Recent federal agency guidance includes important information and extensions of various deadlines affecting employee benefit plans to include extensions of continuation coverage notice and election periods under COBRA.
This article focuses solely on the COBRA-related rules, including a summary of the rules, as well as some of the practical challenges involved in administering the COVID-19 extensions.
Overview
Earlier this Spring, the U.S. Departments of Labor (DOL), the Employee Benefits Security Administration (EBSA), and the Internal Revenue Service (IRS) published a final regulation, and the EBSA issued a package of guidance and relief, for employee benefit plans (including group health plans, pension plans, and 401(k) plans) affected by the coronavirus (COVID-19) outbreak.
The EBSA’s package includes (1) Disaster Relief Notice 2020-1; and (2) COVID-19 FAQs for participants and beneficiaries (answering basic participant questions).
The IRS/DOL regulation is particularly noteworthy because it retroactively extends the applicable COBRA periods for electing group health plan coverage. This extension applies to group health plans subject to the Employee Retirement Income Security Act (ERISA).
The guidance also indicates that the U.S. Department of Health and Human Services has reviewed, concurs, and will exercise its enforcement discretion to adopt a temporary policy of measured enforcement to extend certain similar time frames. Thus, group health plans maintained by state and local governments that are subject to COBRA rules ought to be subject to similar deadline extensions.
Final Regulation Extends Certain Deadlines
A key component of the guidance is the application of a “tolling” concept. Here’s how it works: All group health plans must disregard the “outbreak period” for purposes of determining certain deadlines. The defined “outbreak period” runs from March 1, 2020, until 60 days after the COVID-19 national emergency ends (or such other date as the federal agencies announce).
If there are different outbreak period end dates for different parts of the country, the agencies will issue additional guidance for relevant areas, which could mean that the outbreak period could be different for different parts of the country (and, theoretically, different parts of certain states).
With regard to COBRA compliance, the outbreak period must be disregarded for purposes of:
- The election period. Without the extension, the election period generally would be 60 days from the time the election notice is provided.
- The premium payment deadline. Without the extension, the COBRA premium payment due date generally would be 45 days from the date of a COBRA election and then the end of each month (30 days).
- The deadline for a plan administrator to provide COBRA election notices to qualified beneficiaries.
Example: John terminated employment and lost health coverage on February 29, 2020. Under “normal” general COBRA rules, the plan administrator would have had 14 days to provide a COBRA election notice (deadline March 14, 2020). John then generally would have had 60 days to make an election (deadline May 13, 2020) and another 45 days to make the first premium payment (deadline June 27, 2020).
With the COVID-19 extension, the outbreak period (that is, the period from March 1, 2020, until 60 days after the national emergency ends) is disregarded. Assuming that the COBRA election notice would have already been provided, this means John would have until 120 days after the national emergency ends to elect COBRA—retroactive to March 1, 2020—and another 45 days after that to make the first premium payment.
Another way to look at the applicable COBRA time periods is that they are “tolled” (held in abeyance) until the end of the outbreak period. Technically, the rule does not mean that all the COBRA periods start over from “day 1” after the end of the outbreak period.
Instead, time periods before the outbreak period began (before March 1, 2020) could still count in measuring the periods again after the end of the outbreak period. In other words, if 15 days of a COBRA election period had already run (out of a total of 60 days) before March 1, then in determining the applicable COBRA election period, the outbreak period is disregarded and the remaining 45 days would begin running after the end of the outbreak period.
Nevertheless, some plan administrators are considering the possibility of just restarting all the COBRA periods (whether it is the election period or premium payment period) at the end of the outbreak period. The primary consideration seems to be ease of administration.
It seems easier to some to just start all the periods again than to figure out how many days in the relevant period applied before March 1, 2020. Technically, however, this position would be more generous than the minimum requirement under the guidance.
Good-Faith Delivery of Notices
Aside from extending COBRA notice, election, and premium payment periods, the new guidance provides some relaxed standards for delivery of required notices. A responsible plan fiduciary will not be in violation of ERISA for failure to timely furnish a notice, a disclosure, or other required document during the outbreak period if:
- The responsible fiduciary acts in good faith; and
- The notice, disclosure, or document is furnished as soon as administratively practicable under the circumstances.
Good faith includes using electronic alternative means of communicating with plan participants and beneficiaries who the plan fiduciary reasonably believes have effective access, including e-mail, text messages, and continuous-access websites (for example, an Intranet site).
It is not entirely clear how this rule will apply in the COBRA context where plan administrators may not have an electronic means of notifying qualified beneficiaries, particularly spouses and/or dependent children who might need notices. Nevertheless, the key point is that plan administrators will have some flexibility during the outbreak period in applying the technical disclosure rules on account of the COVID-19 pandemic.
Practical Implications
At a high level, the policy underlying the COVID-19 guidance makes sense. With the business disruption resulting from the COVID-19 pandemic, and with workers furloughed or working remotely, it is quite challenging for everyone to adhere to strict deadlines.
Moreover, workers do need more time to consider their healthcare options in a time of uncertainty. So relaxation of the rules in emergency conditions makes sense. At the same time, COBRA administration can become quite complicated when time periods are extended indefinitely.
Here are some of the key issues to consider as administrators address the COBRA extended periods.
Adverse selection risk. One of the embedded “costs” of COBRA coverage is the cost to the plan associated with adverse selection risk. Qualified beneficiaries always have a COBRA election period and premium payment grace period that is extended and allows for a retroactive purchase of health coverage.
Therefore, a risk always exists that a qualified beneficiary could wait to see if the medical claims incurred justify paying the COBRA premium. This ability to purchase coverage retroactively is referred to as the “adverse selection” risk. It is why COBRA coverage for qualified beneficiaries tends to cost more for group health plans than coverage for other groups of covered individuals.
The COVID-19 extension certainly adds to that potential cost by extending the period during which a qualified beneficiary can wait and see whether electing COBRA coverage makes sense. There is nothing that a plan can do about that risk; it is just something to bear in mind and monitor for overall planning purposes.
Reconciling the extension with prior communications. Some qualified beneficiaries may have received COBRA notices telling them that their COBRA election period would expire as of a date during the outbreak period.
Or, they may have been told that their premium payments were due on a date during the outbreak period. In some cases, qualified beneficiaries may have been told that their elections or premium payments were late. In these situations, what should plan administrators do?
One approach could be for plan administrators to create some type of interim notice that explains the COVID-19 extension and advises qualified beneficiaries they have extended time to act. Perhaps the notice could be included on a website or distributed by a third-party administrator to each qualified beneficiary’s last known address.
The important consideration from a fiduciary perspective is that qualified beneficiaries may not have received accurate information in light of the COVID-19 extension, and it is important to make sure they understand their rights.
Even if a plan decides to provide such an interim notice, what exactly is it supposed to say? There is no clear defined deadline for making elections and paying COBRA premiums at this time, and the ongoing situation could be fluid.
If different outbreak periods apply in different states, this could make communicating deadlines even more complicated for plan administrators. Perhaps it is enough simply to let qualified beneficiaries know there are extended deadlines and then deal with the specific situations as they arise.
Addressing claims and coverage issues. Under COBRA regulations, during a COBRA election period (the period after the qualifying event and before a qualified beneficiary has elected and paid for coverage), plan administrators have a couple of options for how to respond to qualified beneficiary medical claims that arise under the plan:
- The plan is allowed to provide coverage for qualified beneficiaries subject to retroactively terminating the coverage if a COBRA election is not timely made and full COBRA premiums are not paid.
- The plan is allowed not to provide any coverage during the COBRA election period subject to retroactive reinstatement if the qualified beneficiary timely elects and pays for COBRA coverage.
Either way, medical providers are supposed to be informed that the qualified beneficiary is in a COBRA election period and that coverage is subject to a timely election and full premium payment.
Plans should consider which procedure they will follow during the outbreak period. If the old procedure was to cover claims during a COBRA election period subject to retroactive termination if the COBRA election (and premium payment) is not made, does that procedure make sense once the period is extended for several months during the outbreak period?
Plans should also consider how they will respond to coverage inquiries during the outbreak period to make sure they do not mislead medical providers.
Impact of other coverage during the outbreak period. Normally, under COBRA, if a qualified beneficiary first becomes, after the date of the COBRA election, covered under another group health plan, the COBRA plan is allowed to terminate COBRA coverage.
If a qualified beneficiary obtains that other coverage before making the COBRA election, however, that other coverage does not terminate rights to COBRA coverage. With an extended outbreak period, it is possible that qualified beneficiaries might obtain other group health plan coverage before the end of the extended COBRA election period. If that happens, plans need to be prepared to address issues that could arise concerning the timing of the other coverage and any impact on COBRA coverage.
Is the plan insured or self-insured? A final issue to consider is whether the plan is insured or self-insured. Generally, self-insured plans have more flexibility on how to implement one-off situations. If a plan is insured, it is crucial to coordinate any response to the COVID-19 extension with the insurer. It would not be helpful to communicate one message on coverage issues to qualified beneficiaries and have the insurer contradict the message.
Working together with the insurer (or the insurance broker) can help minimize confusion and mixed messages. Even in the self-insured context, though, insurance-related issues could arise if the plan has “stop-loss” coverage for excess claims.
A stop-loss carrier might not be willing to pay claims outside the standard COBRA deadlines if its contract does not require it. Therefore, it is important to make sure any stop-loss carriers are aware of the COVID-19 extension and the possible “late” COBRA elections that could result.
Conclusion
Certainly, this period of the COVID-19 pandemic has caused significant business disruption, as well as disruption in the context of administering employee benefit plans. Admittedly, there are way more questions than answers for all the benefits issues that could arise.
However, plan administrators cannot be frozen in place at this time. It is important to raise the questions and discuss the legal implications with counsel. Hopefully, the disruption will soon end and plan administrators can return to the “normal” level of uncertainty in dealing with COBRA coverage.
Paul M. Hamburger is cochair of the Employee Benefits, Executive Compensation, and ERISA Litigation Practice Center and head of the Washington, D.C., office of law firm Proskauer Rose LLP. He is also a leader of the Practice Center’s health and welfare subgroup and a member of Proskauer’s Health Care Reform Task Force. Hamburger has more than 35 years of experience in advising employers and administrators and is the author of numerous articles and publications on COBRA and other employee benefits issues affecting pension and welfare plans. Hamburger is contributing editor of Mandated Health Benefits—the COBRA Guideand managing author of The New Health Care Reform Law: What Employers Need to Know (A Q&A Guide), 5th Edition.