New Health Insurance Regulations Add to Employers’ Responsibility
The U.S. Department of Labor recently issued regulations requiring new and highly detailed notification requirements for health-care continuation coverage, commonly called COBRA, that would take effect on the first day of the plan year on or after Nov. 26, 2004. For most employers, the new rules took effect Jan. 1. What some employers providing employee health-care coverage might not realize is that the law makes them responsible for providing these notices to covered employees and dependents.
The consequences could be severe for an employer that does not provide proper notification to an employee or covered dependents who lose health-care coverage upon the termination of employment or other events triggering the right to continuation coverage. An employer could find itself footing the bills for a former employee’s or dependent’s health care, at least up to the level that it would have been covered under the employer’s plan, when proper notification of COBRA rights is not provided and continuation coverage is not elected. Furthermore, the employer could find itself facing an excise tax and statutory penalties totaling $200 per day per violation and paying the former employee’s or dependent’s legal fees and costs.
Fortunately, the Department of Labor has provided model formats for the two most critical notices, which can be easily adapted for a particular company’s use. Both of these forms can be downloaded from the Department of Labor’s Website at www.dol.gov/ebsa/compliance_assistance.html. The first is the general notification of COBRA rights, which must be provided to covered employees and their spouses within 90 days of being covered under a health-care plan. This general notification can either be sent separately or the information can be included within the company’s Summary Plan Description for its health plan.
The second critical notice is the detailed explanation of COBRA rights that must be provided when an employee’s coverage ends. The model form provides detailed information on an employee’s rights and responsibilities regarding COBRA coverage, in addition to basic information regarding the cost and payment for such coverage.
Use of this form will be a change for many employers, who may have been used to providing a simple, single-sided letter with the cost and payment options for COBRA coverage. Notice is considered to have been provided to both the employee and the covered dependents when the general notice and the notice upon termination of coverage is addressed to the employee and spouse and sent to their home, as opposed to being delivered at work.
Most health-benefits carriers, including Capital BlueCross and HealthAmerica and HealthAssurance, do not provide COBRA notification services to their purchasing groups. Instead, they refer to one of the companies providing COBRA notification or billing services for a fee, such as Ceridian. Delta Dental of Pennsylvania is an exception, offering COBRA notification and billing services to its insured and self-funded groups for an additional fee. Similarly, while Highmark itself does not offer COBRA billing and notification services, Highmark-insured groups can obtain such services through that company’s wholly owned third-party administrator, Highmark Benefits Services.
An employer needs to be aware of exactly what COBRA notification services it is purchasing. Some companies only take on the responsibility for providing the notice upon termination of health-care coverage after the names of such persons are provided to it by the employer. All other notification responsibilities then remain with the employer.
Health-benefit carriers may permit retroactive enrollment where an employer fails to provide proper notification of COBRA rights. Capital BlueCross allows retroactive enrollments back 12 months from the group’s request in such situations, according to BlueCross spokesman Joe Butera. Highmark would work with customers to try to resolve any COBRA-related problems when an employer makes mistakes, according to Mary Jane Forbes, assistant general counsel for Highmark.
“Most likely, in a situation involving employer negligence with a fully insured group, we would retroactively enroll the employee,” said Kendall Marcocci of HealthAmerica. “HealthAmerica and HealthAssurance do have a process to determine if this employee would be eligible to retroactively enroll. Each determination is based on the circumstance of each situation.”
The new regulations also include requirements that the employer provide notice that continuation coverage is unavailable in those situations where the employer receives a request for continuation coverage and determines that the person is not entitled to coverage.
Likewise, any employer must also provide written notice of termination of continuation when COBRA coverage is ended earlier than the maximum period applicable to each qualifying event. Valid reasons for early termination of COBRA coverage include that the required premium was not paid in full when due or under the grace period or that the covered individual obtained coverage from another group plan that does not impose any exclusions or limitations for pre-existing conditions.
It is suggested that employers develop form letters with check-off boxes for these two purposes. A letter regarding early termination of COBRA coverage must also include an explanation of any rights a person may have under the plan to elect an alternative group or individual coverage, such as a conversion right.
The new regulations also include the obligation of a person covered under the health plan to inform the employer of any changes affecting his or her right to continuation coverage under the plan, such as the employee’s divorce, which would entitle the former spouse to elect COBRA coverage, or the loss of dependent-child status by the child reaching the maximum age for coverage under the plan, which would trigger the child’s right to elect continuation coverage. Here again, it is recommended that the company develop a check-off form for consistency and ease of fulfilling this obligation.
The form must be easily accessible and free. In addition, an explanation of required information and how to obtain and where to submit the completed form as well as the deadlines for doing so must be described in the plan’s Summary Plan Description in order to be effective.
Employers who have questions about these new requirements should consult a legal adviser. As with many new regulations, the procedures will not be difficult once they are in place. However, it is important for an employer to avoid liability exposure by ensuring that it does have the proper procedures in place.