As the ongoing Novel Coronavirus Disease (COVID-19) has more individuals facing the prospect of losing their job-based health insurance, the need for qualified beneficiaries to understand their coverage options–whether through COBRA continuation coverage, the Health Insurance Marketplace (the “Marketplace”), or through alternatives such as Medicare–is critical.
Prompted by a letter from several House Committees,1 the Department of Labor (DOL) Employee Benefits Security Administration (EBSA) published updates to its model COBRA General Rights2 and COBRA Election Notices3 on May 1, 2020, to help these individuals better understand the interactions between COBRA and Medicare. In addition, the EBSA published helpful FAQs4 to assist qualified beneficiaries with understanding how COBRA might affect their rights under Medicare.
While these model notice updates do not address recent compliance guidance and relief issued jointly by the DOL and the Department of the Treasury extending certain deadlines related to retirement, health, and welfare plans in response to the current COVID-19 pandemic, the revisions provide welcome clarification to help Medicare-eligible individuals make important decisions regarding their healthcare coverage.
Generally, employers with 20 or more employees must offer COBRA continuation for their group health plans. Part of this requirement is to furnish adequate written notices providing a general summary of COBRA rights and responsibilities when coverage under group health plan coverage begins (the COBRA General Notice) and a COBRA Election Notice following a loss of that coverage due to a qualifying event (for example, following a termination or reduction of hours of employment).
In 2004, the DOL released notice requirements and model COBRA notices to assist employers with COBRA compliance. In May 2014, the DOL released updated versions of these model notices along with proposed regulations that allow the DOL to maintain these model notices on its website. In this way, the DOL can maintain and revise the model notices as necessary.
Model COBRA Notices
As with earlier models, in order to use these notices properly the plan administrator must complete them by filling in the blanks with the appropriate plan information. The DOL will consider use of the model notices available on its website, appropriately completed, to be good faith compliance with the notice content requirements of COBRA.
Use of model notices is not required; these are provided solely for the purpose of facilitating compliance with applicable notice requirements.
COBRA and Medicare
It is crucial that qualified beneficiaries who are also eligible for Medicare better understand the choices available to them when considering their health care coverage options, whether it’s electing to continue their employer group health plan through COBRA, enrollment in a Marketplace, or enrolling in Medicare.
The COBRA General Notice, COBRA Election Notice, and EBSA FAQs help explain the interaction between COBRA and Medicare, including Medicare election obligations explaining how COBRA coverage usually pays secondary to Medicare (and that certain plans may pay as if secondary to Medicare, even if Medicare is not elected).
Generally, if a Medicare-eligible individual does not enroll in Medicare Part A or B when first eligible because he/she/they are still employed, after the Medicare initial enrollment period, that individual will have an eight-month special enrollment5 period to sign up for Medicare Part A or B, beginning on the earlier of 1) the month after his/her employment ends; or 2) the month after group health plan coverage based on current employment ends.
The COBRA regulations also contain a special rule extending the maximum eligibility period for spouses and dependent children if Medicare entitlement (which occurs when an individual is both eligible for and actually enrolled in Medicare coverage in either Medicare Part A or B) occurs less than 18 months prior to the employee’s qualifying event (i.e., termination of employment or reduction of hours). In this case, the spouse and/or dependent children can be entitled to a 36-month maximum eligibility period calculated from the date of Medicare entitlement.
For example, assume Martha becomes entitled to Medicare Part A effective March 1, 2019. She terminates her employment on February 29, 2020. Both she and her covered spouse Thomas elect COBRA coverage as of March 1, 2020. Since Martha’s qualifying event was a termination of employment, she is entitled to an 18-month maximum COBRA period beginning March 1, 2020, and ending August 31, 2021. However, since her termination of employment is 12 months after the date of her Medicare entitlement (March 1, 2019), COBRA coverage for Thomas can last up to 36 months after the date of Martha’s Medicare entitlement, which is equal to 24 months after the date of the qualifying event (36 months minus 12 months). So, in this case, Thomas would be entitled to a maximum COBRA period beginning March 1, 2020, through February 28, 2022. It is important to note that this extension for spouses and dependent children is only afforded if, following a termination of employment or reduction of hours (i.e., 18-month COBRA qualifying events), the date of Medicare entitlement occurs less than 18 months before the qualifying event. If the date of Medicare entitlement is more than 18 months prior to the qualifying event–or if it happens the same day as the qualifying event–this extension does not apply.
If a Medicare-eligible individual does not enroll in Medicare and–instead–elects COBRA continuation coverage, he/she/may have to pay a Medicare Part B late enrollment penalty and may have a gap in coverage if that individual decides to elect Medicare Part B later.
If COBRA continuation coverage is elected first, that coverage may be terminated early when the qualified beneficiary becomes–after the date of the COBRA election–enrolled in Medicare benefits (in either Part A or B). Bear in mind that this provision allowing for early termination of COBRA coverage refers to a termination of COBRA continuation as a whole, even though Medicare generally does not provide a benefit package as generous as the COBRA plan might (e.g., Medicare does not cover most dental expenses).
On the other hand, early termination of COBRA continuation coverage because of Medicare coverage may properly occur only if the other coverage becomes effective after the qualified beneficiary elects COBRA. If Medicare Part A or B is effective on or before the date of COBRA election, the qualified beneficiary will remain entitled to COBRA benefits for the entire COBRA maximum coverage period.
Employers who are using previous EBSA’s COBRA model notices, or those who have based their own notice templates on previous EBSA model notices, should work with ERISA counsel to ensure their notices are updated to incorporate this new verbiage.
The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.