Recently, the Internal Revenue Service (IRS) and the Department of Labor (DOL) issued a joint statement extending certain COBRA election and payment periods, and the DOL issued new model COBRA notice forms. Employer plans subject to COBRA should note these changes and revise their COBRA practices accordingly.
EXTENSION OF COBRA ELECTION AND PAYMENT PERIODS
The DOL and IRS guidance explains that, to prevent the COVID-19 pandemic from negatively impacting an individual’s ability to retain group medical plan benefits, the election deadlines by which COBRA-eligible individuals must elect COBRA coverage and pay the COBRA premiums are extended.
The extended election periods are based on the date that the COVID-19 National Emergency (created by Proclamation and separate Presidential letter on March 13th to have begun on March 1st) is declared ended. As of the publication of this Advisory, the National Emergency is still in effect.
The guidance requires that group health plans disregard the period beginning March 1, 2020 and ending sixty days after the announced end of the National Emergency (the “Outbreak Period”) for purposes of the following due dates:
- The date individuals must notify the health plan of a qualifying event;
- The date individuals can elect COBRA coverage;
- The date individuals must make COBRA premium payments; and
- The date an individual must notify the health plan of a determination of disability to extend COBRA coverage from 18 to 29 months.
Here are some examples of how these extensions will work based on an assumption that the end date of the National Emergency is May 31, 2020 (thus the end of the Outbreak Period is July 30, 2020):
Employee A participated in his /her employer’s group health plan. On March 28th the employer reduced A’s hours of work below the threshold for plan eligibility, thus A has a COBRA qualifying event. A received notice of COBRA rights on April 1, 2020.
Historically A would have 60 days from the qualifying event to elect COBRA (this would have been May 27th). However, under the extension, A has sixty days from the end of the Outbreak Period (July 30, 2020) to make the COBRA election, i.e., until September 28, 2020.
Employee B elected COBRA coverage and paid for February 2020 coverage but has not paid for March coverage or for any month in the Outbreak Period (March, April, May, June or July). The plan allows for a thirty-day grace period on premium payments. When does B lose COBRA coverage?
Under the new rules, the plan’s thirty-day window for premium payments does not begin to run until the Outbreak Period ends which, as described above, is assumed to be July 30, 2020. Thus, B has until August 29, 2020 to make premium payments for all five months that B was delinquent. The plan cannot deny coverage to B during the period of time from March 1st to August 29th and the plan must pay benefits incurred during this time period in accordance with its normal procedures.
Accordingly, under the guidance, a COBRA beneficiary’s deadline to pay for COBRA coverage is now extended until the date that is 60 days after the end of the Outbreak Period, so employers cannot terminate the COBRA coverage of employees who fail to make the normally required monthly payments.
Example 3 assumes the end date of the National Emergency is June 30, 2020:
Employee C is furloughed on May 30, 2020. Assuming a loss of health plan coverage on that date, Employee C has a COBRA qualifying event on May 30th. Employee C’s COBRA election period does not begin until 60 days following the end of the Outbreak Period (i.e. on August 29, 2020). Historically, C would be required to pay his first COBRA premium within 45 days after electing COBRA coverage; however, in this scenario, that date could be as late as December 12, 2020 for the months of June, July, August, September, October and, depending on the plan’s grace period, November, 2020.
This last example raises an interesting scenario; a qualifying event which occurred during the National Emergency. In this scenario, how do employers comply with COBRA notice requirements when the required election and payment date cannot be identified?
While we expect continued guidance from IRS and DOL, EBSA Disaster Relief Notice 2020-01 provides that plans and plan fiduciaries will not be in violation of ERISA for a failure to timely furnish a notice that must be furnished between March 1, 2020, and 60 days after the announced end of the COVID-19 National Emergency, if the plan and responsible fiduciary act in good faith and furnish the notice as soon as administratively practicable under the circumstances. Good faith acts include use of electronic alternative means of communicating with plan participants and beneficiaries who the plan fiduciary reasonably believes have effective access to electronic means of communication, including email, text messages, and continuous access websites.
As a result, it appears that plans and plan fiduciaries should ensure that employees and other COBRA qualified beneficiaries are given additional time to make the required elections and premium payments. Employers also should consider supplementing previously issued COBRA notices to advise COBRA qualified beneficiaries of the new deadlines.
Finally, while the National Emergency was declared on a nationwide basis, the relaxation of COVID-19 precautions and standards could create Outbreak Period ending dates that are different for different parts of the country. If this happens, the IRS and DOL will need to issue additional guidance to help employers manage the extended due dates.
NEW MODEL FORMS AND MEDICARE INFORMATION
The DOL revised the initial COBRA notice to employees and covered spouses, and the election notice to employees and qualified beneficiaries. The new forms and related FAQs can be found here.
The changes to both notices clarify that qualified beneficiaries might be better served by enrolling in Medicare before electing to continue group health benefits under COBRA. The new language alerts the qualified beneficiary that if he/she does not enroll in Medicare Part A or B when first eligible because of participation in the employer’s group plan, the qualified beneficiary has an 8-month special enrollment period to sign up for Medicare Part A or B.
The special enrollment period begins on the earlier of either the month after employment ends, or the month after group health plan coverage based on current employment ends. If a qualified beneficiary does not enroll in Medicare Part B and elects COBRA instead, and later, after the expiration of the special enrollment period, wants to enroll in part B, the beneficiary may incur a Part B late enrollment penalty and also may not be able to enroll in Part B until the next Part B open enrollment period, thereby incurring a gap in coverage.
In addition to the revised forms, the DOL also issued a set of FAQs that discuss issues concerning the interplay between COBRA and Medicare, which note that:
- The new language from the DOL informs a qualified beneficiary that if he/she elects COBRA and then enrolls in Medicare Part A or B before the COBRA coverage period ends, the group plan may terminate COBRA coverage.
- If a qualified beneficiary’s Medicare Part A or B coverage is effective on or before the date of the COBRA election, COBRA coverage cannot be discontinued on account of Medicare entitlement, even if enrollment in one part of Medicare (A or B) is dated after the COBRA election.
Using the DOL model forms constitutes a safe harbor for employers. Therefore, to take advantage of the safe harbor, employers should ensure their plans immediately begin using the updated model forms and remove outdated model forms from potential distribution to qualified beneficiaries.
Employers also should update their COBRA practices to comply with the new extended deadlines.