By: HUB’s EB Compliance Team
When employees or dependents become eligible for COBRA in the early part or middle of the employer’s plan year, there generally aren’t any hiccups. However, issues can potentially arise when these events occur towards the end of employer’s plan year. Because employers tend to make any COBRA administrator (whether that is a carrier or a third party) changes at plan renewal, there’s potential for lines of communication to cross. Below are a couple of scenarios that show how things can go wrong.
Change in COBRA Administrators During Election Period
Ewing Oil (“Ewing”) sponsors a self-insured medical plan with a calendar plan year. Ewing has more than 20 employees, so it is subject to COBRA. Under the terms of their plan, coverage ends at the end of the month in which the loss of eligibility event occurs.
J.R. works for Ewing and covers himself and his spouse, Sue Ellen, under the Ewing medical plan. They are in the process of divorcing and their divorce is final on November 6th. Under the terms of the plan, Sue Ellen will have coverage through the end of November, and she’ll be offered COBRA effective December 1st.
Sue Ellen receives her COBRA election notice from Ewing’s COBRA administrator, Lormiar COBRA Administrators. The election notice instructs her to elect coverage within 60 days and how to elect coverage. When Ewing’s plan renews for January 1st, they move their COBRA administration to Cyntax COBRA Administrators. Sue Ellen then elects COBRA by returning the election forms to Lorimar along with her December and January COBRA payments.
Since Sue Ellen wasn’t informed of Ewing’s change in COBRA administrators, her election and payment were now submitted to the incorrect vendor. Unless Ewing has a process in place to ensure elections and payments submitted to Lorimar will make their way to Cyntax, Sue Ellen’s election and payment may be lost. She may not know she doesn’t actually have coverage until she incurs claims which are denied. Meanwhile, based on the information available to Cyntax, they may view Sue Ellen as not having elected COBRA in a timely manner.
Change in COBRA Administrators Immediately Following Loss of Coverage
J.R.’s son, John Ross, turns 26 on December 12th and his coverage continues through December 31st. Come January 1st, John Ross should be offered COBRA, but this never happens. Why? Because his loss of coverage under the Ewing plan was December 31st and Cyntax didn’t begin their COBRA administration until January 1st. From Cyntax’s perspective, John Ross never had active coverage while they were the COBRA administrator. Unless Ewing has a process to ensure Cyntax receives the information related to any plan participants who lost coverage effective December 31st, individuals like John Ross may be missed.
Risks for Plan Sponsors and Best Practices
The situations described above create two main risks for plan sponsors: (1) the potential for late offers of COBRA, and (2) the potential for claims-related challenges. Late offers of COBRA are most likely to arise when the loss of coverage occurs immediately before a new COBRA administrator begins providing services to a plan. Claims-related challenges could arise in any situation where delays in processing elections and payments occur because they were submitted to a previous COBRA administrator. However, there are some best practices that can help employers avoid these types of situations:
- Establish a process with your old and new administrators to ensure the previous administrator timely provides any COBRA elections or payments to the new administrator.
- When negotiating an agreement with a new COBRA administrator, review what commitments they make to transition services to a successor. The likelihood is that an employer won’t stay with the same administrator forever.
- Communicate the change in COBRA administrators to those in an election period, or who have elected COBRA, but not yet paid for COBRA (note, this is especially important given the current Outbreak Period, as we discuss in more detail here).
- Develop a plan with your old and new COBRA administrator to ensure those who lose coverage on the final day of the previous plan year are offered COBRA by the new administrator.
- Consider conducting audits of your new administrator shortly after the start of the new year. The audit would include situations which may result in a loss of coverage and COBRA qualifying event toward the end of the plan year (e.g., termination of employment, divorce, dependents who reach age 26).
No approach is likely to eliminate all hiccups, but doing one or more of the above can help avoid headaches with late offers of COBRA and potential claims-related challenges down the road.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.