Understanding Cobra During Workforce Reductions 

By PAUL ROBERTS

Many employees and their dependents have lost group health plan eligibility due to changes in work status because of the impact of the COVID-19 pandemic. As a result, brokers must be prepared to walk their clients through coverage options for affected employees—and that means understanding COBRA and other choices outside of employer-sponsored health insurance.

Brokers are familiar with COBRA, the federal Consolidated Omnibus Budget Reconciliation Act, which typically applies to employers that sponsor a group health plan. In these abnormal times, employers might need to be reminded that COBRA requires them to provide continuing coverage option(s) for an individual who has lost eligibility due to a “qualifying event.” This can include a termination of employment (whether voluntary or involuntary, including layoffs) or a reduction in hours that results in the loss of benefit eligibility (like switching from full-time to part-time status). In some instances, furloughed employees are also eligible to continue coverage via COBRA, if the furlough results in a loss of eligibility for coverage.

Employers with 20-plus full-time employees (FTEs) are generally subject to federal COBRA, and employers in California with fewer than 20 FTEs are usually subject to Cal-COBRA. Employers must count workforce size annually on January 1 to make this determination, and it is essential the employer understand whether its business falls under federal COBRA or Cal-COBRA. Each is administered differently and results in different costs to the employee.

Health insurance coverage is a primary stress point for employees affected by a reduction in force or hours, especially now. It is important that brokers serve as expert educators to help employers not only understand their responsibility when it comes to COBRA, but how they can help transitional employees understand their health care options.

Remind employees they can continue to access existing coverage following loss of eligibility

The onus is on the employer to make sure a transitional employee knows he or she may continue some or all of the coverage in place via COBRA. The employee might also not recognize that enrolled members—employee, spouse, and children—can elect to continue any combination of benefits. This is generally communicated in both the COBRA General Rights Notice and COBRA Election notice.

Brokers can provide valuable counsel to employers looking to communicate COBRA benefits to employees. For example, they can reiterate that COBRA participants in California can generally continue medical coverage for up to 36 months, assuming the employer continues to sponsor that health plan.

The biggest challenge former employees will face in the decision to elect COBRA is the cost, especially in light of the current economic climate. Most employers fund anywhere from 50 to 100% of the cost of plans for current employees. However, when an employee leaves a company or loses benefit eligibility, he or she might not realize that they face the requirement to pay the entire cost of the health premium, in order to continue coverage under the plan via COBRA.

This is often an unpleasant surprise to former employees, especially if they were unaware of how much of the premium the employer was subsidizing.

A broker can help an employer prepare for these difficult conversations in a few ways. For one, COBRA law requires employers to distribute a General Rights notice, which explains allowances and responsibilities under the law, to all enrolled employees and dependents upon enrollment in the health plan. Additionally, employers may consider revisiting COBRA options during annual open enrollment or in a benefits review.

In the short-term case of a qualifying event, brokers should encourage the employer to walk the affected employee through COBRA, as well as other options including the Covered California public health insurance exchange.

How to elect to participate

Upon the occurrence of a qualifying event, brokers should counsel employer-clients to be proactive and patient when explaining COBRA continuation rights to transitional employees.

New business operators, in particular, might not be familiar with the nuances of COBRA notifications. This is where the expert counsel of a broker comes into play. A business owner might not realize that when an employee is eligible for COBRA, an election notice must be mailed to the participant. Depending on whether the business qualifies for federal or Cal-COBRA, this might be sent directly from the employer, the insurance carrier, or a Third-Party Administrator (TPA).

The notice explains the qualifying event, while providing additional information about the date of qualifying event, the loss-of-coverage date, election period timelines, types of coverage eligible for continuation, premium amounts, and more. Typically, once notice is received, the participant has up to 60 days to elect COBRA coverage and then up to 45 days to make the first payment once coverage is elected; however, a new special timeline now applies due to the COVID-19 pandemic. (See more below.)

It is wise for brokers to remind clients proactively that they, their carrier, or a TPA has up to 44 days to distribute election notices upon the occurrence of a qualifying event—although timelines can vary, especially for TPAs. Failure to do so opens the employer up to statutory fines, excise tax penalties, civil lawsuits, regulatory audits, and more.

Alert clients of COBRA sign-up extension under COVID-19

Recently, the Departments of Labor and Treasury released an emergency regulation regarding the federal COBRA-election period during the COVID-19 national emergency. The emergency rule applies retroactively to March 1, 2020. It’s safe to say many small business owners might not be aware of this change.

For example, the emergency rule allows a person who has a COBRA election period ending between March 1, 2020, and the end of the national emergency, an additional 60 days after the end of the national emergency to elect coverage continuation under COBRA. As of this writing, a formal declaration of the end of the national emergency has not been made, so many employees laid off because of COVID-19 could actually have multiple months to decide if they want to take advantage of COBRA. The downside, of course, is potentially having to pay months of past premium for coverage retroactive to the layoff date.

The emergency rule also states that a health insurance carrier or an employer cannot terminate COBRA coverage for a late or delinquent payment during the COVID-19 national emergency.

Educate employers about advantages COBRA might offer to employees

Benefits professionals are valuable resources for employers in helping them understand the scenarios when a transitional employee might want to elect COBRA, despite its higher costs. One of the most attractive aspects of COBRA is that it allows an individual to maintain coverage with the same physician, health plan, and medical network providers. This means there would be no disruptions to current coverage, treatments, and prescription drug benefits, which employees will likely find extremely helpful.

This could be particularly important to a transitional employee if he or she is currently receiving care for an illness or chronic condition under a current group health plan. In such a case, the employee might want to ensure there is no change with the treating physician or any interruption in health care services.

Moreover, employees may need to be informed of California’s “individual mandate,” which starting in 2020 requires Californians to have qualifying health coverage or pay a fine.

Finally, brokers should remind employers that they need to present COBRA as a temporary solution for transitional employees. Health plan coverage under COBRA can only be continued for up to 18-to-36 months, depending on the situation.

Provide guidance on health insurance options

Although an employer has no legal responsibility to extend anything more than the COBRA option to its health plan participants, brokers can reinforce to business owners that demonstrating compassion and helpfulness will go a long way in workplace morale.

When eligibility for a group health plan has been lost, employers should go beyond the COBRA option and encourage transitional employees to review their options for individual coverage on the state exchange, Covered California.

Savvy brokers can endear themselves to clients as expert partners when they continue to keep clients apprised of changes that affect employees due to work status, as well as changes to COBRA due to regulatory adjustments. Professionals who identify and provide ongoing educational opportunities for business owners and employees cement their role as valued and essential benefits advisers.

 

Paul Roberts is the director of education and market development at the Word & Brown General Agency. He leads Word & Brown’s educational initiatives and provides oversight of the company’s in-house compliance team in California and Nevada. Visit wordandbrown.com.