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COBRA Solutions, Inc.

Be Careful About Proper Dates when Offering Subsidized COBRA Coverage

A recent court case involved a suit against an employer and plan administrator for an alleged ERISA fiduciary breach along with COBRA notice failures. In the case Damiano v. Institute for In Vitro Sciences et al, 2016 WL 7474535 (D. Md. December 29, 2016) the plaintiff, Michele Damiano sued her former employer, (IIVS) and their third party COBRA administrator, Paychex Insurance Agency, Inc. in connection with material misrepresentation claims as well as COBRA notice violations.

The facts of the case are as follows: Michele Damiano was sent a letter by IIVS on September 9, 2015 stating that she was terminated effective immediately. The letter further affirmed her benefits would be paid through October 31, 2015. However, Damiano ended up liable for $4,900 in dental expenses for procedures that were done in September. Additionally Damiano underwent emergency surgery in early October. A few days later, on October 8, 2015 Paychex issued a COBRA notice that stated her coverage end date would be October 31, 2015 confirming what the original termination letter from IIVS had articulated. However, a second COBRA notice arrived that was dated October 23, 2015 stating that her coverage ended September 9 2015. Because Damiano received this second notice more than 44 days after being fired from her job, she decided to file suit against both IIVS and Paychex based upon a breach of fiduciary duty under ERISA, COBRA notice violations, and lastly, state law breach of contract.

The state law claim was dismissed as preempted by ERISA. As for the fiduciary claim, the defendants tried to wriggle out of this by suggesting Damiano did not detrimentally rely upon the statements in the termination letter. However, Damiano was able to prove that the defendants were indeed a fiduciary and as such they had breached their fiduciary responsibilities to her. Furthermore, she successfully proved her need from the court to remedy the violations. Damiano was able to prove that she “relied on the misrepresentation of the Defendants that she had coverage and thus did not pursue alternate coverage to her detriment.” Therefore her claim of breach of fiduciary duty stood strong. Lastly, her COBRA notice claim also survived because the court concluded that the plan administrator failed to send the notice within the 44-day timeframe.

In this author’s opinion it appears that the conflicting verbiage in the two COBRA notices was probably because of confusion as to whether the employer was offering extended “subsidized” coverage in the severance package or not. In other words, make sure to specify that the even though the coverage may be free of charge for a specified period, the 18 month COBRA period would still begin upon the original employment termination date. And most importantly, the COBRA election notice must be sent within 44 days of that original termination date – not within 44 days of the end of any employer subsidized COBRA coverage.

Administrate Coverage during an Election or Initial Payment Period

An employer or plan administrator has 44 days to provide an election notice. Then the qualified beneficiary has 60 days to elect COBRA. Once the qualified beneficiary has elected COBRA he or she has another 45 days to pay the initial premium. So what happens during these timeframes?

During the election period it is up to each employer to decide whether to remove the qualified beneficiary from the plan when coverage is lost, or allow the qualified beneficiary continue on the plan. If removed from the plan, COBRA coverage could be pending until payment is received. The employer is then responsible to reinstate coverage back to the original loss-of-coverage date once payment is received. Before an employer chooses to keep the qualified beneficiary on the health plan during these grace periods, there are a few aspects to contemplate. If a group health plan is insured, how far back will the insurer allow the retroactive removal of a qualified beneficiary by the employer? Some insurers may not allow the removal to go back more than 60 days. If you add up the three time frames allowed (which would be 44 + 60 + 45) you end up with almost a five month period. If an insurer allows the removal back to only 60 days, the employer will be self-insuring the period that the insurer does not allow. Consequently, it is recommended that the qualified beneficiary be removed from the plan and only reinstated if payment is received. In the case that an employer desires to keep a qualified beneficiary on the plan, it should review the process with the insurer. Upon approval by the insurer to retroactively remove a qualified beneficiary to the original loss-of-coverage date when an election and payment has failed to be received, it is prudent for the employer to obtain confirmation in writing.

How about monthly grace periods for premium payment? This period has to be at least 30 days and most employers hold it to that timeframe. So, if the qualified beneficiary does not pay the monthly premium within the 30 day grace period, the insurer will allow retro-active removal from the plan without any issues. In some cases, insurers will remove qualified beneficiaries each month until premium has been received. Upon receipt of payment, a plan must promptly reinstate coverage; thereby the qualified beneficiary receives coverage for the entire month. This can be a very complicated process to administrate because when a qualified beneficiary is removed each month, claims are denied. As soon as the premium payment is received, however, claims have to be processed.

What about denied claims that a qualified beneficiary has during these grace periods? First of all, claims during the election period or grace period could potentially be denied. Once the qualified beneficiary pays for COBRA coverage, the denied claims can be resubmitted upon reinstatement onto the plan.

What is the correct response when someone contacts the employer or plan administrator about health plan status during these grace periods? According to the IRS final COBRA regulations, a complete response is required to a health care provider’s request regarding a qualified beneficiary’s coverage status during the election and initial payment periods. This means that just a covered or a not covered response will not suffice. To respond to a coverage pending election, the employer can indicate that a qualified beneficiary is removed from the plan during the 60-day election period and then reinstated once COBRA is elected and first payment is received. It is wise to inform the provider’s office of this status, as well as to let them know the qualified beneficiary is not currently on the plan but will have coverage, retroactively, once COBRA coverage is elected and the first payment is received. This notification should include specific dates of election period and premium due dates.

So what is the response if the qualified beneficiary is not removed during the election/payment period? This other option is appropriate if the plan allows coverage during the election period but cancels it retroactively if COBRA is not elected. In this case, the plan or administrator is required to notify a provider that the qualified beneficiary is covered but is subject to retroactive termination if COBRA coverage is not elected and the appropriate premiums are not paid. As part of the information given to the provider, specific election and payment dates should be included.

To avoid liability or litigation, accurate information should be given to a health care provider requesting a qualified beneficiary’s coverage status. Because COBRA is an employer law, the burden of liability may belong to the employer rather than an insurer. Any inquiries regarding health coverage should be handled by the employer or plan administrator rather than the insurer.

Common Examples of “Cause” Resulting in COBRA Termination

The most common examples of “cause” is fraud that is committed by qualified beneficiaries: leaving an ex-spouse on the group health plan after a divorce, covering non-dependents such as stepchildren and other relatives, and failure to report the fact that an adult child under the age of 26 is eligible for other group coverage. Some other examples of fraudulent activities that employers should be made aware of are as follows.

Sometimes Qualified Beneficiaries are tempted to try and come out ahead when covered by two different health insurers. Failure to reveal coverage through another plan by submitting the same claim to two different insurers in the hopes of getting at least 100% of the medical claim reimbursed should never be expected. Dual coverage is possible; however, only one of the insurers will be considered the primary and the other will be the secondary. This attempted “double dipping” will probably not go unnoticed. It will become apparent when the insurers check into the coordination of benefits.

Unfortunately there have been cases where an individual has submitted multiple copies of the same invoice for an ongoing medical condition, but with additional falsified dates in order to get reimbursed for services that were not provided or used. Falsification of claims would be considered fraudulent activity, which would be grounds for COBRA termination. There have also been instances when an individual has received prescription drugs for their medical conditions, only to resell them in a money making scheme. Again this would be considered fraudulent activity, which would also warrant COBRA termination.
Writing a bad check for the COBRA premium could result in COBRA termination if the individual cannot rectify the situation within the grace period. Although there are no guidelines regarding this specific incident, it would be prudent for the plan administrator to make an attempt to contact the individual about this situation before taking drastic steps. If this was simply an oversight and could be corrected in a timely manner, COBRA coverage would continue; however writing bad checks that cannot be covered are grounds for early termination of coverage.

Finally, cause can be expanded past fraudulent activity to include failure to follow plan procedures. If a plan requires that all participants re-enroll every year during open enrollment, including those on COBRA, failure to do so can result in early termination. In the 2007 court case, White v. The Kroger Co., the court upheld the employer’s decision to terminate COBRA coverage before the maximum coverage period due to failure on the part of the QB to re-enroll.

Again, plan administrators need to remember to provide written notice to each affected QB when the COBRA coverage is being terminated early; unfortunately there is no exception even when the termination is due to fraudulent activity.

Administrate Coverage during an Election or Initial Payment Period

An employer or plan administrator has 44 days to provide an election notice. Then the qualified beneficiary has 60 days to elect COBRA. Once the qualified beneficiary has elected COBRA he or she has another 45 days to pay the initial premium. So what happens during these timeframes?

During the election period it is up to each employer to decide whether to remove the qualified beneficiary from the plan when coverage is lost, or allow the qualified beneficiary continue on the plan. If removed from the plan, COBRA coverage could be pending until payment is received. The employer is then responsible to reinstate coverage back to the original loss-of-coverage date once payment is received. Before an employer chooses to keep the qualified beneficiary on the health plan during these grace periods, there are a few aspects to contemplate. If a group health plan is insured, how far back will the insurer allow the retroactive removal of a qualified beneficiary by the employer? Some insurers may not allow the removal to go back more than 60 days. If you add up the three time frames allowed (which would be 44 + 60 + 45) you end up with almost a five month period. If an insurer allows the removal back to only 60 days, the employer will be self-insuring the period that the insurer does not allow. Consequently, it is recommended that the qualified beneficiary be removed from the plan and only reinstated if payment is received. In the case that an employer desires to keep a qualified beneficiary on the plan, it should review the process with the insurer. Upon approval by the insurer to retroactively remove a qualified beneficiary to the original loss-of-coverage date when an election and payment has failed to be received, it is prudent for the employer to obtain confirmation in writing.

How about monthly grace periods for premium payment? This period has to be at least 30 days and most employers hold it to that timeframe. So, if the qualified beneficiary does not pay the monthly premium within the 30 day grace period, the insurer will allow retro-active removal from the plan without any issues. In some cases, insurers will remove qualified beneficiaries each month until premium has been received. Upon receipt of payment, a plan must promptly reinstate coverage; thereby the qualified beneficiary receives coverage for the entire month. This can be a very complicated process to administrate because when a qualified beneficiary is removed each month, claims are denied. As soon as the premium payment is received, however, claims have to be processed.
What about denied claims that a qualified beneficiary has during these grace periods? First of all, claims during the election period or grace period could potentially be denied. Once the qualified beneficiary pays for COBRA coverage, the denied claims can be resubmitted upon reinstatement onto the plan.

What is the correct response when someone contacts the employer or plan administrator about health plan status during these grace periods? According to the IRS final COBRA regulations, a complete response is required to a health care provider’s request regarding a qualified beneficiary’s coverage status during the election and initial payment periods. This means that just a covered or a not covered response will not suffice. To respond to a coverage pending election, the employer can indicate that a qualified beneficiary is removed from the plan during the 60-day election period and then reinstated once COBRA is elected and first payment is received. It is wise to inform the provider’s office of this status, as well as to let them know the qualified beneficiary is not currently on the plan but will have coverage, retroactively, once COBRA coverage is elected and the first payment is received. This notification should include specific dates of election period and premium due dates.

So what is the response if the qualified beneficiary is not removed during the election/payment period? This other option is appropriate if the plan allows coverage during the election period but cancels it retroactively if COBRA is not elected. In this case, the plan or administrator is required to notify a provider that the qualified beneficiary is covered but is subject to retroactive termination if COBRA coverage is not elected and the appropriate premiums are not paid. As part of the information given to the provider, specific election and payment dates should be included.

To avoid liability or litigation, accurate information should be given to a health care provider requesting a qualified beneficiary’s coverage status. Because COBRA is an employer law, the burden of liability may belong to the employer rather than an insurer. Any inquiries regarding health coverage should be handled by the employer or plan administrator rather than the insurer.