COVID-19 Joint Agency Relief Part 3: COBRA and Special Enrollment Extensions
As noted in our May 1 blog post, the Employee Benefits Security Administration, Department of Labor (DOL), Internal Revenue Service (IRS) and Department of Treasury (the Agencies) issued guidance (the Extension Guidance) extending various benefits-related deadlines in light of the COVID-19 pandemic. One piece of this Extension Guidance is a Notification of Relief (the Joint Notice) that essentially tolls the timeframes associated with various rights during the “Outbreak Period.” The Outbreak Period runs from March 1, 2020 until 60 days after the announced end of the COVID-19 National Emergency or such other date announced by the Agencies. Given the current state, we don’t know exactly how long this period will last or whether it will have different end dates in different parts of the country. We addressed the effects of tolling deadlines during the Outbreak Period on claims and appeals procedures in our COVID-19 Joint Agency Relief Part 2 alert. In this alert, we focus on what the tolling means with respect to plan sponsor obligations and participant rights under the Consolidated Omnibus Budget Reconciliation Act (COBRA) and the Health Insurance Portability and Accountability Act (HIPAA) special enrollment provisions.
As a starting point, we note that the deadline extensions apply to any participant in a group health plan subject to COBRA and special enrollment rules, not just those eligible to take Coronavirus-Related Distributions or increased loans in 401(k) plans. Thus, there is no “employee certification” requirement or any other step for individuals to take — the extensions are automatic. Employers will want to make sure they are adjusting their welfare plan administration accordingly.
We also note that the Outbreak Period extension under the Joint Notice applies to specific requirements and provides a specific extension (even if we don’t yet know how long the Outbreak Period will be). As described in our COVID-19 Joint Agency Relief Part 1 alert, another piece of the Extension Guidance is EBSA Disaster Relief Notice 2020-01 (the Notice). The Notice does not extend deadlines but provides enforcement relief with respect to ERISA-required disclosures if a plan fiduciary acts in good faith and provides the notice, disclosure or document as soon as administratively practicable under the circumstances.
The Joint Notice provides that the timeframe for electing COBRA coverage will be tolled during the Outbreak Period. As explained in an example provided by the Joint Notice, if an individual was provided with a COBRA election notice on April 1, 2020, instead of the individual having to elect COBRA coverage within 60 days of the notice, he or she will have 60 days from the last day of the Outbreak Period to make a COBRA election. Depending on how long the Outbreak Period is, that could mean a significant period of time during which individuals may elect retroactive COBRA coverage. The Joint Notice examples use June 29, 2020 as the sample last day of the Outbreak Period. Using this sample end date, an individual with a COBRA qualifying event on April 1, 2020 would have until August 28, 2020 to elect COBRA coverage retroactive to April 1, 2020. Upon electing COBRA, the individual then would have 45 days to pay premiums for coverage retroactive to April 1, 2020, resulting in a significant premium payment. Under the normal COBRA rules, plan sponsors have the option of structuring a group health plan so that coverage is provided during the election period and then retroactively revoked if the COBRA election is not made. This approach could become difficult and costly to administer in light of the extended election period. On the other hand, some plans cancel coverage during the election period and retroactively reinstate coverage upon timely election. For plans that do not already cancel coverage until a participant elects COBRA, plan sponsors may want to consider revising their plans to do so. Note that if a provider asks for information regarding the COBRA beneficiary’s coverage during this election period, the plan sponsor must provide a complete response explaining that the individual is within the election period and how coverage is handled during that period.
COBRA Premium Payments
The dates for making COBRA premium payments (both initial and ongoing) are similarly tolled during the Outbreak Period. This tolling is in addition to the grace period already required by the COBRA regulations. As with the election period extension, the tolling of the COBRA premium deadlines could result in many months of premiums that will be due once the Outbreak Period is over.
Similar to the election period rules, plans may suspend coverage during the COBRA premium payment periods (both initial and ongoing) and retroactively reinstate coverage upon timely initial premium or ongoing premium payment (as applicable). This is a good time for plan administrators to review procedures with the plan’s COBRA Administrator and determine whether any changes should be made to procedures or documentation.
Participant Notices of Qualifying Events
Under the COBRA rules, a covered employee or qualified beneficiary has the obligation to notify the plan administrator of a qualifying event that is a divorce or legal separation or a dependent child ceasing to be a dependent child. This notice is generally required within 60 days of the event. Similarly, a COBRA beneficiary has the obligation to notify the plan administrator if the COBRA beneficiary is disabled (or ceases to be disabled) in order to obtain the disability extension of COBRA continuation coverage. The deadline for individuals to provide such notice is tolled during the Outbreak Period. Plan administrators should be prepared to provide COBRA election notices in connection with these qualifying events, even if the plan administrator receives notice of an event significantly later than the notice would typically be due.
COBRA Election Notices
As a general rule, plan administrators must provide participants who lose health coverage as a result of a qualifying event with a COBRA election notice within 14 days of learning of the qualifying event. Pursuant to the Joint Notice, the Outbreak Period is disregarded for purposes of calculating when the COBRA election notice is due. This may provide some needed relief for employers who are short-staffed or preoccupied with other COVID-related issues. However, we do not recommend that employers intentionally delay providing election notices. The notices are still required, and delaying the notices may lead to forgetting to provide them at all. Further, while COBRA beneficiaries will have a delayed period to make their election, some individuals may not want to wait to make their election. As we discussed above, delayed elections can lead to large retroactive premiums being due and will make COBRA administration difficult. Employers may be able to minimize these consequences by providing election notices in accordance with the normal procedures.
Separate from the tolling guidance, the DOL recently issued updated model COBRA notices. As discussed in a previous post, expensive class action lawsuits have been filed against many large employers for allegedly deficient COBRA notices. Employers should therefore consider updating their existing COBRA notices in accordance with the DOL’s amended model notices.
General COBRA Note: While not addressed in the Extension Guidance, to comply with COBRA’s notice requirements, employers may need to inform participants of the delayed timeframes. Rather than revising COBRA notices to reflect the Outbreak Period, which is temporary and uncertain in length, plan administrators may consider including a supplement that explains the Outbreak Period extension with the COBRA general and election notices.
Special Enrollment Rights
Under the HIPAA special enrollment provisions, plan sponsors generally must allow group health plan enrollment if an employee requests enrollment within 30 days after the employee experiences a special enrollment event (e.g., losing other group health coverage, marriage, birth, adoption or placement for adoption). This timeframe to request HIPAA special enrollment is tolled during the Outbreak Period. Thus, for example, if an employee who had previously declined an employer’s group health plan coverage had a baby on March 31, 2020, she would have until 30 days after the end of the Outbreak Period to elect coverage for herself and her child. This is likely to cause a number of administrative difficulties for employers. Specifically, employers will need to consider the following:
Retroactive Coverage for Birth or Adoption and Premium Payment Considerations — Because the HIPAA regulations require coverage in connection with a birth, adoption or placement for adoption to begin no later than the date of the birth, adoption or placement for adoption, the tolling of the HIPAA special enrollment election deadline could result in a group health plan being required to provide a significant period of retroactive coverage. While the employer may require that the employee pay the employee-share of the premium for such coverage, the cost could be substantial. If the employee’s monthly pay is not sufficient to cover the cost for the period of retroactive coverage, the employer may want to consider a payment plan option for the employee.
Code Section 125 plans (the vehicle that allows employees to pay their share of premiums on a pre-tax basis) permit mid-year changes in connection with the HIPAA special enrollment rights. However, most Code Section 125 plans require that the employee provide notice of the election change within 30 days of the event. To the extent employers allow employees taking advantage of the Outbreak Period to pay for their premiums on a pre-tax basis, the Code Section 125 plan should be amended to reflect the tolled election period for mid-year changes. (Note that the IRS has separately issued guidance in Notice 2020-29 allowing plans to loosen the requirements for mid-year changes in a Code Section 125 plan for the 2020 calendar year. Notice 2020-29 and its implications for employers are discussed in more detail here.
Notice of Special Enrollment Rights — The HIPAA Special Enrollment rules require that employers provide newly eligible employees with a notice that describes the special enrollment rights, including a description of the timeframe for making special enrollment elections. Employers will need to consider revising or supplementing their enrollment materials to reflect this extension of the timeframe for making special enrollment elections.
The Joint Notice’s deadline extensions for the Outbreak Period will likely help individuals who might otherwise lose COBRA coverage or miss a special enrollment right election opportunity. However, it may also create a number of administrative issues for employers. We encourage employers to consider their existing participant notices as well as any needed plan amendments.