By: HUB’s EB Compliance Team

Sociologist Robert K. Merton popularized the idea of “unintended consequences” in 1936, but the concept casts a long shadow, even into the COVID-19 pandemic. 

As HUB wrote about here, last month, the U.S. Departments of Labor and Treasury/IRS revised their interpretation of the COVID-19 deadline extensions so that each COBRA, special enrollment, or claims event gets its own individual extension of up to one year (called the “Outbreak Period”). Although this relief is understandable to some extent, these “individualized” Outbreak Periods create particularly significant COBRA complications. 

This is especially true when employers change carriers or COBRA administrators. We detailed the general concerns that arise when switching COBRA administrators here, but the available Outbreak Period protections make guarding against these risks and concerns more complicated than ever. Consider the following example:

John W. worked for CapTrade, Inc., but was let go on May 1, 2020.  John W. ignored his election notice and never elected COBRA. 

Meanwhile, on January 1, 2021, CapTrade changed insurance carriers from Old Carrier A to New Carrier B. CapTrade also changed COBRA vendors from Old Vendor C to New Vendor D. On February 28, 2021 (while still in his Outbreak Period), John W. resurfaced and retroactively elects COBRA back to May 1, 2020. 

Old Carrier A is no longer providing CapTrade’s group health plan coverage and may argue that it does not have to since the group is no longer with them. However, New Carrier B will only provide coverage from January 1, 2021 forward since that is when it took over the plan.

Additionally, as we noted in our changing administrator’s piece, John likely sent his COBRA election to Old Vendor C since that’s the vendor that initially sent him his COBRA election notice. Old Vendor C may (and often may not) maintain a process for forwarding COBRA elections to CapTrade or New Vendor D. Absent a coordinated vendor process, John W.’s February 28, 2021 “Outbreak Period” election to retroactively elect COBRA health coverage will likely go unaddressed.

If instead, John W. calls the CapTrade HR department and personally requests the latest COBRA election form (for example, because he lost his first form), the HR team may reflexively send that request to New Vendor D. However, New Vendor D did not get a record of John W. from Old Vendor C at the time COBRA services converted. New Vendor D may therefore conclude (incorrectly) that John W’s election is invalid. Again, John W. may not get the COBRA coverage to which he is legally entitled, and the plan sponsor will become exposed to a variety of claims and penalties.

(Please note that along with Outbreak Period rights, John W. may hold possible federal COBRA subsidy payment rights if he is an Assistance Eligible Individual and maintains COBRA beyond April 1, 2021.  Although HUB has written separately about the subsidy, a discussion of applicable subsidy rules for John W. exceeds the scope of this article.)

Shielding Yourself

None of these issues is new. Similar risks and problems are ever-present when an employer changes carriers or COBRA vendors while someone is within their COBRA election period.  However, the Outbreak Period makes them even more significant because it significantly extends the period when someone may make a COBRA election. Although there is no perfect solution, employers can take sensible, strategic steps to help shield itself from the compliance risks showcased in our example.

When Changing Carriers:

  • Confirm with the prior carrier that it will provide required coverage for the months involved, if it is elected. If you can, it is best to get this confirmation in writing and provide the soon-to-be “former” carrier with a list of potential COBRA beneficiaries holding the right to elect continuation benefits.
  • If you’ve already changed carriers and the old carrier will not provide coverage, it may be necessary to remind them that their failure to cooperate may expose them to COBRA penalties. Specifically, penalties apply to any person (or entity) “responsible…for administering or providing benefits under the plan” (a quote from the COBRA statute) who causes a failure to provide COBRA. 
  • Failing any of that, attempt to work with the new carrier to see if it will provide coverage back to the earlier date. This may not be possible.
  • Although the Outbreak Period guidance allows employers to require payment back to the earliest date the qualified beneficiary could have elected COBRA, this is not necessarily required. Employers may be able to be more flexible, such as allowing the employee to elect coverage from when the new carrier took over. However, this step should only be taken after consultation with counsel and agreement from the new carrier.

When Changing COBRA Vendors: The advice contained in HUB’s earlier “vendor change” article remains sound and perhaps emerges as even more relevant considering applicable new Outbreak Period obligations.  Here’s a brief recap:

  • Establish a process between former and new administrators designed to ensure that the previous administrator promptly delivers any COBRA elections, payments or correspondence to the new administrator.
  • Communicate the change in COBRA administrators to those inside an election period, or who have elected COBRA, but not yet paid for it. This will be an especially critical step in connection with those protected by the Outbreak Period rule.
  • Establish systems to guard against anyone falling through the cracks. Specifically, devising a plan between the former and new COBRA administrator to ensure that anyone who loses plan coverage in the final days of the prior COBRA administrator’s tenure correctly receives COBRA materials from the new administrator.
  • Consider auditing your new administrator soon after your contract goes into effect. The audit should include situations assessing how COBRA qualifying events occurring near the end of the prior administrator’s tenure are handled (e.g., termination of employment, divorce, dependents who reach age 26).
  • As a more general tip, when negotiating an agreement with a new COBRA administrator, review and document what commitments they would offer to transition services to a successor. Since it is highly likely an employer will not stay with the same administrator forever, this type of strategic planning could be especially valuable.

If you have any questions, please contact your HUB Advisor. You can also view more compliance articles in our Compliance Directory.


Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your organization’s particular needs.