As the end of the year quickly approaches, employers and plan administrators must ensure that they're ready not only for the Millennium Bug, but also for complying with the final and proposed COBRA regulations which take effect on January 1, 2000.
To guarantee complete compliance with these new rules, employers should thoroughly review their COBRA procedures, administration, and notices. These 10 steps are especially important:
- Establish a procedure to handle COBRA premium payments that are short by an "insignificant" amount.Employers must give qualified beneficiaries reasonable time to pay the balance of a COBRA premium payment shortfall before canceling coverage. Because the IRS has not defined what amount qualifies as "insignificant," employers must establish how they will define "insignificant amount" as well as the time period during which qualified beneficiaries can make up the deficiency.
Although the final rules refer to 30 days as reasonable, it is only a safe harbor and employers can set a shorter period as long as they can justify that time period as reasonable. Employers also have the option of treating the incomplete payment as being payment in full.
- Consider eliminating the core/non-core coverage option.The final regs eliminate the requirement that an employer must offer qualified beneficiaries a choice between benefit levels, such as medical or medical plus vision and dental, as long as they are all part of single plan (see step 3 below). Now, an employer can offer "all or nothing" benefits. Employers may find this rule favorable since it allows all COBRA benefits to be charged under one rate, as opposed to establishing separate rates for "unbundled" benefits (vision or dental), which are only used for COBRA qualified beneficiaries.
On the other hand, eliminating the core/noncore coverage option is not required, and employers may want to keep an "unbundled" benefits structure as some employees may not be able to afford COBRA premiums for bundled coverage.
- Determine how to structure health plans.The final regs provide very flexible rules for structuring group health plans. The number of plans provided by an employer is determined by the governing instruments. By organizing all plans (i.e., medical, dental, vision) as a single plan, an employer will not have to offer separate medical, dental or vision benefits to a COBRA beneficiary. Under prior IRS rules, each different benefit option was treated as a separate health plan.
- Understand when COBRA must be offered for health FSAs.New IRS proposed rules set forth a participant-by-participant determination as to when COBRA applies to health flexible spending arrangements. In general, employers must make COBRA for health FSAs available to a qualified beneficiary for the balance of the plan year in which the qualifying event occurs if the person has a positive account balance at the time of the event.
- Extend COBRA to individuals with other coverage.Adopting the Supreme Court's decision in Geissal v. Moore Medical Corp., the final regs require employers to offer COBRA to individuals who have other coverage, including Medicare, at the time they elect COBRA.
- Track when COBRA must be offered to beneficiaries who move outside a plan's region.Under prior IRS rules, employers with region-specific plans only had to offer COBRA to qualified beneficiaries who moved out of the plan area if the employer had other employees in the new region.
Under the final regs, employers must offer COBRA to such individuals if they would be able to provide coverage to the qualified beneficiary under any of its existing plans. This will require some effort on the part of the employer to track where an employee moves.
- Charge the proper premium amount to disabled beneficiaries and dependents.The final regs clarify that employers can charge disabled qualified beneficiaries 150% of the applicable COBRA premium during the additional 11 months of coverage. During the extended coverage period, employers can also charge a spouse and dependents of the disabled individual 150% of the applicable COBRA premium, as long as the disabled individual is part of the coverage group. If not, the regular 102% rate applies.
- Revise policies for offering COBRA and alternative continuation coverage.If an employer offers an alternative type of continuation coverage, such as retiree coverage, the alternative coverage satisfies COBRA obligations if it meets the COBRA requirements at the same cost or less.
Therefore, if an employer offers retirees continued health coverage under the group plan at a rate higher than COBRA, it will also have to offer COBRA to retirees. Employers should note that although their retiree coverage may cost the same as COBRA at the time of a qualifying event, if at any time during the 18-month COBRA period the cost of retiree coverage increases, the employer must provide the retiree with a notice of COBRA rights.
- Establish procedures for informing providers about COBRA coverage during the election period.The final regs require employers to provide a complete answer to any health care provider that contacts the plan to confirm a qualified beneficiary's coverage during an election period. Employers must make sure that they tell providers:
- whether an individual has elected COBRA;
and, if not, when the election must be made;
- when premiums are due; and
- whether the individual has coverage subject to retroactive cancellation if payment is not made.
- Modify the definition of qualifying event.Under earlier IRS rules, events such as termination of employment, reduction of hours, divorce or loss of dependent status were qualifying events, entitling a qualified beneficiary to COBRA if they resulted in the loss of health coverage. Under the final regs, such events, including retirement, are qualifying events if they result in either loss of coverage or an increase in the amount employees must pay for their group health coverage.
SOURCE: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health-care and small-business professionals. CCH offers human resource management, payroll, employment, benefits, and worker-safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at http://hr.cch.com.
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.