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COBRA and the Health Reimbursement Arrangement

COBRA and the Health Reimbursement Arrangement. COBRA and the Health Reimbursement Arrangement (EBC HRA). Peter Antonie Compliance Communications Specialist Employee Benefits Corporation.

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COBRA and the Health Reimbursement Arrangement

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  1. COBRA and the Health Reimbursement Arrangement

  2. COBRA and the Health Reimbursement Arrangement (EBC HRA) Peter Antonie Compliance Communications Specialist Employee Benefits Corporation The material provided in this webinar is by Employee Benefits Corporation and is for general information purposes only. The information does not constitute legal advice and may not be relied upon by anyone as such. Nor may the information be disseminated in any form.

  3. COBRA & the EBC HRA • The EBC HRA is a group health plan maintained by the employer • The EBC HRA is subject to COBRA • COBRA applies to qualified beneficiaries (QBs) who experience a triggering event that causes the QB to lose the EBC HRA coverage • We can answer your questions about applying COBRA to the EBC HRA • We can administer COBRA for the EBC HRA through our COBRASecureSM service

  4. Our Agenda • COBRA’s basic requirements • Application of COBRA to the EBC HRA • Calculating the COBRA premium for the EBC HRA • Determining the coverage available after a qualifying event (the EBC HRA balance) • Common compliance issues involving COBRA and the EBC HRA

  5. COBRA Basics • A qualified beneficiary (QB) • Who experiences a triggering event • That causes loss of group health plan coverage • Must be offered COBRA continuation • For a specific time period • With a premium not to exceed 102% of the “applicable” premium (150% during the disability extension)

  6. COBRA Basics Qualified Beneficiary (QB) • The employee, spouse* or dependent child** • Who is covered the day prior to the loss of coverage * Under federal regulation, same sex spouses and/or domestic partners are not spouses ** Children are eligible for tax free health coverage to the end of the year they attain age 26 (health plan can limit coverage to the 26th birthday)

  7. COBRA Basics • Triggering Events* • Termination of employment • Reduction in hours • Divorce or legal separation • Death of the covered employee • Dependent child ceases to be a dependent • Covered employee becomes entitled to Medicare • Employer bankruptcy * All apply to the EBC HRA

  8. COBRA Basics Loss of Coverage • Triggering event date and loss of coverage date need not be the same (can postpone loss) • Triggering event must cause loss of coverage within the maximum continuation period for the triggering event (e.g., maximum period for termination of employment is 18-months. Loss of coverage must occur within that 18-month period. COBRA offered for 18-months from loss of coverage date)

  9. COBRA Basics COBRA Coverage Offered • QB is offered same coverage as in place the day prior to the loss of coverage • If coverage included spouse or dependents, each family member has independent election rights • QB is offered the coverage under the same terms and conditions that applied prior to the loss (e.g., plan type, applicable premium, etc.)

  10. Calculating the COBRA Premium for the EBC HRA* • IRS guidance is that EBC HRA premium is calculated using actuarial methods – same as a self-funded health plan • Past cost method may be used in some cases – never in first year * The only time a participant can provide any funding for the EBC HRA is by paying COBRA premium for EBC HRA coverage

  11. Calculating the COBRA Premium for the EBC HRA • Cannot be based on the actual claims paid for the specific former employee or family member • Cannot equal the maximum benefit available, unless the plan can demonstrate that all of the EBC HRA dollars are always reimbursed • The 2% COBRA administrative fee (or 150% during the disability extension) can be added to the applicable premium • Most plans use an arbitrary calculation based on previous claims history for the group applied to the future maximum reimbursement

  12. Calculating the COBRA Premium for the EBC HRA Example: • Employer A has an EBC HRA that reimburses up to $2,000 of the single plan deductible or up to $4,000 of the family plan deductible each year • Employer A reviews prior plan utilization and determines that the average reimbursement was 25% of the maximum benefit available for single or family coverage

  13. Calculating the COBRA Premium for the EBC HRA Example: (continued) • Employer A determines that the applicable premium will be $41.67 per month for a single participant* • $2,000 / 12 months x 25% = $41.67 • Employer A determines that the applicable premium will be $83.33 per month for a family participant* • $4,000 / 12 months x 25% = $83.33 *Does not include the 2% COBRA fee

  14. Applying COBRA to the EBC HRA EBC HRA “linked” to group plan • Employees who enroll in the group plan are provided the EBC HRA (do not separately enroll) • QB is offered COBRA for both plans – cannot elect one without the other • Example – ABC Co. provides the EBC HRA only to employees that enroll in the company’s health insurance plan. Joe is laid off and is offered COBRA continuation for the health plan including the EBC HRA. Joe cannot elect just the health plan since the health plan and EBC HRA are linked. He must choose both or choose no COBRA coverage.

  15. Applying COBRA to the EBC HRA EBC HRA provided as a stand-alone plan • Employees are provided the EBC HRA separately from other plans • QB is offered the EBC HRA as a separate election from any other plans offered • Example – ABC Co. provides an EBC HRA for all employees that work 30 hours per week or more, regardless of any other plans the employee enrolls in. Joe is laid off and is offered COBRA for the EBC HRA and any other plans he was enrolled in as separate plans to continue. Joe can elect COBRA continuation coverage for any or all of the plans.

  16. EBC HRA Balance After a Qualifying Event • QB is provided COBRA coverage for the balance of funds available from the EBC HRA • Calculating the EBC HRA balance available depends on the EBC HRA design

  17. EBC HRA Balance After a Qualifying Event • EBC HRA with no rollover (carryover) • EBC HRA with rollover • EBC HRA with Post Employment Benefit (PEB)

  18. EBC HRA Balance After a Qualifying Event EBC HRA with no rollover provision • QB is offered standard 18, 29 or 36 months of COBRA coverage • Applicable COBRA premium based on coverage level (e.g., single, family) • Balance of unused EBC HRA is available • Independent election rights apply for family members • QB eligible for new plan year benefit funding when next plan year begins

  19. EBC HRA Balance After a Qualifying Event EBC HRA with no rollover provision Example: Beth’s EBC HRA reimburses 75% of her $2,000 single plan deductible • At the time of her qualifying event, Beth has already been reimbursed $750 (75% of the $1,000 of deductible expenses she incurred) • Beth is offered COBRA with a balance available for reimbursement of $750 for the rest of the plan year • Beth pays the applicable COBRA premium for EBC HRA coverage • If continued, Beth will have $1,500 available for the next plan year (assumes no change in EBC HRA benefit for active employees)

  20. EBC HRA Balance After a Qualifying Event EBC HRA with rollover • QB offered standard 18, 29 or 36 months of COBRA coverage • EBC HRA including rollover balance is subject to COBRA • Applicable COBRA premium is cost to the employer for providing the EBC HRA with rollover to active employees (e.g., single plan with rollover) • Independent election rights apply for family members • QB eligible for new plan year benefit funding plus remaining rollover balance for next plan year

  21. EBC HRA Balance After a Qualifying Event EBC HRA with rollover • Example: Luke is enrolled in a single plan EBC HRA with rollover. Each year single plan participants have $1,000 available plus any rollover in their EBC HRA account • At the time Luke loses coverage, he has an EBC HRA balance of $5,000 (current year available funding + roll over – claims reimbursed to date of event) • Luke’s COBRA premium is the applicable cost to provide the EBC HRA with roll over to other single plan employees – not a premium based on Luke’s account value • If Luke elects COBRA, he would have another $1,000 available in the EBC HRA at the beginning of the next plan year plus any remaining rollover balance

  22. EBC HRA Balance After a Qualifying Event EBC HRA with PEB • Generally designed for retirees or others who terminate employment • One-time funding by the employer could be: • Roll over accumulated while employed • Funding based on a formula (e.g., X $ for each day of unused sick leave, etc) • Participant “spends-down” the PEB • Can be limited to a certain time period (e.g., 3 years) and/or until the account is exhausted

  23. EBC HRA Balance After a Qualifying Event EBC HRA with PEB – 3 options #1 - Active employee EBC HRA balance is converted into PEB HRA at termination or retirement • Must offer COBRA for the active employee EBC HRA when an event occurs • If COBRA is elected, active employee EBC HRA remains in effect (QB pays premium and normal claims reimbursement continues) - This is an issue when the health plan & EBC HRA are linked; expectation that PEB would be used to pay COBRA premiums for health plan • When COBRA coverage ends or is not elected, PEB HRA begins • PEB HRA is a spend down account and no COBRA rights apply for family members if participant dies, divorces, etc. while using PEB

  24. EBC HRA Balance After a Qualifying Event EBC HRA with PEB – 3 options #2 - No active employee EBC HRA, eligible employees receive a PEB HRA at termination or retirement • Family members who experience a qualifying event (e.g., divorce) while covered by the PEB are offered COBRA for the remaining PEB balance • Applicable COBRA premium is the cost to the employer of providing the PEB for its other PEB participants • Example: PEB usage is 30% of account value each year. Ex-spouse Mary is offered COBRA for PEB account with value of $9,000. Applicable monthly premium is: $9,000 X .3/12 months = $225 + 2% fee

  25. EBC HRA Balance After a Qualifying Event EBC HRA with PEB – 3 options #3 - PEB HRA as an alternative coverage • Employer has an active employee EBC HRA linked to the health plan • Employer maintains an alternative health plan & PEB HRA for employees who experience a specific event (e.g., termination of employment, retirement, etc) • When a qualifying event occurs, the employee can choose COBRA for the active employee health plan & EBC HRA or coverage under the alternative health plan and PEB HRA

  26. EBC HRA Balance After a Qualifying Event EBC HRA with PEB – 3 options #3 - PEB HRA as an alternative coverage (continued) • Employees who opt for the alternative health plan & PEB HRA waive their COBRA rights • Family members who experience a qualifying event (e.g., death of former employee) while covered by the alternative health plan and PEB HRA are offered COBRA for the alternative health plan and PEB HRA balance

  27. EBC HRA Balance After a Qualifying Event #3 - PEB HRA as an alternative coverage; example • George can elect COBRA and stay in the active employee health plan & EBC HRA or he can select an alternative health plan and PEB HRA of $10,000 when he terminates his employment • George selects the alternative health plan with PEB HRA and waives his COBRA rights to the active employee health plan and EBC HRA • George dies while still covered by the alternative coverage. His wife is offered COBRA for the alternative coverage for a period of up to 36-months from George’s death.

  28. EBC HRA Balance After a Qualifying Event • EBC HRA balance is subject to plan design • Aggregate benefit design versus individual embedded amount with family maximum design affects the balance available for a QB • Could affect • Deductible • Co-insurance • Co-pays (drugs, office visits, etc.) • Majority of EBC HRAs provide reimbursement for deductible expenses

  29. EBC HRA Balance After a Qualifying Event Deductible designs • Aggregate deductible – health plan only pays after expenses for any or all individuals exceed the deductible amount • Example: Sam covers his wife and two children in a health plan with a family aggregate deductible of $4,000. Sam’s health plan will cover the family’s medical expenses only after Sam and/or his family members have had $4,000 in out-of-pocket deductible expenses

  30. EBC HRA Balance After a Qualifying Event Deductible designs • Individual embedded deductible with family maximum • Health plan pays when any individual has expenses that exceed the individual embedded deductible amount; or, • Health plan pays when the family’s deductible expenses exceed a maximum threshold amount

  31. EBC HRA Balance After a Qualifying Event Deductible designs – individual embedded deductible with family maximum • Example: Mary covers her husband and a child in a health plan with a $2,000 individual embedded deductible with a family maximum deductible of $4,000 • Mary’s plan will reimburse expenses when any covered family member has deductible expenses of $2,000 • If remaining family members incur an additional $2,000 of deductible expenses (a total of $4,000 in deductible expenses), the plan will cover all future expenses • The health plan will also reimburse future expenses if the family incurs $4,000 of deductible expenses even though no individual has incurred $2,000 of deductible expenses

  32. EBC HRA Balance After a Qualifying Event Changes from family coverage to single coverage (divorce or loss of dependent status) • EBC HRA balance will vary upon aggregate or individual embedded deductible design • The following examples all use the same facts

  33. EBC HRA Balance After a Qualifying Event Changes from family coverage to single coverage – examples Facts: • John and Jane Doe are married • John has an EBC HRA linked to the health insurance plan that reimburses 100% of the health plan’s deductible expenses • Single EBC HRA reimburses the $2,000 deductible and family EBC HRA reimburses the $4,000 deductible • John and Jane divorce • Jane is offered COBRA

  34. EBC HRA Balance After a Qualifying Event Changes from family coverage to single coverage – examples Facts: (continued) • Prior to the divorce, Jane had $1,500 in deductible expenses reimbursed from the EBC HRA • John had $800 in deductible expenses reimbursed from the EBC HRA • Single and family premium for health plan plus EBC HRA are established monthly premium amounts • Single premium is $350 and family premium is $900 (health plan + EBC HRA)

  35. EBC HRA Balance After a Qualifying Event Aggregate deductible – divorce balance • Based on facts • $2,300 towards the aggregate deductible satisfied ($1,500 from Jane, $800 from John) • Jane is offered COBRA for a single plan

  36. EBC HRA Balance After a Qualifying Event Aggregate deductible – divorce balance (continued) • Jane’s deductible changes from $4,000 to $2,000 • In an aggregate design, the EBC HRA doesn’t track claims against specific individuals • Jane is credited with $2,300 towards the $2,000 deductible (deductible is satisfied) • Jane pays $350/month for single health plan with EBC HRA coverage • Jane has no EBC HRA funds available for the remainder of the plan year • Jane will have $2,000 of EBC HRA funding available the next plan year

  37. EBC HRA Balance After a Qualifying Event Individual Embedded Deductible – divorce balance • Based on facts • Jane has satisfied $1,500 of deductible expenses • Jane is offered COBRA for a single plan

  38. EBC HRA Balance After a Qualifying Event Individual Embedded Deductible – divorce balance (continued) • Individual embedded deductible of $2,000 applies to each person • With individual embedded design, claims are tracked against specific individuals • Jane is credited with $1,500 toward $2,000 single deductible • Jane pays $350/month for single health plan with EBC HRA coverage • Jane has possible additional $500 of EBC HRA funds for the rest of the plan year • Jane will have $2,000 of EBC HRA funding available the next plan year

  39. Common compliance issues • Not offering COBRA for the EBC HRA • Not offering COBRA for all of the qualifying events (e.g., not offering COBRA to ex-spouse, etc.) • Offering COBRA for the EBC HRA separately when the EBC HRA is linked to the health plan for active employees • Not creating an applicable premium for the EBC HRA or creating an unreasonable applicable premium • Automatically moving participants to a PEB HRA without offering COBRA for the active employee EBC HRA

  40. Summary • COBRA applies to the EBC HRA • All COBRA rules apply (e.g., QBs, events, applicable premium, etc.) • EBC HRA COBRA coverage after an event is affected by plan design • We can answer your questions about applying COBRA to the EBC HRA • We can administer COBRA for the EBC HRA through our COBRASecure service

  41. Thanks for Attending Questions on this issue or any COBRA, EBC HRA or Cafeteria Plan issue can be directed to: Compliance Department 1-800-346-2126 Or compliance@ebcflex.com

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