(a)(4)(B) does in fact state “where the covered employee notifies the Administrator” it was not designed to be “so limiting”. The court went on to say that upon reading the entire text of §606, the reference to “paragraph 3” was a shorthand reference to the qualified beneficiary’s notice obligations describe earlier in the text which states “each covered employee or qualified beneficiary is responsible for notifying the administrator of the occurrence of any qualifying event”.

Because Duffy’s father notified St. Anne’s in a timely manner and was in fact was a qualified beneficiary, the court found that his notice would technically trigger St. Anne’s notice responsibilities. “Given the Court’s assumption that Janet Birkhead’s husband, a qualified beneficiary, provided notice to St. Anne’s, it would not be absurd to find that this notice was adequate, the court stated.

During the course of the proceedings, the court also found that St. Anne’s had not established its own notice procedures. This fact combined with the poor argument described resulted in denying St. Anne’s motion for a summary judgment.

COBRA Solutions - Staff