Read on to find out specific details on COBRA and Direct Bill.
What is COBRA?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives covered employees, their federally-recognized spouses and dependent children, and children born to – or adopted by – a covered employee during a period of COBRA continuation coverage (collectively “qualified beneficiaries”) who lose their health benefits due to certain qualifying events and the ability to choose to continue group health benefits provided by their group health plan for limited periods of time.
What is Direct Bill?
Direct billing allows certain individuals (such as retirees, employees on extended leave, etc.) to pay for ongoing group health benefits through means other than payroll deductions using a third-party administrator to manage accounts and accept premium payments on behalf of the employer. HealthEquity | WageWorks acts as a third party to help employers manage these ongoing benefits.[1]
This type of continuing coverage benefit is an optional benefit you may provide where plan options are determined solely by the employer.
What are COBRA qualifying events?
COBRA lists seven events that can be qualifying events if they result in the loss of group health plan coverage:
Termination of the employment (either voluntary or involuntary) for any reason other than “gross misconduct;”
Reduction in the number of hours of employment;
Divorce or legal separation of the covered employee from the covered employee’s spouse;
Death of the covered employee;
The loss of a dependent child’s status as a dependent child under the generally applicable terms of the group health plan;
A covered employee’s entitlement to Medicare (under Part A, Part B, or both); and
An employer’s bankruptcy, but only with respect to health coverage for retirees and their families.
The COBRA election notice that employees receive indicates that a covered employee and their qualified beneficiaries have the independent right to elect their COBRA coverage based on what plans the employees were enrolled in at the time of a qualifying event.
What are “second” COBRA qualifying events for dependents?
When an 18-month qualifying event (i.e., termination of employment or reduction of hours) is followed – within the original 18-month period (or 29-month period in the event of a Social Security disability extension) = by a second qualifying event that has a 36-month maximum coverage period (i.e., death of the covered employee, divorce or legal separation from the covered employee, the covered employee’s entitlement to Medicare [under Part A, Part B, or both]) or a dependent child’s loss of dependent child status under the generally applicable terms of the group health plan), then the 18- or 29-month period is extended for the spouse and/or dependent children to 36 months from the date of the original 18- or 29- month maximum COBRA coverage period.
What should a qualified beneficiary expect when they elect COBRA coverage?
Group health plan administrators must provide gives covered employees, their federally-recognized spouses and dependent children, and children born to – or adopted by – a covered employee during a period of COBRA continuation coverage (collectively “qualified beneficiaries”) with specific notices explaining their COBRA rights.
Qualified beneficiaries are allowed to choose their COBRA coverage, either one plan with multiple benefits or separate health plans, depending on what is offered by the employer.
Note: The DOL and IRS have extended various deadlines applicable to participants and plan administrators, including the deadlines for electing COBRA coverage, during the COVID-19 “Outbreak Period” beginning March 1, 2020, and ending 60 days after the as-yet-to-be announced end of the COVID-19 emergency.[2]
A qualified beneficiary has a 60-day election period[3], which begins from either the date they lost coverage or the date of the COBRA election notice, whichever is later.
Payment is generally required within 45 days of electing COBRA continuation coverage (which is the date on which the COBRA election is postmarked, if electing by mail)[4]. Payments thereafter are generally due on the first of each month with a 30-day grace period within the month the premium is due.
What important COBRA timelines should I keep in mind as an employer?
The plan administrator (which is generally the employer) is responsible to send out all COBRA notices and rules to covered employees, covered spouses, and qualified beneficiaries.
Within 90 days after an employee or spouse’s coverage under the plan commences or within 90 days after the group health plan becomes subject to COBRA, that individual should receive a COBRA General Notice.
When a qualifying event occurs (or loss of coverage date, if the employer calculates the maximum COBRA period from the coverage loss date), participants should be provided a COBRA Election Notice within 44 days of the qualifying event.
[1] Services are provided by WageWorks, a HealthEquity company.
[2] Final Rule: Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak, 29 CFR Parts 2560 and 2590; 26 CFR Part 54, 85 Fed. Reg. 26351 (May 4, 2020)
[3] COBRA election deadlines are disregarded until the earlier of (1) one year from the date the individual was first eligible for relief; or (2) the end of the Outbreak Period. [EBSA Disaster Relief Notice 2021-01]
[4] Individuals electing COBRA outside of the initial 60-day election period generally have one year and 105 days after the election notice is provided to make the initial premium payment; and individuals electing COBRA within the 60-day election period have one year and 45 days after the date of their election to make the initial payment. Subsequent premium payments are due one year from the date the payment would have otherwise been due.