COBRA’s Top 10: Law Used as Poster Child for the Problems With Government Jargon

It’s no surprise to most health plan administrators that the federal law on COBRA continuation coverage was used in a recent newspaper article as an example of “bureaucratic legalese.”

In recounting efforts to push the “government to speak plainly,” the Dec. 2 Washington Post article said:

If you want to understand Americans’ frustration with Washington, you might start with the very words the government uses to communicate with them.

Take the Labor Department’s explanation of health insurance subsidies for laid-off workers under the 2009 stimulus legislation:

“Generally, the maximum period of continuation coverage is measured from the date of the original qualifying event (for Federal COBRA, this is generally 18 months). However, ARRA, as amended, provides that the 15 month premium reduction period begins on the first day of the first period of coverage for which an individual is ‘assistance eligible.’ This is of particular importance to individuals who experience an involuntary termination following a reduction of hours. Only individuals who have additional periods of COBRA (or state continuation) coverage remaining after they become assistance eligible are entitled to the premium reduction.”

What does that mean? Well, essentially, it explains that certain laid-off or downsized workers can get special subsidies for 15 months after they lose their employer-sponsored health coverage.

It is complicated information to have to absorb. But does it have to be so complex to read?

Since its inception, health plan administrators have been wondering not just why COBRA’s rules are so complex to read, but why they are even more complex to administer. Including the subsidy language above, let’s round out my list of the top 10 complex COBRA provisions. The remaining nine are:

1. Gross Misconduct — COBRA coverage does not have to be offered if a termination of employment is the result of an employee’s “gross misconduct.” The problem: The law never defined the term “gross misconduct” — leaving this up to varying court interpretations.
2. Premiums — COBRA’s “applicable premium” for self-insured plans should, among other things, be “determined on an actuarial basis” and take “into account such factors as the Secretary may prescribe in regulations.” Also, there’s a calculation regarding a 12-month determination period that can be figured out by using “the percentage increase or decrease in the implicit price deflator of the gross national product (calculated by the Department of Commerce and published in the Survey of Current Business) for the 12-month period ending on the last day of the sixth month of such preceding determination period.” The problem: The law is more than 25 years old and we are still waiting on regulations, and figuring out the implicit price deflator can be an issue.
3. Other Coverage/Medicare Entitlement Early Cut-off Rule — COBRA coverage can end early on: “The date on which the qualified beneficiary first becomes, after the date of the election — (i) covered under any other group health plan (as an employee or otherwise) which does not contain any exclusion or limitation with respect to any pre-existing condition of such beneficiary…” The problem: The “first becomes” language was so open to interpretation that the U.S. Supreme Court had to decipher it. And most administrators don’t realize that the language on pre-existing conditions is much broader than that under HIPAA.
4. Small Employer Exception — Generally, employers that have fewer than 20 employees during the preceding calendar year are exempt from COBRA. The problem: To make this determination, the IRS’ COBRA regulations provide that employers must count each full-time employee as one employee and each part-time employee counts as a fraction, with the numerator of the fraction equal to the number of hours worked by that employee … and the denominator equal to the number of hours that must be worked … in order to be considered a full-time employee.” Get out your calculators!
5. Health Flexible Spending Arrangements (FSAs) — An employer’s COBRA obligations for health FSAs vary — from not at all, to through the end of the plan year, to the entire COBRA period. The problem: Any COBRA obligations hinge on not just determining whether or not the FSA “HIPAA excepted,” but also the outcome of complicated steps, like determining whether: “as of the date of the qualifying event, the qualified beneficiary can become entitled to receive during the remainder of the plan year a benefit that exceeds the maximum amount that the health FSA is permitted to require to be paid for COBRA continuation coverage for the remainder of the plan year. In determining the amount of the benefit that a qualified beneficiary can become entitled to receive during the remainder of the plan year, the health FSA may deduct from the maximum benefit available to that qualified beneficiary for the year (based on the election made under the health FSA for that qualified beneficiary before the date of the qualifying event) any reimbursable claims submitted to the health FSA for that plan year before the date of the qualifying event.”
6. Premiums Short by an Amount That Is Not Significant — The COBRA law merely stated that COBRA can be terminated if payment is not made in full and on time. The IRS regulations, however, provided for a reprieve if “If timely payment is made to the plan in an amount that is not significantly less than the amount the plan requires to be paid for a period of coverage.” Then the administrator either has to accept that amount as payment in full or allow the individual to remedy the deficiency. The problem: On the one hand, the IRS did define what is an amount that is not significant — generally, either $50 or 10 percent of the premium. On the other hand, this special rule has made some employers’ payment procedures more complicated.
7. Disability Extension — Individuals who are “determined, under title II or XVI of the Social Security Act, to have been disabled at any time during the first 60 days of continuation coverage” can get extended coverage if they notify the plan administrator within a certain period. The problem: Initially, it was unclear whether the person’s disability had to occur exactly within that 60-day period, or sometime before the 60th day (it’s the latter).
8. Medicare Entitlement as a Qualifying Event — A termination or reduction in hours of employment is an 18-month event but for spouse and dependent children, if that event “occurs less than 18 months after the date the covered employee became entitled to [Medicare, their], period of coverage … shall not terminate under this clause before the close of the 36-month period beginning on the date the covered employee became so entitled.” The problem: Administrators have to consider the implications of other federal rules, like the Medicare Secondary Payer law, which restrict this rule’s applicability.
9. Medicare Entitlement as a Multiple Qualifying Event — If a termination or reduction in hours of employment is followed by another qualifying event, like Medicare entitlement, that can result in a total of 36 months of coverage. The problem: In 2004, the IRS reinterpreted this rule to restrict its applicability, leading administrators to a review of their plan documentation and COBRA notices.

Feel free to comment if you have provisions that should be added to the list. Details on these and other provisions, and how to understand them in layperson’s terms, can be found in Mandated Health Benefits: The COBRA Guide.