With businesses operating remotely and personnel working from home, it’s easy to miss certain important deadlines in this COVID-19 era, such as providing your COBRA Administrator with timely termination of coverage notices so that employees who have a COBRA qualifying event, such as termination of employment or reduction of hours, receive COBRA Election notices within 45 days of the qualifying event date. Diversified would like to remind our self-funded clients of the importance of meeting the guidelines for notification both to avoid federal fines for non-compliance and to avoid issues/concerns with stop loss carriers.
Federal law requires that employers provide COBRA termination notices to their administrator (Diversified) as soon as possible but not later than 30 days from the COBRA qualifying event date. At that point, COBRA election notices must go out to COBRA qualified beneficiaries within 14 days of the termination notice.
In addition to federal non-compliance fines, which are up to $110/day for each day the COBRA election notification is late, self-funded employers also must be aware of potential loss of stop loss and aggregate reinsurance coverage for an individual claimant if an administrative error resulted in late COBRA notification to the qualified beneficiary. Additionally, potential benefit claims exposure made after the loss of coverage but before the COBRA terminations are received from the employer to the benefits service provider may not be covered under the stop loss policy.
Because penalties can be waived/avoided if the employer shows due diligence and good faith to correct errors, employers that discover a failure to timely provide a COBRA election notice will want to correct that failure immediately upon discovery. Although each situation is different and there is not a one-size fits all fix, an employer will want to consider the following upon discovery of a missed COBRA termination:
- Determine how far back the COBRA notice failure occurred;
- Send the election notice and offer coverage retroactively. However, if the offer is extremely late – meaning the maximum coverage period has ended – the employer may offer coverage going forward;
- Forcing employees to pay a large lump sum up front for their retroactive months of COBRA coverage premiums can be problematic. As a remedy, the employer has a choice: (1) the employer can pay the COBRA premium costs for the retroactive period, or (2) grant an extended grace period for payment, or (3) the employer may allow a payment installment plan to spread the cost out over a period of time. Each option reduces the burden off the qualified beneficiary to pay his/her premium right away;
- Contact the stop loss carrier to receive confirmation that they will recognize the administrative error and provide coverage for the qualified beneficiary at issue. Some stop loss carriers provide contractual provisions in their agreements that limit their responsibility to provide coverage only when proper COBRA notification has been provided. In non-COVID-19 times, it may have been easier to obtain carrier approval of coverage due to a COBRA administrative error, however, with COVID-19 and related extensions of timeframes in which to elect and pay for COBRA premiums, stop loss carriers are likely to be more reluctant to approve accommodations;
- If the carrier refuses to provide coverage, the employer is still responsible for providing the election notice and for any covered expenses incurred from the qualified beneficiary;
- Determine when coverage will be effective. Typically, coverage is retroactive to the date coverage is lost. However, when there has been a long period elapsing between the loss of coverage and the corrected COBRA election notice, COBRA may be offered going forward.
The plan administrator has a fiduciary duty to manage a self-funded plan in a manner that serves the best interests of the participants and the beneficiaries. This includes following the instruments of the plan, such as the rules outlined within the plan document which state that COBRA notification will be made in a timely manner.