This month technically marks the end of the last 18-month period of coverage for individuals who could take advantage of continuation coverage premium subsidies under the American Recovery and Reinvestment Act of 2009 (ARRA). But that doesn’t mean employers can just breathe a sigh of relief and wave off this law.
Here’s a summary of several tips from COBRA expert Paul M. Hamburger, Esq. on administrating COBRA after the ARRA subsidy expires.
Must a Notice Be Provided When the Subsidy Period Expires?
When the ARRA period expires, and the 65-percent subsidy ends, a COBRA qualified beneficiary’s COBRA premium will increase from one month to the next by a significant amount. Some administrators have asked whether some form of notice must be provided in advance to warn them of the increased amount owed.
To a certain extent, qualified beneficiaries may already have received notification of the new premium amount before the subsidy actually expires via COBRA notices that explained the subsidy rules, and monthly payment coupons indicating the entire amount owed as well as the subsidy amount.
But from a general ERISA fiduciary prospective, it may be appropriate for a plan administrator to consider providing a more specific notice to qualified beneficiaries whose premiums are about to go up.
Can I Increase the Premium When the Subsidy Expires in the Middle of a 12-month Determination Period?
Under COBRA, premiums for COBRA coverage must be maintained at the same level for a 12-month determination period. But in this case, the amount required to be paid can increase to the full COBRA premium amount without regard to the subsidy (102 percent or 150 percent of the applicable premium, depending on the reason for COBRA coverage). This increase is not, technically speaking, an increase in the underlying applicable premium. Rather, it is simply an adjustment in the allocation of the amount required to be paid by the qualified beneficiary of the total COBRA premium.
What Happens if the Reduced Premium Is Paid After the Subsidy Period Expires?
Once the subsidy period expires, a qualified beneficiary may not realize that the period has expired and may continue to pay the subsidized amount to the plan.
In such a case, the qualified beneficiary could easily be in a situation where he or she will have underpaid his or her COBRA premium for the month that he or she is required to pay the full COBRA cost. In most cases, such a shortfall would be a significant difference between the full COBRA cost and the subsidized COBRA cost rather than an insignificant payment invoking special premium payment rules. Therefore, it is likely that the underpayment causes the plan to terminate COBRA coverage as long as the shortfall was not made up by the end of the regular 30-day COBRA premium grace period. But separately keep in mind that in applying ERISA fiduciary rules, plan administrators need to be careful about how they administer COBRA premium payments when the underpaid amount is received early in the grace period.
Hamburger provided these tips in more detail, as well as several others, in a column that appeared in the January 2011 issue of Mandated Health Benefits — The COBRA Guide.