Normally. Absent the COVID-19 Special Rules, an election of COBRA continuation coverage must generally be made within sixty (60) days of the election notification’s receipt date – a timely election. Once the individual makes the election, the individual must pay the accumulated premiums within forty-five (45) days – timely payment of the initial premium for COBRA continuation coverage. COBRA continuation coverage is only triggered upon both a timely election and timely payment of the initial COBRA premium. We refer to this time frame, the period that occurs before (1) both the election and payment have been timely made, or (2) if no election is made, the expiration of the election period, as the “gap period”.
The COBRA Regulations recognize the following two methods for dealing with the “gap period.”
- Under option 1, the Regulations recognize but do not require, that the group health plan may operate to provide coverage during the election period to preserve the individual’s ability to elect and pay for the start of COBRA continuation coverage. This option describes situations where the employer sponsoring the group health plan pays the entire premium for the COBRA continuation coverage until the individual either (1) elects and pays thereby triggering COBRA continuation coverage, or (2) allows the election period to expire thereby not electing COBRA continuation coverage.
- Under option 2, the employer does not make any premium payments of persons in the “gap period.” The Regulations state there is no requirement for group health plan coverage to be provided during the “gap period.” And, with respect to any claims incurred during the “gap period”, the Regulations provide those incurred claims do not have to be paid unless and until a timely election has been made. In other words, payment is suspended until the COBRA continuation coverage has in fact been triggered. To address provider concerns, if a provider asks about the status of an individual’s coverage, the group health plan must inform the provider (1) the individual is in the COBRA continuation coverage election period, and (2) the consequences of the individual making or not making a timely election.
COVID-19 Special Rules. With the extended relief for COBRA decisions, the increased potential length of the “gap period” has made the “gap period” financially more significant to the employer sponsoring the group health plan.
In general, insurance carriers have been reluctant to work with employers that have been operating under option 1 described above. With respect to the election and initial payment of COBRA continuation coverage, the “gap period” may run up to one year; instead of the three-to-four-month range. Insurance carriers are not used to going back that far for purposes of adjusting enrollment and claims. Many insurance carriers limit the period for making retroactive changes, including changes attributable to COBRA, to 3 or 4 months. This is not sufficient to address the number of months an employer may have paid to preserve the individual’s ability to elect and pay for COBRA continuation coverage.
While option 1 may have been acceptable with the insurance carriers in the normal (i.e., COVID-19) situation, we are finding that is not the case for extended relief situations. This places the employer at risk of having paid for COBRA coverage in order to preserve the individual’s ability to elect and pay for COBRA without an adequate reconciliation ability for situations where the individual never elects COBRA continuation coverage. Under this approach, the insurance carrier incurs no risk because all premiums have been paid. The insurance carrier is not concerned with who paid the premiums or why. And, to the extent the person never elects and pays for COBRA continuation coverage, the insurance carrier experiences a windfall. At the same time, the individual experiences no additional risk because all premiums have been paid. The only player in the mix with additional financial risk is the employer that sponsors the group health plan. A person that never elects and pays, and therefore never triggers the COBRA continuation coverage, does not pay any premiums for the “gap period”. This leaves the employer in the position of having to work with the insurance carrier to return premiums paid by the employer to the insurance carrier in order to preserve the person’s ability to trigger retroactive COBRA continuation coverage. Absent insurance carrier cooperation, the employer is out of pocket the amount paid by the employer to preserve the individual’s ability to trigger COBRA continuation coverage. And that amount can be significant.
Option 2 is also an effective way to address late monthly COBRA continuation coverage premiums. Normally, the individual on COBRA continuation coverage has a date by which the premium for the month of COBRA continuation coverage must be made. If that date is missed, the COBRA Regulations provide a thirty-day (30) day grace period. Payment by the end of the grace period is considered timely paid. If the late premium has not been paid by the expiration of the grace period, the COBRA continuation coverage ends retroactively to the end of the last month for which a premium was timely made. Unlike option 1, option 2 does not require the employer sponsoring the group health plan to pay the premium during the COBRA grace period. As discussed above, the coverage ends as of the last day of the month for which a timely premium was paid. While short in duration, the grace period for monthly premium payments, in many cases, results in increased financial exposure for the employer. In general, the number of individuals experiencing financial difficulties attributable to COVID-19 has increased the frequency of late premiums payments and cancelled COBRA continuation coverage. By using option 2 to manage this type of situation, the employer does not pay the COBRA premium for the grace period. For those individuals that do not pay timely and have their COBRA continuation coverage terminated, the employer would not be out of pocket the cost of the grace period premium.
Read the full EBSA Disaster Relief Notice.