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A Service of OnQue Technologies, Inc. |
Questions and Answers from the COBRA Help Desk,
Part III
Frequently (and Not-So-Frequently) Asked
Questions |
April 29, 2006
By Scott Haines, President
OnQue Technologies, Inc.
Santa Rosa, CA |
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Every month
we respond to numerous COBRA questions from our broker and employer customers.
The questions cover a wide range of topics, from the commonplace to the
obscure. And our responses run the gamut as well, from the simple and
straightforward to the complex and cautionary. This COBRA Tip™ is the
third in a series of articles in which we offer a smattering of the more
interesting and informative COBRA questions and answers:
- Is Voluntary Coverage Subject to
COBRA?
- Must My Client Offer COBRA to an
Illegal Alien?
- Anticipating Legal Separation
(What's Legal About It?)
- Must We Offer COBRA to a Former
Employee Who Moves Out of State?
- Postal Worker Says Certificate
of Mailing Won’t Hold Up in Court
Is Voluntary Coverage Subject to
COBRA?
Broker: Is it true that voluntary health
coverage is subject to COBRA?
OnQue: A voluntary plan is not subject to
COBRA if the employer meets the Department of Labor (DOL) safe harbor
requirements, which are:
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1. |
The plan must be completely voluntary, with no
employer contributions; |
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2. |
The employer may not endorse the plan in any
manner; and, |
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3. |
The employer's involvement must be strictly limited
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a. permitting the insurer to promote or publicize
the plan directly to employees; |
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b. collecting premiums through payroll deductions;
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c. remitting the premium payments to the
insurer. |
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These
requirements appear to be straightforward; compliance should be easy to
maintain and easy to prove when challenged. However, there is a catch in the
language—a word that gives attorneys something to argue about:
endorse. Is a manager's recommendation to an employee deemed a company
endorsement of the plan? Maybe, maybe not. The answer depends on many factors,
including who is making the call. And those calls are generally made by
attorneys, who argue about it, and federal judges, who make the final decision.
If that decision goes against the employer, the dollars fed the litigation
machinery will likely be trivial when compared to the cost of paying the
family's medical bills.
Employers are
sometimes free to sidestep this issue completely by including voluntary plans
in their COBRA offering. I imagine that the administrative burden would be
minor compared to the task of ensuring compliance with the DOL safe harbor
requirements, particularly in light of the endorsement issue. However, many
employers have no choice, because their insurers prohibit continuation of
voluntary plans by requiring them to meet the safe harbor
requirements.
Must My Client
Offer COBRA to an Illegal Alien?
Broker: I
have a client who just discovered that a recently terminated employee is an
illegal alien. Is my client required to offer him COBRA continuation
coverage?
OnQue:
Neither the statute nor the regulations address this issue directly. However,
the regulations provide that continuation coverage may be terminated for any
reason the plan would terminate coverage for a similarly situated nonCOBRA
enrollee.
A fraudulent act,
such as submitting false information on an insurance application, may be
considered sufficient justification for terminating coverage, provided the plan
documents support that position. If that argument holds up, then it seems
reasonable to conclude that the individual has no COBRA rights, because his
participation in the plan was fraudulent in the first place. However, your
client should consult with an attorney before denying continuation coverage to
the former employee.
Anticipating
Legal Separation (What's Legal About It?)
Employer:
I have an employee who has asked for his wife to be taken off the health
insurance. They are separating but it is not legal yet. Am I correct in my
understanding that the wife can elect COBRA coverage once the separation is
finalized?
OnQue:
Yes. Following are some key points to keep in mind in such cases:
- For the separation of marriage
partners to be recognized as a qualifying event, it must result in a loss of
coverage, which typically does not occur until the separation is sanctioned by
the state. This means that the couple must first receive a judgment of
separation from a state court—living separate and apart does not
constitute legal separation until a state court makes it so. Then, the
administrator can terminate dependent coverage if such action is required under
the plan rules.
- Some states, such as Louisiana,
do not recognize the separation of marriage partners as a legal matter. Simply
living separate and apart in those states is not a qualifying event, because
such separation generally does not result in a loss of coverage to the
employee's dependents.
- Employees planning to separate
or divorce often terminate dependent coverage before receiving a judgment from
the court. COBRA regulations resolve the problem by providing that a qualifying
event will occur on the date of the judgment, even though the dependents were
not covered at that time.
For more information on this issue, see
What
Happens When a Spouse is Dropped From the Plan in Anticipation of
Divorce?.
Must We Offer COBRA to a Former Employee Who
Moves Out of State?
Employer: We offer 2 mutually exclusive
medical insurance plans. One is an HMO for in-state employees and the other is
a PPO for out-of-state employees. One of our in-state employees has left
employment, moved out of state and is seeking medical coverage under COBRA. Are
we able to change his enrollment from the HMO to the PPO under COBRA
coverage?
OnQue: You must present both the HMO and the
PPO continuation coverage options to the former employee.
You must offer the HMO coverage because the IRS
final regulations require plan administrators to always notify qualified
beneficiaries of their continuation rights, even if the coverage is of no
apparent value to them. While that requirement may seem illogical on its face,
the final decision regarding the value of the coverage must be determined by
the qualified beneficiary, not by the employer or plan administrator. For
example, the former employee could decide to move back to the HMO service area
before his COBRA election period expires. Thus, you must deliver the
appropriate qualifying event notice and election form to the former
employee.
However, because the qualified beneficiary has
moved outside the HMO service area, you must also offer him the opportunity to
elect the alternative PPO coverage, provided such coverage is available to any
group of active employees and is extended to the qualified beneficiary's new
location. The IRS final regulations require employers to make the alternative
coverage available "…not later than the date of the qualified
beneficiary's relocation, or, if later, the first day of the month following
the month in which the qualified beneficiary requests the alternative
coverage".
Be aware that the regulations do not require you to
incur extraordinary costs under such circumstances, and you need not modify the
plan to make it more useful to the qualified beneficiary.
Postal Worker Says Certificate of Mailing is No
Good
Employer: When I took an event mailing to
the post office, I was told by the postal worker that a "Certificate of
Mailing" would not hold up in court. The clerk went on to say that we should
use "Certified Mail" without a return receipt. He said that with certified mail
you can go on line and use the tracking number to see who signed for the mail
item. Obviously, I would like to use proof of mailing that will stand up in
court. Can you advise me?
OnQue: The federal courts have ruled that a
notice mailed via first-class mail is presumed to have been properly delivered.
The challenge to the administrator is in proving that the notice was mailed in
the first place. That is where the Certificate of Mailing comes in—when
this method is used, it is presumed that the document was delivered, while the
certificate proves when and to whom it was mailed.
However, Certified Mail may or
may not provide evidence of delivery. The primary problem with that method is
that someone must sign for the delivery. Consider the
possibilities:
Imagine that a former employee claims he did not
elect COBRA coverage because he did not receive a qualifying event notice. The
postal service records indicate that a house guest, not the former employee,
accepted delivery. Was the notice properly delivered to the recipient? It is
possible the question would be left to a federal judge to decide. Why take that
risk?
Next, consider what you must do when the notice is
returned because no one was available to sign for it. First, you must invest
more time and money in this process, because you are still obligated to deliver
the notice. And because the delivery deadline has not changed, your risk of
being out of compliance is increasing because your timeframe for delivery is
shrinking. The Certificate of Mailing, on the other hand, leaves no room for
argument by the qualified beneficiary, because it proves that the notice was
delivered via first-class mail..
Visit the USPS website to learn more about
Certificate of Mailing &
Certified Mail. |
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| Related COBRA Tips |
| What
Happens When a Spouse is Dropped From the Plan in Anticipation of Divorce?
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| Are You Using
The Safest Method To Deliver COBRA Notices? |
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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 © 2006
OnQue Technologies, Inc. All Rights Reserved. |
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