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A Service of OnQue Technologies, Inc. |
| Do You
Know When It's OK To Terminate COBRA Coverage Early? |
April 28, 2004
OnQue Technologies,
Inc.
Santa Rosa, CA |
COBRA
regulations mandate time limitations for periods of continuation coverage: 18
months from the loss of coverage; 29 months when a Social Security disability
extension occurs; 36 months when other enumerated extensions come into play;
even longer in certain bankruptcy proceedings. But these coverage periods are
only maximum allowable periods - the occurrence of certain events can shorten
the amount of time that a COBRA beneficiary may receive benefits. Do you know
which events may justify early termination of COBRA coverage? This COBRA Tip
discusses when it is permissible to terminate COBRA coverage before the maximum
coverage period elapses.
Termination of group health plan: Federal
law does not require employers to provide group health coverage for their
employees, so it follows that neither are they required to continue those plans
once instituted. Under Internal Revenue Code rules, an employer may terminate
COBRA coverage early for all qualified beneficiaries when it ceases to maintain
any group health plan. However, if the employer makes another group plan
available to active employees, then it is obligated to continue COBRA coverage
under that other plan.
In addition to an employer's voluntary cessation of
a group plan, employers can go out of business altogether, or fail to pay their
insurance premiums, causing the carrier to refuse to provide coverage. In these
events, COBRA coverage may be terminated early so long as no group coverage
continues to exist.
The following question was posed by one of our
customers:
"Our company is reclassifying
staff so only management personnel will have health coverage. How does that
affect a former non-management employee on COBRA? Can we notify her that she
will not have insurance coverage after the date on which the currently employed
individuals will lose their group health plan
coverage?" We answered that COBRA coverage
should not be terminated in this case because the employer maintains another
group health plan. That coverage under the plan is limited to members of a
different employee classification is irrelevant.
Beneficiary moves out of
coverage area: Under the 1999 final COBRA regulations, plans must provide
coverage to COBRA recipients who move outside of the geographic area in which
continuation coverage is provided, if it is at all possible to do so. COBRA may
be terminated only if the company does not maintain any group health plan that
can provide coverage in the geographic area to which the beneficiary has
moved.
Failure to make the COBRA premium payment:
We recently received this question from a customer:
"A terminated employee elected COBRA coverage, but
his initial payment check bounced twice. Can we terminate his COBRA
coverage when the 30-day grace period for payment
expires?" Qualified beneficiaries must be given a minimum
30-day grace period in which to make their COBRA premium payments before
coverage can be terminated. But when a person first elects COBRA coverage, he
has, under the law, a 45-day period in which to pay the initial COBRA premium.
This period begins to run from the date election is made. This longer payment
period should not be confused with the 30-day grace period for subsequent
premium payments. The beneficiary has 60 days in which to elect COBRA, and 45
days after the date of election in which to make the initial premium
payment.
We advised our customer to wait until 45 days after
the COBRA election date before terminating coverage retroactively (or before
refusing to make COBRA available in the first place) even though it had
received two bounced checks. The beneficiary was entitled to the full 45-day
period (not 30 days as the customer erroneously thought) to make his initial
payment. It is important to remember that, under the rules, a payment is to be
considered "made" on the date it is sent, not received. Therefore, the postmark
date indicates whether payment was made within the required time
period.
Receipt of a partial premium payment: A
beneficiary's COBRA coverage may be terminated for failure to pay the full
amount of the premium. But if a partial payment is made with a shortfall that
is considered to be "insignificant" under COBRA rules, coverage cannot be
automatically canceled. The 2001 final IRS regulations specify that an
underpayment of no more than $50 or 10 percent of the amount of the premium,
whichever is less, will be considered "insignificant." When such a partial
payment is received, a plan may choose to treat the payment as payment in full.
But if it is not willing to do so, the beneficiary must be notified that the
payment was less than the full amount due and be given a reasonable time in
which to submit the additional amount. The IRS considers an additional 30 days
to be a reasonable period of time to require payment of the amount
owed.
Entitlement to Medicare: It is important to
know the difference between entitlement to Medicare benefits and mere
eligibility because COBRA coverage may terminate early only for qualified
beneficiaries who become entitled to Medicare Part A or Medicare Part B
benefits after electing COBRA. Reaching the age of 65 alone is not considered
"entitlement" to Medicare for COBRA purposes. Entitlement requires that the
eligible person actually be enrolled in the program. A person who is 65 years
old and receiving Social Security benefits is automatically enrolled in
Medicare Part A; entitlement to Part B of the Medicare program, which is
voluntary and requires payment of premiums, requires active enrollment. Either
way, COBRA coverage may terminate early only if Medicare entitlement occurs
after COBRA election - and only for the family member entitled to Medicare
benefits.
COBRA beneficiary becomes covered under another
health plan: When a COBRA beneficiary becomes covered under another group
health plan, COBRA coverage may be terminated early. However, if the new plan
contains pre-existing conditions or waiting periods that would exclude the
beneficiary from coverage, COBRA may not terminate until those conditions are
met. Note that the beneficiary must be actually covered under the new plan, not
merely eligible for coverage.
COBRA beneficiary on Social Security disability
extension is no longer disabled: When a COBRA beneficiary is determined to
be disabled by the Social Security Administration (SSA), the beneficiary and
all other dependents on COBRA are entitled to an 11-month extension of their
COBRA coverage. But if the disabled beneficiary is later found by the SSA to no
longer be disabled, COBRA coverage may be terminated for that beneficiary and
all other dependents who are receiving COBRA under the extension. The 2001
final COBRA rules make clear that early termination due to a final SSA
determination that a disabled beneficiary is no longer disabled can occur only
during the 11-month extension period, not in the original 18-month COBRA
period. All beneficiaries may complete their 18-month period of COBRA
regardless of any SSA determination of recovery. The qualified beneficiary is
obligated to notify the plan whenever there is a change in the SSA
determination of disability.
Termination for fraud and other actions:
COBRA beneficiaries who commit acts that would cause active employees to lose
their group health plan coverage may also lose COBRA coverage. Actions that
could cause early termination include making fraudulent insurance claims and
material misrepresentations.
Must a plan notify a qualified beneficiary
before terminating COBRA coverage early? More than one OnQue customer has
asked us this question. Currently, there is no federal rule that requires
notice of early termination of COBRA coverage. But the 2003 proposed
regulations include a requirement that plans give qualified beneficiaries
notice whenever COBRA coverage is being terminated prior to the end of the
applicable maximum coverage period. This notice would have to be written in
clearly understood language, state the reason for the early termination, and
provide the date on which coverage will end.
Summary: It should be
noted that, in these situations, a plan may terminate COBRA coverage early, but
termination is not mandatory under the regulations. If a plan has a policy to
terminate coverage early when certain events occur, it is crucial that its
COBRA notices and plan documents clearly state that policy. An inherent problem
is how are plans to determine when events that may result in early termination
actually occur. One solution is to inform COBRA participants of their
responsibility to notify the plan whenever certain enumerated events occur and
set out consequences for failing to do so. Because COBRA coverage must be
administered in accordance with the plan's own documents, the policy for early
termination must be clearly stated. This is particularly important because
current law does not require COBRA beneficiaries to notify plans when events
that could cause early termination of coverage - such as relocation, Medicare
entitlement, and other group health plan coverage - occur.
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| How
COBRA OnQue Handles These
Issues: |
- Election notices inform beneficiaries of the amount
of premiums and the dates on which payments are due.
- In the case of an insignificant shortfall, COBRA
OnQue automatically generates the Partial Premium Received notification, which
informs the qualified beneficiary of the amount due and the grace period end
date.
- When an event is recorded that could cause early
termination, COBRA OnQue automatically determines if COBRA may be terminated
under the rules and, if so, creates a pending termination event for review and
approval by the administrator.
- When the administrator approves the early
termination recommendation, a notice is automatically generated, giving the
reason for the termination and the effective date.
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This information is provided by
OnQue Technologies, Inc. for educational purposes only and does not constitute
legal advice. If legal advice or other professional assistance is required, the
services of a competent professional should be sought.
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Copyright © 2004
OnQue Technologies, Inc. All Rights Reserved. |
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