The Consolidated Omnibus Budget Reconciliation Act (COBRA) enables employees and their dependents to continue to be covered, at the employee’s expense, under an employer’s health plan if job loss or other changed circumstances would otherwise result in the loss of coverage.
 

This benefit, known as "continuation coverage," comes into play if, for example: an employee divorces a spouse covered under the plan; an employee quits or is fired or laid off; or dependent children are no longer covered by the plan, generally because they attain the age of 19 or are no longer full-time students.
 

While the concept behind COBRA appears simple, COBRA’s administrative, record-keeping, and notice requirements continue to be problematic for employers more than 20 years after they were first implemented. That’s due, to the fact that many employers mistakenly think that the only administrative procedures they need to adopt are those relating to mailing out COBRA notices. And, in part, because the government has continued to pile on more and more rules and regulations since COBRA was first enacted.
 

One set of regulations, issued in 2001, affects what health benefits are required to be offered to employees and dependents no longer covered under your plan. Another set, issued in 2004, sets minimum standards for content, timing, and other issues for six different notices required under the Act.
 

FIRST MISTAKE - Employer’s often assume that COBRA only applies to health maintenance organizations (HMOs), preferred provider organizations (PPOs), and insured and self-insured plans providing medical benefits.
 

COBRA applies to employer-maintained group health plans that provide medical care to employees, former employees, and their families. The continuation coverage required by COBRA consists of the regular health benefits that the covered employee had prior to losing coverage. While these do include HMOs and PPOs, and insured and self-insured plans providing medical benefits, they also include:

1. retiree health plans;

2. prescription drug plans;

3. some cafeteria plans providing medical benefits;

4. vision, hearing, and dental plans;

5. alcohol and drug plans;

6. mental health plans.

Although COBRA does apply to most employer health plans, it does not apply to:

1. medical or health savings account programs;

2. long-term care services, including those provided under a group health plan;

3. traditional disability plans that provide disability income;

4. wellness programs, such as a fitness facility;

5. discount programs that include health-related products (unless the employer is a health clinic);

6. emergency and other services provided at an employers on-premises medical facility during business hours; and

7. health FSAs if the following two conditions are met.

8. a) The FSA is not subject to the Health Insurance Portability and Accountability Act portability provisions because the benefits provided under the FSA are excepted benefits.

9. b) In the plan year in which the Qualifying Event of a Qualifying Beneficiary occurs, the maximum amount that the FSA could require to be paid for a full plan year of COBRA continuation coverage equals or exceeds the maximum benefit available under the FSA for the year.
    

SECOND MISTAKE - Employer’s assume that the 60 days in which Qualifying Beneficiary’s have to elect coverage is the maximum amount of time they can be afforded.
 

COBRA stipulates that a Qualifying Beneficiary must have a minimum of 60 days to elect COBRA coverage, and the election period can end no sooner than 60 days of the later of the date coverage is lost or the date that notice to the Qualifying Beneficiary is sent.
 

One Employer relied on the word "minimum." The Employer’s plan document did not specify when the COBRA election period for the plan would end. So when a terminated employee learned that he had been denied medical coverage on the grounds that he failed to make a timely COBRA election, he filed suit. The insurer of the plan argued that when the plan document itself fails to define the end of the election period, the election period is limited to the 60-day minimum period required. Since the employee failed to elect COBRA within 60 days, he had no recourse.
 

The 5th Circuit Court of Appeals disagreed; the court explained that COBRA’s election requirements do not provide for a "default" election period of 60 days when a plan document fails to specify the maximum length of the election period. As written, COBRA merely requires a minimum election period of 60 days. Therefore, the court reasoned that if the plan document does not limit the election period, the participant can elect COBRA continuation coverage at any time within the maximum applicable statutory continuation coverage period. Since the employee elected coverage within 18 months following his termination, his election was timely. In this case, the insurer was required to pay more than $250,000 in medical claims. (LifeCare Hospitals v. Health Plus of Louisiana, 5th Cir., 2005)
 

Check all employee benefits plan documents are carefully drafted and crafted to spell out the various timetables for when an employee needs to do what. Never assume that if the document fails to stipulate a date by which an employee must take action, the minimum under the statute applies.
 

THIRD MISTAKE - Not distributing required notices in a timely manner.
 

The following is a list of notice requirements:

1. General Notice: Plans must provide a written General Notice to employees and spouses within 90 days after health plan coverage begins.

2. Employer Notice to Plan Administrator: Employers have 30 days to notify plan administrators after an employee experiences a Qualifying Event of termination (for reasons other than gross misconduct), a reduction in hours, death, and eligibility for Medicare, or if the employer begins bankruptcy proceedings.

Employers should note that there is no hard and fast rule as to what constitutes "gross misconduct." Gross misconduct has been found by the courts in circumstances including: intentional and substantial disregard for the employer’s interest; negligence or carelessness indicating evil design or wrongful intent; and theft or dishonesty. You should be aware that incompetence alone is not gross misconduct, and if you let an employee resign after charging him/her with gross misconduct, don’t deny COBRA coverage, since the resignation likely overrides a charge of gross misconduct.

3. COBRA Election Notice: The plan administrator must provide this written notice to individuals qualified to elect COBRA within 14 days after receiving notice of a Qualifying Event. In the case where an employer provides notice of a Qualifying Event and acts as plan administrator, it must provide notice within 44 days. The election period can end no sooner than 60 days from the later of the date the Election Notice is provided, or the date coverage is lost.

The Qualifying Event date and the date coverage are lost may be different. Employers often continue coverage until the end of the month in which an employee terminates, or in severance arrangements for three to six months after termination.

4. Unavailability Notice: The plan administrator must send a notice that coverage isn’t available within 14 days of receiving a request for COBRA coverage, whether it relates to a first or second Qualifying Event, or a Social Security Administration disability determination. The Department of Labor (DOL) has clarified that the notice must be sent when the plan administrator denies coverage after receiving a Qualifying Beneficiary notice, regardless of the basis for denial.

5. Early Termination Notice: If the plan administrator determines that COBRA coverage will end before the maximum COBRA coverage period ends, it must notify the affected Qualifying Beneficiary‘s "as soon as practicable" after a decision to terminate coverage is made.

FOURTH MISTAKE - An employer fails to retain proof that a notice was mailed to a Qualifying Beneficiary.
 

When it comes to COBRA notices, you don’t have to meet the burden of proving actual receipt, however, you do have to show proof that you actually mailed the notices in a timely fashion. The DOL indicated in its 2004 final rules that a required notice is furnished by the plan administrator as of the date of mailing, if mailed by first class mail, certified mail, or express mail.
 

Other ways to prove COBRA notification are:

1. Ask for verification of the employee’s mailing address when a Qualifying Event occurs. Be sure to also verify that of a covered spouse and other dependents who are covered by the plan.

2. Establish a notification policy and procedure that is followed after every Qualifying Event. Having evidence of the customary mailing practices can be your saving grace in court.

3. Produce records of mail dates. Maintain a mail log that tracks the dates notices are mailed.

If the employee and spouse become covered at different times, or they reside at separate addresses, a separate General Notice must be provided to the covered spouse, generally within 90 days after coverage begins. It’s imperative that you retain proof of notices mailed to covered spouses as you are when it comes to employees.
 

FIFTH MISTAKE - An employer is not aware when they can legally terminate a Qualifying Beneficiary’s COBRA coverage.
 

There are five situations when an employer can terminate COBRA coverage.

1. All health plans are terminated. If a covered employer no longer provides group health coverage to any of its employees, it is not obligated to provide continuation coverage.

2. The Qualifying Beneficiary fails to pay the COBRA premium in a timely manner. COBRA defines timely as the initial premium being paid within 45 days after the election of coverage, and the receipt of subsequent premiums no later than 30 days from the due date.

3. The Qualifying Beneficiary is covered by another plan. Employers may terminate COBRA continuation coverage when a Qualifying Beneficiary becomes covered under any other group health plan, whether as an employee, a dependent, or otherwise.
    

This can only be a basis for termination if:

• the Qualifying Beneficiary first becomes covered under the new plan after the date of the
  COBRA election, and

• the new health plan has no restrictions or limitations on a preexisting condition.

4. The Qualifying Beneficiary is entitled to Medicare. Under the general rule described in the statute, if a qualified beneficiary becomes entitled to Medicare, an employer may terminate that individual’s right to COBRA continuation coverage. However, take care here because this isn’t as straightforward as it sounds. Here are some important nuances.

•  If a person was enrolled in Medicare before the date of a COBRA election, he/she can elect COBRA coverage.

• A person can waive Medicare in order to remain in the COBRA plan.

• Enrollment in either Part A or Part B will constitute entitlement to Medicare.

5. The Qualifying Beneficiary is found to no longer be disabled (for those who have had coverage extended to 29 months due to disability). Coverage may be terminated the later of: 1) the end of the basic 18-month period, or 2) the first day of the month beginning immediately after the person is determined to no longer be disabled.

SIXTH MISTAKE - The Employer assumes that taking a Family and Medical Leave Act (FMLA) leave of absence is a Qualifying Event for COBRA purposes.
 

The taking of leave under the FMLA does not constitute a Qualifying Event under COBRA. A Qualifying Event does occur, however, if:

1. an employee (or the spouse or a dependent child of the employee) is covered on the day before the first day of FMLA leave (or becomes covered during the FMLA) under a group health plan of the employer;

2. the employee does not return to employment with the employer at the end of the FMLA leave; and

3. the employee (or the spouse or dependent child of the employee) would, in the absence of COBRA continuation coverage, lose coverage under the group health plan. That is, they would cease to be covered under the same terms and conditions as in effect for similarly situated active employees and their spouses and dependent children before the end of what would be the maximum coverage period.