A national emergency was declared on March 13, 2020, as the result of the COVID-19 pandemic. As a result of that declaration, the Federal Emergency Management Agency (FEMA) issued emergency declarations for every state, territory, and possession of the United States. In times of a natural disaster or national emergency, it is not uncommon for the federal government to issue relief to impacted employee benefit plan participants, and the COVID-19 pandemic is no exception. To address problems faced by participants and beneficiaries in exercising their healthcare coverage continuation rights, the U.S. Departments of Labor and Treasury (the “Agencies”) jointly issued a notice on May 4, 2020 (the “Notice”).1 Of note, the Notice provides plan participants with an extended period of time to elect to receive continued healthcare coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, commonly referred to as COBRA, as well as to make the required COBRA premium payments. This OnPoint addresses those matters.2
Relevant COBRA Rules
In general, COBRA permits qualified beneficiaries (i.e., employees or dependents who have lost group health insurance coverage due to certain events, including a termination of employment or a reduction in hours) to elect continued health coverage. COBRA generally provides a qualified beneficiary a period of at least 60 days following the receipt of notice from their plan administrator, or if later 60 days following the date coverage under the plan otherwise would have terminated, to elect COBRA continuation coverage.3 Qualified beneficiaries can also elect COBRA coverage before receiving the election notice.4
If continued coverage is timely elected through COBRA, plans are required to allow payment of premiums in monthly installments, and plans cannot require payment of premiums to begin before 45 days after the day of the initial COBRA election.5 Assuming that the COBRA election is timely made and COBRA premiums are timely paid, COBRA coverage is retroactive to the date that the qualified beneficiary otherwise would have lost coverage under the plan absent the COBRA election (the insurer may not deny coverage, and must make retroactive payments for benefits and services received). If COBRA coverage is timely elected but COBRA premiums are not timely paid, then COBRA continuation coverage may be terminated. Under the COBRA rules, premiums are considered paid timely if they are paid not later than 30 days after the first day of the period for which payment is being made (subject to the 45 day rule for the first premium payment(s) noted above).6
Modification of COBRA Rules Under the Notice; Examples
Pursuant to the Notice, group health plans subject to COBRA7 must disregard the period from March 1, 2020 until 60 days after the announced end of the national emergency declared as the result of the COVID-19 pandemic or such other date announced by the Agencies in a future notification (the “Outbreak Period”) in determining the date by when a qualified beneficiary must elect COBRA continuation coverage and the date on which COBRA premium payments are due. Similarly, the Outbreak Period will be disregarded for purposes of determining the date by when qualified beneficiaries must be provided a COBRA election notice.
The following examples illustrate this aspect of the relief provided by the Notice. Assume for purposes of these examples that the national emergency ends on April 30, 2020, and thereof the Outbreak Period ends on June 29, 2020 (the 60th day after the end of the national emergency).
If a qualified beneficiary experiences an event entitling him or her to elect continued coverage through COBRA and is provided a COBRA election notice on April 1, 2020, the individual will be eligible to elect COBRA coverage until August 28, 2020 (the date that is 60 days after June 29, 2020). But for the Notice, the individual would have had until May 31, 2020 to make an election to receive continued coverage through COBRA.
If an individual was already receiving COBRA continuation coverage under a group health plan on March 1, 2020 and elected to receive COBRA continuation coverage more than 45 days before that date, but did not make the March 2020 COBRA premium payment or any subsequent COBRA premium payment during the Outbreak Period, COBRA premium payments made by July 29, 2020 (30 days after June 29, 2020) for March, April, May and June 2020, would be timely, and the individual would be entitled to COBRA continuation coverage for those months. But for the Notice, the COBRA premiums for each of these months generally would be due within 30 days after the beginning of the month, and failure to timely pay these premiums would result in the cessation of COBRA coverage. If in this same example, the individual makes payment for only two months (rather than for the full four month period) by July 29, 2020, the individual would be entitled to COBRA continuation coverage for March and April 2020, the first two months for which timely premium payments were made. Benefits and services provided by the group health plan (e.g., doctors' visits or filled prescriptions) that occurred on or before April 30, 2020 would be covered under the terms of the plan. The plan would not be obligated to cover benefits or services that occurred after April 30, 2020.
While the COBRA changes provided by the Notice are very favorable for qualified beneficiaries, by extending the option period to elect COBRA coverage, they increase the risk of adverse selection for insurers – i.e., only those most in need of coverage, and therefore the most expensive group to insure, will elect COBRA coverage. Similarly, because of the delay in the deadline for making COBRA premium payments, combined with the balloon payment due after the national emergency is lifted, there is a risk that some qualified beneficiaries who elected COBRA coverage will not timely pay their COBRA premiums because they can’t afford the payment. The result of this is that claims incurred by them for periods in which COBRA premiums were not timely paid will be denied, and will be the responsibility of the qualified beneficiary. While this was always a risk under the current COBRA premium payment rules, it is exacerbated by the relief provided in the Notice.
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If you would like to discuss COBRA, the Notice or any other aspect of employee benefits that has been impacted by legislation and guidance adopted in response to the COVID-19 pandemic, please contact any of the Dechert attorneys listed below or any Dechert attorney with whom you regularly work.
1) 85 FR 26351.
2) In addition, on May 1, 2020, the U.S. Department of Labor issued FAQs under COBRA and revised the COBRA model notices that plan administrators can use to notify plan participants and qualified beneficiaries of their rights under COBRA. The revised model notices provide additional information to address COBRA’s interaction with Medicare. The model notices explain that there may be advantages to enrolling in Medicare before, or instead of, electing COBRA.
3) 29 USC §1165; 26 USC §4980B(f)(5).
4) 29 USC §1165(a)(1)(A).
5) 29 USC §1162(3); 26 USC §4980B(f)(2)(C).
6) 29 USC §1162(2)(C); 26 USC §4980B(f)(2)(B)(iii); 26 CFR 54.4980B-8 Q&A-5(a).
7) Generally, group health plans maintained by an employer that normally employed 20 or more employees during the prior calendar year are subject to COBRA. 29 USC §1161(b); 26 USC §4980B(d)(1).