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COBRA and Paid Retirement Benefit Interaction

COBRA and Paid Retirement Benefit Interaction. Peter Antonie Compliance Communications Specialist Employee Benefits Corporation.

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COBRA and Paid Retirement Benefit Interaction

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  1. COBRA and Paid Retirement Benefit Interaction 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.

  2. Common Question If we pay for a retiree’s health plan for a period of time, how does that affect COBRA?

  3. Our Agenda • Basic COBRA concepts • Three options for applying COBRA at retirement • Postpone loss of coverage to end of paid benefit period • Offer COBRA and paid benefit concurrently • Offer choice between COBRA and alternative paid retiree coverage • Advantages and disadvantages of each option • Common compliance issues with paid benefits for retirees

  4. Then along came COBRA! • Consolidated Omnibus Budget Reconciliation Act (1986) • Requires health plan sponsors (employers) to provide continuation of health plan coverage when certain events occur and for specific periods of time • Requires specific notification procedures and timelines • There are stiff penalties for non-compliance

  5. Then along came COBRA! • Retirement (termination of employment) is a COBRA triggering event • COBRA must be offered for continuation of an employer’s group health plan(s) due to termination of employment if: • loss of coverage occurs within 18 months of the triggering event • We can answer your questions about applying COBRA when retirees receive paid benefits • We administer COBRA if the employer has adopted our COBRASecuresm product

  6. Basic COBRA concepts • A COBRA triggering event • Causes loss of group health plan coverage • Within the maximum coverage period • Resulting in a qualifying event (QE) • For a qualified beneficiary (QB) • Who elects COBRA continuation coverage • For a limited time period • Commonly at QB expense

  7. COBRA triggering event* A COBRA qualifying event is one of the listed triggering events that, “but for the continuation coverage required [by COBRA], would result in the loss of coverage of a qualified beneficiary.” And the IRS COBRA regulations provide that a triggering event is a qualifying event only “if, under the terms of the group health plan, the event causes the covered employee, or the spouse or a dependent child of the covered employee, to lose coverage under the plan.” *ERISA §603 . Treas. Reg. §54.4980B-4, Q/A-1(c)

  8. Triggering events* (1) The death of a covered employee; (2) The termination (other than by reason of the employee's gross misconduct), or reduction of hours, of a covered employee's employment; (3) The divorce or legal separation of a covered employee from the employee's spouse; * Treasury Regulation §54.4980B-4, Q/A – 1(a)

  9. Triggering events - continued • (4) A covered employee's becoming entitled to Medicare benefits under Title XVIII of the Social Security Act (42 U.S.C. 1395-1395ggg); • (5) A dependent child's ceasing to be a dependent child of a covered employee under the generally applicable requirements of the plan; or • (6) A proceeding in bankruptcy under Title 11 of the United States Code with respect to an employer from whose employment a covered employee retired at any time.

  10. Loss of group health plan coverage* • The IRS COBRA regulations make clear that “to lose coverage means to cease to be covered under the same terms and conditions as in effect immediately before the qualifying event.” • If the employer continues to pay the retiree’s premium, has there been a loss of coverage? * Treasury Regulation §54.4980B-4, Q/A – 1(g)

  11. Within the maximum coverage period • A COBRA loss of coverage need not occur immediately after a triggering event. So long as the loss occurs within the “maximum coverage period,” there is a qualifying event. • The maximum coverage period for termination (retirement) is 18 months. • If the employer’s paid retiree benefit exceeds 18 months and loss of coverage is postponed until payment ceases, there is no qualifying event when the paid benefit ceases.

  12. Resulting in a qualifying event • A qualifying event (QE) is an event that satisfies the regulatory requirements of: • Being the result of a triggering event • That caused a loss of coverage • During the maximum coverage period for the triggering event

  13. For a qualified beneficiary* • A qualified beneficiary (QB) is an employee, spouse** or dependent child • Who loses group health plan coverage due to a qualifying event and • Was covered the day prior to the qualifying event * ERISA § 601(a) ; Code §4980B(f)(1) ; PHSA §2201(a) ; Q/A-1; Treas. Reg. §54.4980B-1, Q/A-1(a) ** Domestic partners are not spouses (Defense of Marriage Act – DOMA) and not QBs – do not have separate election rights

  14. QB elects COBRA continuation* • A qualified beneficiary “must actively elect to continue coverage and must make the required payments in order to remain covered.” * Schoka v. Supercuts Incorporated, 1995 U.S. Dist. LEXIS 15945 (N.D. Cal. 1995).

  15. Election for a specified period of coverage* The election notice must explain (1) the maximum period for which continuation coverage will be available under the plan, if elected (2) the continuation coverage termination date; and (3) any events that might cause continuation coverage to be terminated earlier than the end of the maximum period * DOL Reg. §2590.606-4

  16. Generally at QB expense • No requirement that the employer pay any portion of the COBRA premium • If QB’s premium increases (i.e., portion paid) due to the triggering event, then a qualifying event has occurred and COBRA must be offered

  17. Retirement is a triggering event • Termination of employment is a triggering event • Loss of coverage can be postponed (e.g., many plans provide that the loss occurs at the end of the month the triggering event occurs in) • Postponing the loss due to employer continued payment past 18-months results in no qualifying event when coverage is lost

  18. Options related to paid retiree benefits & COBRA • Postpone loss to end of employer payment. • No COBRA if payment ceases more than 18 months after retirement • Offer COBRA at time of retirement. • Employer payment contingent on electing COBRA and concurrent with COBRA • Offer COBRA at retirement at retiree expense. • Employer’s payment offered for alternative retiree coverage

  19. Option 1 - Postpone loss of coverage until paid benefit ceases • Employer provides payment for specified period. • If payment ceases prior to end of 18 months after retirement, COBRA offered when payment ends. • COBRA period is from the payment cessation date • If payment ceases more than 18 months after retirement, no COBRA offer when payment ends.

  20. Postponed loss (continued) • Family member QBs that lose employer paid coverage during the first 18 months due to death, divorce or dependent status are offered COBRA for 36 months counted from the retirement date. • Family members that lose employer paid coverage within 18-months due to Medicare entitlement of the retiree are offered COBRA for 18 months counted from the retirement date. • The triggering event was retirement, not Medicare entitlement (spouse and dependents remain eligible for the health plan, just not employer payment)

  21. Postponed loss - example ABC Corp provides 3 years of paid health insurance or to Medicare entitlement whichever occurs first for employees that retiree at or after age 57. • Assume Bill retired at age 60. Bill receives 3 years of paid health insurance – no COBRA when payment ceases • Assume Bill dies at age 61 (1 year later), his spouse is offered COBRA for 36 months counted from his retirement date • Assume Bill retired at age 64. One year later ABC’s payment ceases due to Bill’s Medicare entitlement. Bill’s wife loses employer paid coverage and is offered COBRA for the remainder of the 18 months counted from his retirement at her expense

  22. Option 2 - Offer COBRA to run concurrent with paid benefit • COBRA period for retiree is 18 months • Employer payment can be for any period of time and is contingent on retiree electing COBRA • If employer payment ceases prior to end of 18-month period, retiree and any family members stay on COBRA for remainder of 18-month period at retiree expense

  23. Concurrent COBRA (continued) • Family member QBs that lose coverage during the first 18 months due to death, divorce or dependent status are offered COBRA for 36 months counted from the retirement date (original loss date) • Family members that lose employer paid coverage within 18-months due to Medicare entitlement of the retiree can continue COBRA for remainder of original 18 months • If employer payment ceases after 18-month period, retiree and family members can stay on employer’s plan at retiree expense only if the plan allows (have already received the maximum 18-month COBRA period)

  24. Concurrent COBRA - example ABC Corp provides 3 years of paid health insurance or to age 65 whichever occurs first for employees that retiree at or after age 57. • Assume Bill retires at age 60. Bill receives 3 years of paid health insurance – COBRA exhausted when payment ceases • Assume Bill dies at age 61 (1 year later), his spouse is offered COBRA for 36 months counted from his retirement date • Assume Bill retired at age 64. One year later ABC’s payment ceases due to Bill’s Medicare. Bill’s wife can continue COBRA for remainder of original 18 months at her expense

  25. Option 3 - Provide alternative paid retiree coverage • Retiree is offered choice of COBRA, at retiree expense, or employer paid alternative coverage for the specified period • Employer payment of alternative coverage contingent on retiree waiving COBRA for active employee plan • Employer paid alternative coverage can be same plan that active employees have or separate plan

  26. Alternative Coverage (continued) • When employer’s premium ceases, retiree is not offered COBRA (rights were waived when choice was made for alternative coverage) • Family member QBs that lose coverage during the alternative coverage period are offered COBRA for 36 months counted from the event date • E.g., Retiree dies during paid benefit period, surviving QBs offered 36 months of COBRA from death date • E.g., Retiree and spouse lose alternative coverage due to retiree’s Medicare entitlement; spouse is offered 36 months of COBRA from Medicare entitlement date

  27. Alternative coverage - example ABC Corporation provides alternative retiree coverage of 3 years of paid health insurance or to Medicare entitlement whichever occurs first for employees that retiree at or after age 57. • Assume Beth retires at age 60. Beth waives COBRA and receives 3 years of paid health insurance – no COBRA when payment ceases • Assume Beth dies at age 61 (1 year later) and the alternative coverage ceases. Beth’s spouse is offered COBRA for 36 months counted from her death date • Assume Beth retired at age 64. One year later ABC’s alternative coverage ceases due to Beth’s Medicare entitlement. Beth’s wife is offered 36 months COBRA from Beth’s Medicare entitlement date

  28. Common COBRA compliance issues with paid benefits for retirees • Not offering COBRA at all • Postponing loss of coverage more than 18 months to end of payment period and offering COBRA when payment ceases • Not offering COBRA appropriately to family member QBs when qualifying events occur during the payment period • Treating the paid benefit as alternative coverage without offering COBRA for the active employee plan

  29. Conclusion • Retirement is a COBRA triggering event • Employer can pay for coverage after the triggering event • Payment and coverage need to take into account the three options for providing retiree paid coverage – Postponed loss, Concurrent COBRA coverage, Alternative Retiree coverage • Structured to accomplish goals of employer and needs of the retiree

  30. Questions? • Any questions can be addressed by e-mail or phone at your convenienceCompliance Department800 346 2126compliance@ebcflex.com • Thanks for Attending!! Visit our online blog: http://www.ebcflex.com/NewsCenter/ComplianceBuzz.aspx

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