Blog

COBRA Solutions, Inc.

The Risk of Administrators Accepting Verbal Elections

In order to avoid the game of “who said what” the election notice should require the qualified beneficiary to complete and return the election form provided. This offers proof of their intent as well as documentation for whom they are electing. The following cases are examples of how risky it can be to use verbal elections:

Lackman v. Recovery Service of New Jersey Inc.

During the exit interview the qualified beneficiary, Lackman misunderstood the conversation regarding the coverage being offered when his employer stated it would extend coverage one month as a courtesy. Lackman then believed he would have extended coverage for two months.

When taken to court it was determined that the verbal conversation between Lackman and his employer was irrelevant as Lackman did indeed receive a COBRA election notice a few days after his termination. That notice informed him that he had 60 days from his termination date to make his election. The court ruled that this was a misstatement of the law as the election period is actually 60 days from the latter of the loss of coverage date, or the date that the notice is sent. In this case, that extra month of coverage that the employer offered him should have also extended his election period. Additionally, the notice did not include one very important element – the loss of coverage date.

Lloyd v. Harrington Benefit Services, Inc.

In this case, the qualified beneficiary, Lloyd, alleged he had been given a verbal agreement by his new employer to process and pay for his COBRA coverage from his former employer until he could obtain coverage under the new employer’s health care plan. Both Lloyd and the employer failed to send the COBRA election or payment to the former employer; however it was soon discovered that his coverage had mistakenly continued anyway when Lloyd ended up being rehired by the former employer. The plan was able to obtain reimbursement from the health care providers that had received the mistaken payments for $15,000 in medical claims incurred by Lloyds’ wife during his employment with the new employer. The health care provider’s then came after Lloyd, whereby Lloyd then sued the plan administrator for failing to follow through with the verbal agreement to take care of the election as promised.

The court ultimately dismissed the case because it was determined that he had received his COBRA election notice from his former employer and furthermore the plan administrator did not have any responsibility for the employee’s failure to elect and pay for COBRA coverage. The court determined that Lloyd was not entitled to COBRA coverage and rejected his argument that the other employer was obligated to pay for the claims because no election or payment was ever received.

In this author’s opinion, when an employer receives a verbal election, it would be prudent to make the acceptance of the verbal election conditioned upon receiving a written acceptance so that there are no misunderstandings and lack of documentation. In case the election period is nearby, request that the qualified beneficiary send an email or fax to be safe.

Working in Conjunction with Insurance Carriers

The following questions are examples of difficult situations that often arise between major insurers and employers along with possible solutions for a positive outcome:

What if the Insurer is denying COBRA?

First of all, the employer should confirm that the COBRA election notice was sent within the proper time frame. Keep in mind the COBRA statute states, “the employer of an employee under a plan must notify the plan administrator of a Qualifying Event with 30 days of the Qualifying Event.” Furthermore, the statute also requires the plan administrator to notify any qualified beneficiary, with respect to an event, within 14 days of the date on which the employer notifies the plan administrator of the date.

In the event that the employer failed to send the election notice within the proper time frame then the insurer can deny COBRA coverage. This means the employer will become self-insured for any and all claims made during the full 18, 29, or 36 month COBBRA coverage period. If confirmation can be made that the election notice was sent in a timely manner and everything was done correctly then the following steps should be taken:

a) Obtain the specific reason the insurer is denying coverage b) Provide documentation of your COBRA compliance along with applicable legal guidance. These can be found in either the notice regulations issued by the U.S. Department of Labor (DOL) in 2004, or the COBRA regulations issued by IRS in 1999 and 2001. c) Examine the COBRA language in the insurance contract and policy – specifically find the part that outlines what obligates the insurer to comply with COBRA.

What if the Insurer is denying an Extension of Coverage?

The first thing to do is make sure the qualified beneficiary was properly notified of their 60-day responsibility to notify the plan of a secondary event. The notice must include who should be notified and in what manner. Remember that until a qualified beneficiary has been notified the “clock does not start ticking.”

In order to ensure the extension will be accepted, the employer should first obtain the specific reason for the denial from the employer and then:

  1. Submit documentation proving the proper time frame was met
  2. Submit documentation received from the qualified beneficiary
  3. Provide the DOL’s 2004 final regulations.

In summary, timing is of the utmost importance when dealing with COBRA. In this author’s opinion employers must work in conjunction with insurance carriers to ensure all rules and regulations are followed. Otherwise, the employer will run the risk of becoming self-insured which could be potentially devastating financially.

Be Careful About Proper Dates when Offering Subsidized COBRA Coverage

A recent court case involved a suit against an employer and plan administrator for an alleged ERISA fiduciary breach along with COBRA notice failures. In the case Damiano v. Institute for In Vitro Sciences et al, 2016 WL 7474535 (D. Md. December 29, 2016) the plaintiff, Michele Damiano sued her former employer, (IIVS) and their third party COBRA administrator, Paychex Insurance Agency, Inc. in connection with material misrepresentation claims as well as COBRA notice violations.

The facts of the case are as follows: Michele Damiano was sent a letter by IIVS on September 9, 2015 stating that she was terminated effective immediately. The letter further affirmed her benefits would be paid through October 31, 2015. However, Damiano ended up liable for $4,900 in dental expenses for procedures that were done in September. Additionally Damiano underwent emergency surgery in early October. A few days later, on October 8, 2015 Paychex issued a COBRA notice that stated her coverage end date would be October 31, 2015 confirming what the original termination letter from IIVS had articulated. However, a second COBRA notice arrived that was dated October 23, 2015 stating that her coverage ended September 9 2015. Because Damiano received this second notice more than 44 days after being fired from her job, she decided to file suit against both IIVS and Paychex based upon a breach of fiduciary duty under ERISA, COBRA notice violations, and lastly, state law breach of contract.

The state law claim was dismissed as preempted by ERISA. As for the fiduciary claim, the defendants tried to wriggle out of this by suggesting Damiano did not detrimentally rely upon the statements in the termination letter. However, Damiano was able to prove that the defendants were indeed a fiduciary and as such they had breached their fiduciary responsibilities to her. Furthermore, she successfully proved her need from the court to remedy the violations. Damiano was able to prove that she “relied on the misrepresentation of the Defendants that she had coverage and thus did not pursue alternate coverage to her detriment.” Therefore her claim of breach of fiduciary duty stood strong. Lastly, her COBRA notice claim also survived because the court concluded that the plan administrator failed to send the notice within the 44-day timeframe.

In this author’s opinion it appears that the conflicting verbiage in the two COBRA notices was probably because of confusion as to whether the employer was offering extended “subsidized” coverage in the severance package or not. In other words, make sure to specify that the even though the coverage may be free of charge for a specified period, the 18 month COBRA period would still begin upon the original employment termination date. And most importantly, the COBRA election notice must be sent within 44 days of that original termination date – not within 44 days of the end of any employer subsidized COBRA coverage.

Administrate Coverage during an Election or Initial Payment Period

An employer or plan administrator has 44 days to provide an election notice. Then the qualified beneficiary has 60 days to elect COBRA. Once the qualified beneficiary has elected COBRA he or she has another 45 days to pay the initial premium. So what happens during these timeframes?

During the election period it is up to each employer to decide whether to remove the qualified beneficiary from the plan when coverage is lost, or allow the qualified beneficiary continue on the plan. If removed from the plan, COBRA coverage could be pending until payment is received. The employer is then responsible to reinstate coverage back to the original loss-of-coverage date once payment is received. Before an employer chooses to keep the qualified beneficiary on the health plan during these grace periods, there are a few aspects to contemplate. If a group health plan is insured, how far back will the insurer allow the retroactive removal of a qualified beneficiary by the employer? Some insurers may not allow the removal to go back more than 60 days. If you add up the three time frames allowed (which would be 44 + 60 + 45) you end up with almost a five month period. If an insurer allows the removal back to only 60 days, the employer will be self-insuring the period that the insurer does not allow. Consequently, it is recommended that the qualified beneficiary be removed from the plan and only reinstated if payment is received. In the case that an employer desires to keep a qualified beneficiary on the plan, it should review the process with the insurer. Upon approval by the insurer to retroactively remove a qualified beneficiary to the original loss-of-coverage date when an election and payment has failed to be received, it is prudent for the employer to obtain confirmation in writing.

How about monthly grace periods for premium payment? This period has to be at least 30 days and most employers hold it to that timeframe. So, if the qualified beneficiary does not pay the monthly premium within the 30 day grace period, the insurer will allow retro-active removal from the plan without any issues. In some cases, insurers will remove qualified beneficiaries each month until premium has been received. Upon receipt of payment, a plan must promptly reinstate coverage; thereby the qualified beneficiary receives coverage for the entire month. This can be a very complicated process to administrate because when a qualified beneficiary is removed each month, claims are denied. As soon as the premium payment is received, however, claims have to be processed.

What about denied claims that a qualified beneficiary has during these grace periods? First of all, claims during the election period or grace period could potentially be denied. Once the qualified beneficiary pays for COBRA coverage, the denied claims can be resubmitted upon reinstatement onto the plan.

What is the correct response when someone contacts the employer or plan administrator about health plan status during these grace periods? According to the IRS final COBRA regulations, a complete response is required to a health care provider’s request regarding a qualified beneficiary’s coverage status during the election and initial payment periods. This means that just a covered or a not covered response will not suffice. To respond to a coverage pending election, the employer can indicate that a qualified beneficiary is removed from the plan during the 60-day election period and then reinstated once COBRA is elected and first payment is received. It is wise to inform the provider’s office of this status, as well as to let them know the qualified beneficiary is not currently on the plan but will have coverage, retroactively, once COBRA coverage is elected and the first payment is received. This notification should include specific dates of election period and premium due dates.

So what is the response if the qualified beneficiary is not removed during the election/payment period? This other option is appropriate if the plan allows coverage during the election period but cancels it retroactively if COBRA is not elected. In this case, the plan or administrator is required to notify a provider that the qualified beneficiary is covered but is subject to retroactive termination if COBRA coverage is not elected and the appropriate premiums are not paid. As part of the information given to the provider, specific election and payment dates should be included.

To avoid liability or litigation, accurate information should be given to a health care provider requesting a qualified beneficiary’s coverage status. Because COBRA is an employer law, the burden of liability may belong to the employer rather than an insurer. Any inquiries regarding health coverage should be handled by the employer or plan administrator rather than the insurer.

Common Examples of “Cause” Resulting in COBRA Termination

The most common examples of “cause” is fraud that is committed by qualified beneficiaries: leaving an ex-spouse on the group health plan after a divorce, covering non-dependents such as stepchildren and other relatives, and failure to report the fact that an adult child under the age of 26 is eligible for other group coverage. Some other examples of fraudulent activities that employers should be made aware of are as follows.

Sometimes Qualified Beneficiaries are tempted to try and come out ahead when covered by two different health insurers. Failure to reveal coverage through another plan by submitting the same claim to two different insurers in the hopes of getting at least 100% of the medical claim reimbursed should never be expected. Dual coverage is possible; however, only one of the insurers will be considered the primary and the other will be the secondary. This attempted “double dipping” will probably not go unnoticed. It will become apparent when the insurers check into the coordination of benefits.

Unfortunately there have been cases where an individual has submitted multiple copies of the same invoice for an ongoing medical condition, but with additional falsified dates in order to get reimbursed for services that were not provided or used. Falsification of claims would be considered fraudulent activity, which would be grounds for COBRA termination. There have also been instances when an individual has received prescription drugs for their medical conditions, only to resell them in a money making scheme. Again this would be considered fraudulent activity, which would also warrant COBRA termination.
Writing a bad check for the COBRA premium could result in COBRA termination if the individual cannot rectify the situation within the grace period. Although there are no guidelines regarding this specific incident, it would be prudent for the plan administrator to make an attempt to contact the individual about this situation before taking drastic steps. If this was simply an oversight and could be corrected in a timely manner, COBRA coverage would continue; however writing bad checks that cannot be covered are grounds for early termination of coverage.

Finally, cause can be expanded past fraudulent activity to include failure to follow plan procedures. If a plan requires that all participants re-enroll every year during open enrollment, including those on COBRA, failure to do so can result in early termination. In the 2007 court case, White v. The Kroger Co., the court upheld the employer’s decision to terminate COBRA coverage before the maximum coverage period due to failure on the part of the QB to re-enroll.

Again, plan administrators need to remember to provide written notice to each affected QB when the COBRA coverage is being terminated early; unfortunately there is no exception even when the termination is due to fraudulent activity.

Administrate Coverage during an Election or Initial Payment Period

An employer or plan administrator has 44 days to provide an election notice. Then the qualified beneficiary has 60 days to elect COBRA. Once the qualified beneficiary has elected COBRA he or she has another 45 days to pay the initial premium. So what happens during these timeframes?

During the election period it is up to each employer to decide whether to remove the qualified beneficiary from the plan when coverage is lost, or allow the qualified beneficiary continue on the plan. If removed from the plan, COBRA coverage could be pending until payment is received. The employer is then responsible to reinstate coverage back to the original loss-of-coverage date once payment is received. Before an employer chooses to keep the qualified beneficiary on the health plan during these grace periods, there are a few aspects to contemplate. If a group health plan is insured, how far back will the insurer allow the retroactive removal of a qualified beneficiary by the employer? Some insurers may not allow the removal to go back more than 60 days. If you add up the three time frames allowed (which would be 44 + 60 + 45) you end up with almost a five month period. If an insurer allows the removal back to only 60 days, the employer will be self-insuring the period that the insurer does not allow. Consequently, it is recommended that the qualified beneficiary be removed from the plan and only reinstated if payment is received. In the case that an employer desires to keep a qualified beneficiary on the plan, it should review the process with the insurer. Upon approval by the insurer to retroactively remove a qualified beneficiary to the original loss-of-coverage date when an election and payment has failed to be received, it is prudent for the employer to obtain confirmation in writing.

How about monthly grace periods for premium payment? This period has to be at least 30 days and most employers hold it to that timeframe. So, if the qualified beneficiary does not pay the monthly premium within the 30 day grace period, the insurer will allow retro-active removal from the plan without any issues. In some cases, insurers will remove qualified beneficiaries each month until premium has been received. Upon receipt of payment, a plan must promptly reinstate coverage; thereby the qualified beneficiary receives coverage for the entire month. This can be a very complicated process to administrate because when a qualified beneficiary is removed each month, claims are denied. As soon as the premium payment is received, however, claims have to be processed.
What about denied claims that a qualified beneficiary has during these grace periods? First of all, claims during the election period or grace period could potentially be denied. Once the qualified beneficiary pays for COBRA coverage, the denied claims can be resubmitted upon reinstatement onto the plan.

What is the correct response when someone contacts the employer or plan administrator about health plan status during these grace periods? According to the IRS final COBRA regulations, a complete response is required to a health care provider’s request regarding a qualified beneficiary’s coverage status during the election and initial payment periods. This means that just a covered or a not covered response will not suffice. To respond to a coverage pending election, the employer can indicate that a qualified beneficiary is removed from the plan during the 60-day election period and then reinstated once COBRA is elected and first payment is received. It is wise to inform the provider’s office of this status, as well as to let them know the qualified beneficiary is not currently on the plan but will have coverage, retroactively, once COBRA coverage is elected and the first payment is received. This notification should include specific dates of election period and premium due dates.

So what is the response if the qualified beneficiary is not removed during the election/payment period? This other option is appropriate if the plan allows coverage during the election period but cancels it retroactively if COBRA is not elected. In this case, the plan or administrator is required to notify a provider that the qualified beneficiary is covered but is subject to retroactive termination if COBRA coverage is not elected and the appropriate premiums are not paid. As part of the information given to the provider, specific election and payment dates should be included.

To avoid liability or litigation, accurate information should be given to a health care provider requesting a qualified beneficiary’s coverage status. Because COBRA is an employer law, the burden of liability may belong to the employer rather than an insurer. Any inquiries regarding health coverage should be handled by the employer or plan administrator rather than the insurer.