COBRA/HIPAA Information

Consolidated Omnibus Budget Reconciliation ACT of 1985 (COBRA)

In 1985 President Ronald Reagan signed the Consolidated Omnibus Reconciliation Act now commonly known as COBRA. Among other provisions, the legislation makes it possible for qualified employees, their spouses, and dependent children to continue to be covered by their company's health insurance plan after job loss or the occurrence of a "triggering event." For a period of 18 to 36 months, the employee, spouse, or dependent child may assume responsibility for their insurance premium plus a 2% administrative fee. Normally these arrangements involve companies with 20 or more employees, but some states have created similar programs for businesses with fewer workers.

Two conditions must be met for individuals to qualify for the COBRA program. A triggering event must have occurred and that event must have caused the person to lose their health plan coverage. Employers are required by law to apprise employees, their spouses, and dependent children of their qualification to continue their health coverage under the COBRA umbrella. The eligible individual will have 60 days to elect to participate in the program or forfeit their right to do so.

Qualifying events for employees, their spouses, and dependent children include:

• The death of an employee with insurance coverage.
• Reduction of work hours or loss of job (except for instances of misconduct.)
• Medicare eligibility for the employee with insurance coverage.
• Legal separation or divorce.
• The end of a child's status as a dependent.
• Bankruptcy of the employer.

Continuation of coverage under COBRA is not intended to be indefinite. The original purpose of the program was to provide health care coverage until the qualified individual obtains new coverage from another source. Duration of COBRA coverage varies by circumstance. For instance the program will provide 18 months continuation for those who have lost their jobs or had their hours reduced. The maximum duration of the continuation is 36 months.

COBRA coverage will cease on:

• The first day the individual in question is covered by another plan.
• The first day when a payment is not made.
• The day the employer discontinues the group health plan.
• The day the individual is eligible to participate in Medicare.

 

Overview of COBRA changes under “stimulus law”

Several significant changes affecting most employers were made to COBRA February 17 with the signing into law of the American Recovery and Reinvestment Act of 2009 (ARRA), also known as the 2009 Economic Stimulus Plan. Employers should immediately begin planning to meet the new requirements.

In general, COBRA currently allows individuals (and their spouses and dependent children) to keep their company insurance coverage for up to 18 months after they leave their job, paying the entire premium at their former employer’s group rate. Most small and large employers are subject to the federal COBRA law or its state counterpart, mini-COBRA. The ARRA doesn’t eliminate any existing COBRA employer obligations.

WHAT’S NEW?

Effective March 1, 2009, the new law requires employers to comply with a 65% federal subsidy of COBRA health insurance premiums to involuntarily terminated employees. (The U.S. Department of Labor is working on a guideline to clearly define “involuntary termination.”)

The new law applies to both the federal COBRA law (groups of 20 or more employees) and state “mini-COBRA” laws (like Massachusetts’, which applies to groups with 2 to 19 employees). For groups subject to state mini-COBRA, insurers may be responsible for some functions.

FORMER EMPLOYEE RESPONSIBILITIES

• Opt in decision. Individuals have 60 days to opt for coverage beginning on the date the former employer provides notice. For individuals who were initially eligible for COBRA before the bill’s effective date who elect coverage, the coverage and subsidy will be retroactive to March 1, 2009, not the original date of COBRA eligibility. (See example below.)
• Income qualification. It is not the employer’s responsibility to track a former employee’s income; if the employee exceeds the income cap, it’s up to the individual to repay the subsidy by increasing his/her tax liability by the amount of the subsidy received. The employer is still required to pay the subsidy even if he knows the individual’s income is above the limit.
• Repay subsidy. Individuals who collect the COBRA subsidy when they’re no longer eligible must repay the government 110% of the subsidy they received.
• Appeals. Eligible individuals who are denied a subsidy may submit an appeal to the Department of Labor; all appeals must be reviewed within 15 days.

COBRA Subsidy Extension February 1, 2010

On December 21, 2009, President Barack Obama signed the Department of Defense Appropriations Act for Fiscal Year 2010 (“DOD Act”). The new legislation includes an expansion of the federal COBRA subsidy which was established by the American Recovery and Reinvestment Act of 2009 (“ARRA”). ARRA provided a federal COBRA subsidy equal to 65% of the premium costs of COBRA for individuals involuntarily terminated on or before December 31, 2009 for a period of nine months. The new DOD Act expands the group of individuals eligible for the COBRA subsidy and the length of the subsidy has been extended. In addition, certain individuals are allowed a retroactive application of the subsidy extension and employers are subject to new notice requirements to explain the extension and expansion of the program. Further details
of the changes are outlined below.

Length of Subsidy

The DOD Act extends the nine-month ARRA subsidy term by six months, allowing individuals who qualify under the Act to pay only 35 percent of their COBRA health care premiums for a total of 15 months.

Eligible Class Expanded

The DOD Act extends eligibility to those involuntarily terminated on or before February 28, 2010.

Previous Subsidies, Credits and Retroactive Coverage

Individuals whose previous subsidies have expired now have the opportunity to have COBRA coverage at the subsidized rate for an additional six months.

• If an individual continued to pay the full COBRA premium after their nine-month ARRA subsidy ended, the excess premium amounts paid must be refunded or credited to the individual.
• If the individual terminated his or her COBRA coverage after the nine-month subsidy period was exhausted, the individual will have the opportunity to restart COBRA at the subsidized rate retroactive to when he or she stopped paying for COBRA.

To continue coverage, individuals must pay 35% of premium costs by February 17, 2010 or, if later, 30 days after notice of the extension is provided by their plan administrator.

Notice Requirements

In addition to the previous notice requirements under ARRA, employers must now provide a Premium Assistance Extension Notice according to the new deadlines under the DOD Act:

• Individuals who are eligible for the ARRA subsidy on or after October 31, 2009 must receive a Premium Assistant Extension Notice by February 17, 2010.
• Individuals who were eligible for the ARRA subsidy and whose coverage has ended for failure to pay a premium, as well as those individuals who continue to pay the full COBRA premium after exhaustion of the ARRA COBRA subsidy, must also be provided with the Premium Assistant Extension Notice by February 17, 2010.

 

The Health Insurance Portability And Accountability Act (HIPAA)

The Health Insurance Portability And Accountability Act (HIPAA) offers protections for millions of American workers that improve portability and continuity of health insurance coverage.

HIPAA Protects Workers And Their Families By

• Limiting exclusions for preexisting medical conditions (known as preexisting conditions).
• Providing credit against maximum preexisting condition exclusion periods for prior health coverage and a process for providing certificates showing periods of prior coverage to a new group health plan or health insurance issuer.
• Providing new rights that allow individuals to enroll for health coverage when they lose other health coverage, get married or add a new dependent.
• Prohibiting discrimination in enrollment and in premiums charged to employees and their dependents based on health status-related factors.
• Guaranteeing availability of health insurance coverage for small employers and renewability of health insurance coverage for both small and large employers.
• Preserving the states’ role in regulating health insurance, including the states’ authority to provide greater protections than those available under federal law.

Preexisting Condition Exclusions

• The law defines a preexisting condition as one for which medical advice, diagnosis, care, or treatment was recommended or received during the 6-month period prior to an individual’s enrollment date (which is the earlier of the first day of health coverage or the first day of any waiting period for coverage).
• Group health plans and issuers may not exclude an individual’s preexisting medical condition from coverage for more than 12 months (18 months for late enrollees) after an individual’s enrollment date.
• Under HIPAA, a new employer’s plan must give individuals credit for the length of time they had prior continuous health coverage, without a break in coverage of 63 days or more, thereby reducing or eliminating the 12-month exclusion period (18 months for late enrollees).

Creditable Coverage

• Includes prior coverage under another group health plan, an individual health insurance policy, COBRA, Medcaid, Medicare, CHAMPUS, the Indian Health Service, a state health benefits risk pool, FEHBP, the Peace Corps Act, or a public health plan.

Certificates of Creditable Coverage

• Certificates of creditable coverage must be provided automatically and free of charge by the plan or issuer when an individual loses coverage under the plan, becomes entitled to elect COBRA continuation coverage or exhausts COBRA continuation coverage. A certificate must also be provided free of charge upon request while you have health coverage or anytime within 24 months after your coverage ends.
• Certificates of creditable coverage should contain information about the length of time you or your dependents had coverage as well as the length of any waiting period for coverage that applied to you or your dependents.
• For plan years beginning on or after July 1, 2005, certificates of creditable coverage should also include an educational statement that describes individuals’ HIPAA portability rights. A new model certificate is available on EBSAs Web site.
• If a certificate is not received, or the information on the certificate is wrong, you should contact your prior plan or issuer. You have a right to show prior creditable coverage with other evidence – like pay stubs, explanation of benefits, letters from a doctor – if you cannot get a certificate.

Special Enrollment Rights

• Are provided for individuals who lose their coverage in certain situations, including separation, divorce, death, termination of employment and reduction in hours. Special enrollment rights also are provided if employer contributions toward the other coverage terminates.
• Are provided for employees, their spouses and new dependents upon marriage, birth, adoption or placement for adoption.

Discrimination Prohibitions

• Ensure that individuals are not excluded from coverage, denied benefits, or charged more for coverage offered by a plan or issuer, based on health status-related factors.