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
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.
Is Your Cafeteria Plan Ready for 2017?
Most employers have been receiving large rate increases over the last several
years from their insurance providers because medical trend is over 15%. In many
cases, the employer is forced to pass on the increase to employees. A good way
to minimize rate increases is to start a Cafeteria Plan. A Cafeteria Plan allows
employees to pay for their portion of premiums on a pre-tax basis. This lowers
their taxable base, therefore decreasing federal, FICA and most state's taxes.
Most employees (depending on their tax bracket) will see that a Cafeteria Plan
saves them 20% to 35% of their cost of premiums. Not only does the employee save
money but the employer sees a reduction in their FICA and other payroll taxes.
In addition to paying for premiums on a pre-tax basis, employees may set up
Flexible Spending Accounts (FSAs) to pay for items not covered by an insurance
plan (i.e. deductibles, copays, coinsurance, over the counter medication, etc.)
and even Dependent Care expenses. It is a win-win situation; both the employer
and employee save money in taxes.
COBRA Solutions offers Cafeteria Plan Manager software program that assists
employers with the administration of a Cafeteria Plan. Please visit our website
at www.cobrasolutions.com for
further information and a free 60-day no obligation demonstration version of
Cafeteria Plan Manager. It is an outstanding software program that will pay for
itself in the first few months, and the savings will continue for years. To see
what your firm may save by implementing a Cafeteria Plan, visit our site at
http://www.cafeteriaplanmanager.com and click the "Calculate Your