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Cobra Alert

Winter 1999

As the effective date nears for the final regulations, which the Internal Revenue Service finally issued on the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), employers must ensure that they and their insurance companies or third party administration are in compliance. The implementation of the new regulations also provides employers with a good opportunity to review their COBRA compliance. In addition, the regulatory changes likely will require amendments of employers' health plan documents, summary plan descriptions, and COBRA forms and COBRA administrative practices.

The final regulations apply to qualifying events that occur in plan years that begin on or after January 1, 2000. Following is a synopsis of the provisions of the final regulations that are likely to be of interest and concern to most employers. Please note that this summary does not include all of the provisions of the final regulations.

Duration of COBRA coverage
As mandated by the United States Supreme Court in Geissal v. Moore Medical Corp., 524 U.S. 74 (1998), the final regulations make clear that the circumstances in which an employer may cut off COBRA coverage to a qualified beneficiary who is covered by other group health care coverage or Medicare is more limited than most employers thought.

Employers may discontinue COBRA coverage because of other coverage only if the qualified beneficiary first becomes covered under the other coverage after the date he/she elects COBRA coverage. For example, assume that an employee is covered both under his employer's plan and his spouse's employer's plan. If the employee resigns his position, he is entitled to COBRA coverage from his employer because he did not first become covered by his spouse's plan after he elected COBRA coverage. The same would be true for an employee who was receiving Medicare coverage during employment and later retired. The employee would be entitled to COBRA coverage, regardless of the fact that he was entitled to or receiving Medicare coverage.

Multiple Qualifying Events
The final regulations clarify that a termination of employment that follows the qualifying event of a reduction of hours (such as a leave of absence) does not extend the COBRA period to 36 months.

During the Election Period
The final regulations provide direction when a health care provider inquires about the status of a qualified beneficiary's health coverage during the COBRA election period. The final regulations state that the employer or plan or claims administrator must give a provider a complete explanation of the individual's status. For example, assume that during the election period the plan cancels coverage and then reinstates the individual retroactively if he/she elects and pays for COBRA. Under such circumstances, an employer must advise the health care provider that the individual has not yet elected (or paid for, if applicable) COBRA coverage, but that coverage will be retroactive if the election and timely payment is made. Similarly, if the plan provides coverage during the election period, but coverage is retroactively canceled if no election is made, the employer must inform the provider of all of those facts. The disclosure rule is the same if such an inquiry is made when the qualified beneficiary is late with a premium payment, but is still in the grace period.

Insufficient COBRA Payments
One of the most surprising and disturbing aspects of the final regulations is the requirement that employers not terminate COBRA coverage if the qualified beneficiary's payment is short, but "…not significantly less than the amount" required. If this occurs, the employer must either accept the payment as full payment or contact the qualified beneficiary and give him/her a "reasonable" time to make up the short-fall. (The safe harbor is 30 days.) Unfortunately the IRS does not explain what a "not significant" portion of the premium is, leaving employers to guess. Note: Although employers must comply with this rule, there is no requirement that employers notify qualified beneficiaries of the existence of the rule.

Please feel free to call any of Godfrey & Kahn, S.C.'s offices if we can be of assistance.

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