Fix COBRA Mistakes

By Larry Grudzien
Attorney at Law
Common
COBRA Mistakes &
How to Fix Them
Webinar

Lawrence (Larry) Grudzien, JD, LLM is an attorney practicing
exclusively in the field of employee benefits. He has experience in
dealing with qualified plans, health and welfare, fringe benefits and
executive compensation areas. He has more than 35 years’
experience in employee benefit law.
Mr. Grudzien was also an adjunct faculty member of John Marshall
Law School’s LL.M. program in Employee Benefits and at the
Valparaiso University’s School of Law. Mr. Grudzien has a B.A.
degree in history and political science from Indiana University, J.D.
degree from Valparaiso University School of Law and LL.M. degree
in tax from Boston University School of Law. He is a member of
Indiana and Illinois Bars.
About Larry

Our enhanced COBRA program improves the billing and
payment experience while reducing labor-intensive manual
processes for HR.
• Online enrollment
• Real-time access and updates
• Integrated full payment solutions
(credit, debit, ACH, recurring ACH, etc.)
• Accurate and timely premium remittance
• Complete admin and accounting reports
• Easy data analytics
• 24/7 employee portal
• Employer portal
More Features in our COBRA Offering

• Threshold issue for COBRA compliance is whether COBRA
even applies to you as an employer.
• The general rule is that COBRA applies to group health plans
maintained by employers that have 20 or more employees.
• This includes private-sector employers, as well as state and
local government employers.
• The rule includes a built-in exemption for those employers
that have fewer than 20 employees.
• Employers may be aware that there is an exemption,
but may not know exactly how it works.
• Depending on the circumstances, determining how many employees
you have for COBRA purposes can be a complicated calculation.
Assuming COBRA Doesn’t Apply to You
Common COBRA Mistakes

• In general, COBRA will apply to employers that have 20 or more
employees on more than 50 percent of the typical business days
in the previous calendar year.
• This means that the calculation will apply for the entire calendar year;
It does not change if the number of employees goes up or down.
• So it can be dangerous to assume that you don’t have to offer COBRA
if your staff levels decrease.
• Also, take care to count employees of companies that are under
common control and both full- and part-time employees.
• A part-time employee counts a a fraction: divide the number of hours the employee worked
by the number of hours required to be full time.
Assuming COBRA Doesn’t Apply to You

• Once you have determined that COBRA applies to you
as an employer, the next step is to figure out whether
your health plan is subject to COBRA.
• As noted above, COBRA applies to group health plans
maintained by employers.
• A group health plan is an arrangement established to
provide medical care to employees and their families
and can be provided in a number of ways, including
through insurance or a self-funded arrangement.
• A key point to note is whether the plan provides medical care.
Assuming COBRA Doesn’t
Apply to Your Plan or Plans

Assuming COBRA Doesn’t Apply
to Your Plan or Plans
Examples of health plans that may be subject
to COBRA include:
• Medical, dental, vision and prescription
drug plans;
• Drug and alcohol treatment programs;
• Employee assistance plans or wellness programs
that provide medical care;
• On-site health care;
• Health FSAs and HRAs; and
• Self-funded medical reimbursement plans.

Assuming COBRA Doesn’t Apply
to Your Plan or Plans
The following are examples of plans that may not be
subject to COBRA if they do not offer medical care:
• Long-term care plans;
• Accidental death & dismemberment plans;
• Group term life insurance plans;
• Long-term and short-term disability plans;
• Wellness programs or employee assistance
programs that do not provide medical care;
• Exercise or fitness centers; and
• On-site first-aid facilities.

Assuming COBRA Doesn’t Apply to Your Plan or Plans
• Another potential pitfall to keep in mind is
assuming that cancelling or terminating a
health plan means that COBRA obligations
terminate as well.
• If an employer terminates one plan, but continues
to provide any group health plan, the obligation
to provide COBRA coverage continues.
• Determining COBRA obligations in this type of
situation can be especially complex when there is
a merger or acquisition involved.

Forgetting About State Law
• Many states have enacted what are
commonly referred to as "mini-COBRA"
laws, which typically require continuation
of group health plan coverage provided
by employers with fewer than 20
employees.
• States may also have different
requirements for employee eligibility and
different maximum periods of coverage.

Not Sending Required Notices or Providing Inaccurate or
Insufficient Information in the Notices
• Group health plans are required to provide qualified beneficiaries with specific
notices explaining their COBRA rights, with very specific requirements as to what
information must be included in these notices.
• One way to avoid mistakes is to use the Model General Notice and the Model
Election Notice provided by the U.S. Department of Labor, filling in the blanks with
your plan information.
• Other notices, such as the Notice of Unavailability of Continuation Coverage and
the Notice of Early Termination of COBRA Coverage, should be sent to qualified
beneficiaries as necessary.

Not Sending Required Notices or Providing Inaccurate or
Insufficient Information in the Notices
• It is also important to have procedures in place for keeping track of when
and to whom notices are sent.
• Consider using a form of delivery that will provide documentation that
the notice was delivered (such as a return receipt or other written proof
of delivery).
• In the event a qualified beneficiary asserts that he or she did not receive
a required COBRA notice, these records can provide evidence of
your compliance.

• Correcting No COBRA Notice provided
⁃ Send or resend Election Notice
• No COBRA Coverage provided
⁃ Consider offering retroactive coverage
⁃ Consider offering prospective coverage
when notice is very late

An employer that discovers a failure to offer COBRA coverage should take immediate steps to correct it.
The urgency is due to the variety of possible consequences mentioned below:
• IRS excise tax penalties for failure to comply with COBRA;
• ERISA $110 per day statutory penalties for failure to provide certain notices plus the possibility of
extra-contractual damages under COBRA's special “other relief” provision;
• Lawsuits to compel coverage, which can create liability
for attorneys' fees as well;
• Increased risk of adverse selection (i.e., of incurring
obligations in the future to qualified beneficiaries who
would decline COBRA coverage now); and
• Possible inability to terminate COBRA coverage
even if the qualified beneficiary became covered
under another group health plan.

Failing to Include the Spouse (and Other Qualified
Beneficiaries) When Sending Required Notices
• In certain circumstances, a COBRA notice must be given not only to the employee
but also to the spouse and/or other qualified beneficiaries.
• A plan may generally satisfy the requirement to provide notices
under COBRA to a covered employee and his or her spouse by
furnishing a single notice addressed to both if, on the basis of
the most recent information available to the plan,
the two reside at the same location.
• Similarly, there is typically no requirement to provide a
separate notice to dependent children who share a residence
with a covered employee or the employee's spouse
to whom proper notice is provided.

• To minimize the possibility of errors involving notice recipients,
employees should be required (and periodically reminded)
to notify the plan administrator promptly of a separation, divorce,
or any other event that results in a spouse and/or dependents
no longer living at the same address as the employee.
• The plan should also have procedures in place to
ensure that any changes in address are promptly
and accurately recorded.
Failing to Include the Spouse (and Other Qualified
Beneficiaries) When Sending Required Notices

Not Recognizing When a Qualifying Event Has Occurred
The employer is responsible for notifying the plan administrator (if other than the
employer) within 30 days of the following qualifying events:
• Termination or reduction in hours of employment of the covered employee;
• Death of the covered employee; or
• The covered employee becoming entitled to Medicare.

Not Recognizing When a Qualifying Event Has Occurred
• A reduction of hours occurs whenever there is a decrease in the hours that a covered employee
is required to work or actually works (such as an absence from work due to disability or a
temporary layoff but not including absences due to FMLA leave), but only if the decrease is not
accompanied by an immediate termination of employment.
• If a group health plan measures eligibility for coverage by the number of hours worked in a
given time period, and an employee covered under the plan fails to work the minimum number
of hours during that time period, the failure to work the minimum number of required hours is
a reduction of hours of that covered employee's employment and a COBRA qualifying event.
• Note that the plan must have established procedures for how qualified beneficiaries can
provide notice of a divorce, legal separation or child’s loss of dependent status, including how,
and to whom, notice should be given, and what information must be included in the notice.

Miscalculating the Period of
COBRA Coverage
• Employers must offer employees and other
qualified beneficiaries the maximum period of
COBRA coverage to which they are entitled.
• The type of qualifying event determines who
the qualified beneficiaries are and the amount
of time the plan must offer health coverage to
them under COBRA.

• In certain circumstances, qualified beneficiaries
entitled to 18 months of COBRA coverage may be
entitled to a disability extension of 11 months (for a
total maximum period of 29 months), or an extension
of an additional 18 months due to the occurrence of
a second qualifying event (for a total maximum
period of 36 months).
• Your plan rules, as well as your election notice for any
offer of an 18-month period of COBRA, should
describe the notice required in either instance for the
qualified beneficiary to request an extension of COBRA.
• Also keep in mind that certain events, such as failure to
pay premiums, may justify termination of COBRA
before the end of the maximum period of coverage.
COBRA Coverage

• Special rules of Health FSA is an excepted Benefit:
• Coverage period is only to end of the plan year,
• COBRA coverage does not have to be offered if
account is overspent.
COBRA Coverage

Charging the Incorrect Amount
• A health plan may charge COBRA QBs for the cost
of providing COBRA coverage. It may require QBs
to pay up to 102% of the “applicable premium” for
the plan. In the case of a disability extension, it may
charge up to 150% of the applicable premium for
certain QBs.
• The applicable premium is the cost to the plan of
providing coverage.
• For insured plans, the applicable premium is
usually equal to the insurance premium paid to the insurance carrier.
• However, the calculation can be more difficult for self-funded plans and can be determined using past
costs or an actuarial estimate of future costs.
• The applicable premium is the total cost to the plan for providing coverage, so it includes both employer-
and employee-paid portions and can also include the administrative cost of providing COBRA coverage.

• The plan must calculate the COBRA applicable
premium in advance for a 12-month
“determination period.”
• The plan can choose any 12-month period to be the
determination period, but it must remain consistent
every year.
• The COBRA premium may be changed for a new
determination period if the applicable premium
changes and there are certain limited situations
where the COBRA premium may be changed during
the determination period (for example, if the QB
changes coverage to another benefit package with a
higher applicable premium)

• The plan administrator should use caution in
calculating the COBRA premium as well as in
communicating that premium to QBs.
• Fixing mistakes that result in over or undercharging
QBs for COBRA premiums can be administratively
burdensome and raise COBRA compliance issues.

Ignoring Incorrect Premium Payments
• Qualified beneficiaries may be required to pay
the full premium for COBRA continuation
coverage, even if the employer made a
contribution prior to the loss of benefits.
• A plan must allow premiums to be paid on a
monthly basis.

• If the amount of a premium payment made to the plan is
wrong, but is not significantly less than the amount due, the
amount paid will be deemed to satisfy the plan's requirement
for the amount that must be paid, unless the plan notifies the
qualified beneficiary of the amount of the deficiency and
grants a reasonable period of time (not less than 30 days)
to pay the difference.
• Even if your plan does not send monthly premium notices, it
must provide this notice of underpayment or the amount
submitted will be treated as full payment.
Ignoring Incorrect Premium Payments

Treating Employees on COBRA Different from Similarly
Situated Employees Who Are Not on COBRA
• The continuation coverage offered under COBRA must be identical to the coverage that is
currently available under the plan to similarly situated individuals who are covered under
the plan and not receiving COBRA.
• (Generally, this is the same coverage that the qualified beneficiary had immediately before
the qualifying event.)
• Qualified beneficiaries must receive the same benefits, choices, and services as similarly situated
non-COBRA participants and beneficiaries under the plan, such as the right during an open
enrollment season to choose among available coverage options.
• Any changes made to the plan's terms that apply to similarly situated active
employees and their families will also apply to qualified beneficiaries receiving
COBRA continuation coverage.

Terminating COBRA Continuation Coverage Too Early
• The continuation coverage offered under COBRA must be identical to the coverage that is
currently available under the plan to similarly situated individuals who are covered under
the plan and not receiving COBRA.
• (Generally, this is the same coverage that the qualified beneficiary had immediately before
the qualifying event.)
• Qualified beneficiaries must receive the same benefits, choices, and services as similarly situated
non-COBRA participants and beneficiaries under the plan, such as the right during an open
enrollment season to choose among available coverage options.
• Any changes made to the plan's terms that apply to similarly situated active
employees and their families will also apply to qualified beneficiaries receiving
COBRA continuation coverage.

Terminating COBRA Continuation Coverage Too Early
• If continuation coverage is terminated early, the plan must provide each qualified beneficiary with
an early termination notice.
• The notice must be given as soon as practicable after the decision is made and it must describe
the date coverage will terminate, the reason for termination, and any rights the qualified
beneficiary may have under the plan or applicable law to elect alternative group or individual
coverage (such as a right to convert to an individual policy).

Failing to Understand the Relationship
Between Medicare and COBRA
Whether an employee or family member is covered by Medicare may affect the right to
continuation coverage. Note the following general rules:
• An employee's spouse or child who loses group coverage because the employee becomes
entitled to Medicare may elect up to 36 months of COBRA continuation coverage.
• Where a spouse or child is already receiving COBRA due to the
employee's termination or reduction in hours, the employee’s
becoming entitled to Medicare may be a second qualifying event
that would allow the 18-month maximum period of continuation
coverage to be extended for an additional 18 months, for a total
of up to 36 months.

Whether an employee or family member is covered by Medicare may affect the right to
continuation coverage. Note the following general rules:
• If a qualified beneficiary first becomes entitled to Medicare benefits on or before the date
that COBRA is elected, the qualified beneficiary's entitlement to Medicare benefits cannot be
a basis for terminating his or her continuation coverage.
• If a qualified beneficiary first becomes entitled to Medicare benefits
after the date on which COBRA continuation coverage is elected,
the plan may terminate the qualified beneficiary's COBRA coverage
upon the date on which the qualified beneficiary becomes so entitled.
• A qualified beneficiary becomes entitled to Medicare benefits upon
the effective date of enrollment in either part A or B,
whichever occurs earlier.
• Thus, merely being eligible to enroll in Medicare does not constitute
being entitled to Medicare benefits
Failing to Understand the Relationship
Between Medicare and COBRA

Giving Bad Information
• Unfortunately, making sure you are
providing notices in certain situations is
not always enough. It is important to make
sure that the notices you provide contain
all the required information and that the
information is accurate.

Not Following Your Own Rules
• Notice Procedures
• With respect to the notice rules, plans must have reasonable
procedures in place for covered employees and QBs to notify the
plan administrator of certain events:
• Qualifying events that are the divorce or legal separation of the
covered employee or a dependent child losing dependent status
under the plan;
• Second qualifying events (triggering events that occur during
the period of COBRA coverage that would have caused a loss of
coverage under the plan if the QB were still covered); and
• SSA disability determinations (or cessation of disability).

Not Following Your Own Rules
In order to be reasonable, the procedures must:
• Be described in the SPD;
• Specify the individual or entity that should receive the notice;
• Specify how notice is to be given (for example, in writing or
on a specific form);
• Describe the information required (such as the QBs involved, the
date of the event, the nature of the event, the plan name and
any additional documentation the plan administrator might
want, such as a copy of a divorce decree);
• Specify the timeline for giving notice; and
• Provide for the proper handling of incomplete notices.

Not Providing COBRA elections at retirement
• Qualifying event
• Retiree Coverage offered
• Loss of coverage
• If no COBRA notice given, then
COBRA notice must be given when
retiree coverage ends.

Asset Sale
• Buyer may have to offer COBRA
coverage to seller’s employees.
• Seller does not continue medical
coverage after sale,
• Buyer continues business after sale,
• COBRA coverage not addressed in
sales agreement.

Contact Larry
708.717.9638
larry@larrygrudzien.com
www.larrygrudzien.com
Larry Grudzien
Attorney at Law

Fix COBRA Mistakes

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