This section contains questions submitted to COBRAhelp.com.

If you are an employer, email your COBRA-related questions.

Please note that because of the volume and nature of our business, we cannot respond to all queries. Only those with a broad appeal will be answered in this column.

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Q: We offer alternative coverage, in the form of highly employer-subsidized coverage for up to six months following termination of employment, that may be elected by QBs experiencing a termination of employment QE in lieu of COBRA. Must our premium payment rules for the employee portion of the cost of the highly employer-subsidized coverage satisfy COBRA’s premium payment rules?

A: No. So long as each QB is give the unrestricted right to elect regular COBRA coverage instead of the alternative coverage in the form of highly employer-subsidized coverage for up to six months, those employees who waive COBRA coverage and elect the alternative coverage may be required to pay their cost of the highly employer-subsidized alternative coverage pursuant to any rules established by the employer and communicated to the covered individual.

A: No. Note, however, that waiting periods also do not count as breaks in coverage. To accurately determine break in coverage days, subtract the number of days spent in a waiting period(s) from the total days between coverages. Alternatively, count the non-waiting period days before and after waiting periods to determine total break in coverage days.

Q: If an employer delegates COBRA administration to professional administrators, what should be the employer's supervisory role?

A: Even if an employer delegates responsibility to outside administrators, there are certain tasks the employer should be sure to perform:

• Review of the design and initial implementation of COBRA compliance procedures;
• Periodic review and update of these procedures based on changes in the law or legal interpretations that affect COBRA compliance; and,
• Review and comment on COBRA compliance with respect to certain discrete events or transactions (e.g., corporate acquisitions and restructuring, severance or other special arrangements, and correction of COBRA violations).

Finally, because the COBRA requirements are minimum requirements, employers may wish to be more "generous" than COBRA. For example, an employer may wish to provide for a longer period of continuation coverage or less expensive coverage. Typically, outside administrators will not unilaterally make these decisions. So, an employer should stay involved in these aspects of COBRA administration.

Q: Must an explanation of rights be provided in the plan's summary plan description?

A: Yes. The COBRA Conference Committee report indicates that a summary of continuation coverage rights must be provided in the summary plan description. Thus, not only all covered employees but all spouses will ordinarily be provided with a copy of the summary plan description. A plan may, presumably, send spouses just the section covering the explanation of rights if it doesn't want to provide them with a full summary plan description. However, this may add to the administrative burden already imposed by the law. Technically, it is not enough to give a spouse notice only when a qualifying event occurs. The spouse must be notified once he or she first becomes covered.

Q: We are attempting to determine the pre-existing condition exclusion period that will apply to one of our newly-hired employees who has an undisputed pre-existing condition. Our plan has date of hire coverage, and the individual has current claims. Unfortunately, the employee's prior plan has not yet issued a Certificate of Coverage to the employee. What can we do to enable us to make our determination?

A: You have described a situation that will occur with some frequency, especially for plans with date of hire coverage.

This is because, under the April HIPAA guidance, the plan issuing the Certificate generally has until the deadline for sending its related COBRA Qualifying Event Notice to issue its Certificate of Coverage.

This deadline can be as long as 44 days after the loss of coverage. Therefore, if your employee leaves his or her former employer on a Friday, and begins employment with you -- and commences participation in your health plan -- on the following Monday, almost a month and a half may go by before you have a Certificate of Coverage from the prior plan.

In such a case, you may ask the prior plan to issue the Certificate early, rely on other evidence of prior creditable coverage (e.g., EOBs, coverage certificates, enrollment cards, etc.), or you simply may have to follow the claims pending procedure discussed in our HIPAA Quarterly newsletter.

Q: Our company sponsors a calendar year employee health plan. What is the most practical way for us to ensure that we comply with HIPAA's requirements?

A: You should concentrate immediately on complying with HIPAA's procedural requirements, many of which have been in effect for some time.

When you are sure you have procedures in place to comply with HIPAA's procedural requirements, you should turn to HIPAA's substantive requirements, requirements first applicable to your plan on January 1, 1998.

You should consider carefully the cost and administrative impact on your plan of each of the substantive rules before making decisions on how to redesign your plan to satisfy these rules.

Finally, you should have counsel review your HIPAA procedures and your proposed plan re-design in response to HIPAA.

Q: For companies subject to COBRA and HIPAA, when someone loses coverage, do Certificates of Coverage have to be sent at the same time as a COBRA notice?

A: Under both HIPAA and COBRA, the plan administrator has 14 days in which to send Certificates of Coverage and/or COBRA QE notices.

Although it may be more convenient to send them both at the same time and in the same envelope, the potential liability involved by holding one and waiting for the other to be prepared may cause many administrators to issue Certificates of Coverage and QE notices separately. Either sending them together or separate is correct, as long as both are sent within the applicable 14 day period.

Q: We do not have pre-existing condition limitation periods on our health plan. What should we do with a Certificate of Coverage that is presented to us by a new employee?

A: The general rule is, if you don't need it, don't take it. If a plan participant submits a Certificate of Coverage, it should be returned to the participant because the participant (or a participant's dependent) may still need that Certificate of Coverage in the future. In other words, there may be some fiduciary responsibility involved with regard to the "unneeded" Certificate if this participant were to lose coverage under your plan shortly thereafter.

Q: Do Medical FSAs count as "creditable coverage" under HIPAA?

A: Coverage under a Medical FSA may be used as prior creditable coverage under the Standard Method of counting creditable coverage, but may not be treated as prior creditable coverage within a "category" of coverage under the Alternative Method. [Note: Permissable "categories" are mental health, substance abuse, prescription drugs, dental care, and vision care.]

Q: My health care plan year renews on January 1, 1998. Am I subject to HIPAA on this date or on June 1, 1997?

A: There are separate effective dates depending on whether the individual is losing or acquiring coverage under your plan. All plans must start sending Certificates of Coverage to anyone who loses coverage under its plan starting on June 1, 1997. Your health care plan anniversary (renewal) date is the date when you must start complying with HIPAA's rules for individuals who are becoming covered under your plan.

Q:Some of our employees became members of a union. The union did not allow them to join the plan for six months. So we kept them on our plan. When the six month period was over, we terminated their coverage under our non-union employee plan and placed them on the union's plan. Now, the employees found out that the union plan is imposing a preexisting condition limitation period. The wife of one employee is pregnant and will be subject to the preexisting condition exclusion.

Do we have to offer COBRA? Since the employee in question did not terminate employment, we do not see a qualifying event (QE). However, we do want to do the right thing.

A: In this context, the only relevant QE would appear to be termination of employment or reduction in hours of employment. However, as noted in the question, the employee did not either terminate employment or suffer a reduction in hours of employment. Instead, he merely changed from non-union to union. Absent some other facts, change in job classification alone is not a QE, even if it causes a loss of coverage.

Note that under the new Health Insurance Portability and Accountability Act (HIPAA), the union plan's preexisting condition clause would be limited in application and the period of exclusion could be reduced by periods of prior creditable coverage under any other plan. Also note that there are delayed effective dates under HIPAA for union plans.

Finally, this question may involve other legal issues -- such as labor law issues. Therefore, do not look at the COBRA issues alone. As always, we encourage all employers to consult with counsel before making any legal decisions of this sort.

Q: On your web site you state that employers are responsible for providing the Certificate of Coverage under HIPAA. Where is this in the law? I thought only insurers had to provide Certificates.

A: New ERISA section 701(e) (and tax Code section 9801(e) which imposes excise tax penalties directly on non-complying employers) requires that employer-sponsored plans provide Certificates of Coverage. Also, ERISA (but not the tax Code) requires that insurers provide Certificates of Coverage. Therefore, the law places the responsibility for providing the Certificates squarely on both the employer's plan and any insurer providing coverage to the plan.

Many insurers do not realize that they are liable under ERISA for providing Certificates of Coverage. They think that only the plan administrator (typically the employer) has to do so. Conversely, some employers, as in this question, feel that only insurers have to provide Certificates. However, both insurers and employer plans have to provide the certificates.

Therefore, both employers and insurers need to coordinate their HIPAA procedures to make sure that all of the requirements are met. This is particularly important in cases where employers change insurers and keep coverage in effect with a new insurer. When it comes time to give the Certificate of Coverage, the employer's new plan administrator will have to agregate periods of coverage with both the new and old insurer!

Q: If a COBRA participant has the 11 month Social Security disability extension under COBRA, are family members allowed to continue COBRA coverage during the 11 months?

A: Yes. Once the 18-month COBRA period is extended to 29 months under the COBRA Social Security disability extension, all related qualified beneficiaries, whether or not disabled, are allowed to continue coverage for up to the full 29 month period. This rule applies even if the disabled qualified beneficiary decides not to continue COBRA coverage. The law on this point was clarified in the COBRA changes included in HIPAA.

Q: When one of our clients sets up domestic partner benefits, are qualifying events created for the benefit of domestic partners?

A: More and more group health plans provide coverage for domestic partners. Due to this increased extension of domestic partner coverage, questions come up about whether COBRA continuation coverage needs to be offered to domestic partners in cases where qualifying events might otherwise occur.

Technically, COBRA rights only apply to employees (in cases of terminations or reductions in hours of employment), spouses of covered employees, and dependent children of covered employees. Domestic partners are technically not yet treated as "spouses." (Note that Hawaii courts are considering whether domestic partners are to be treated as legally-recognized spouses and Congress has considered passing a law allowing states not to follow any such rule.) Therefore, under current law, if a domestic partner loses coverage due to what would otherwise be a qualifying event (such as an employee's termination), COBRA is not required to be extended to domestic partners.

Nevertheless, as a design matter, many of the plans that offer domestic partner coverage also provide for COBRA-like rights in cases of an employee's termination of employment, reduction in hours of employment, or death. Divorce is trickier because if there is no legally-recognized "marriage," it is difficult to determine when there is a legal end to a domestic partner relationship.

Thus, although plans are not required to provide COBRA coverage to domestic partners, many plans provide comparable continuation rights as a contractual matter. Before designing such provisions, however, employers should consult with counsel.

Q: What plans qualify for the small-employer plan exception?

A: The small-employer plan exception applies in any calendar year only if all employers maintaining the group health plan normally employed fewer than 20 employees during a typical business day during the preceeding calendar year. This determination is made based on "controlled-group" rules under the Tax Code. That is, related employers are treated as single employers and single employers must have employed fewer than 20 employees in the prior years.

The exclusion applies based on the number of employees (full-time and part-time employees), not plan participants. All self-employed persons count as employees for this purpose whether or not they are covered by the plan. Independent contractors and agents (including their employees, agents, and independent contractors), as well as corporate directors count, but only if they are eligible to participate in one of the employer's plans.

An employer will be treated as normally employing 20 or more employees on a typical business day (the small-employer exception would not apply) if it employs 20 or more on 50% or more of the employers annual business days. Finally, the exemption is based on the number of employees in the immediately preceeding year in determining the present year's status. In other words, if an employer hires 15 employees in 1995 and 25 in 1996, it would qualify for the exclusion for 1996 but it would cease to qualify on January 1, 1997.

Q: An ex-employee elected COBRA for himself and his spouse. The spouse has been certified by the Social Security Administration as disabled within the first 60 days of COBRA coverage. Consequently, she was granted an 11 month COBRA extension. Can the ex-employee also extend COBRA coverage past the 18-month termination to up to 29 months?

A: Under COBRA, upon a termination of employment, qualified beneficiaries may continue coverage for up to 18 months. If an individual is determined by the Social Security Administration to be disabled at any time within the first 60 days of COBRA coverage, that 18-month period is extended to up to 29 months. As clarified by the new Health Insurance Portability and Accountability Act of 1996 (HIPAA), any disabled individual can "trigger" the 11-month extension (from 18 to 29 months). Also, once the extension applies, it applies for the disabled individual as well as all nondisabled family members. Thus, both the spouse and the ex-employee in the above example may continue COBRA coverage for up to the full 29-month period.

Q: For our plan, retirees under the age of 65 stay on the same medical plan as active employees. However, retirees do NOT receive ancillary coverage for dental, vision, and prescription drug coverage. Our medical plan is a bundled plan; no single benefit can be obtained without getting all of the others as well. It seems as though the loss of ancillary coverage due to retirement is a QE. My question: Do we have to offer "ancillary-ONLY" coverage as an additional option for retirees? If so, should we then also begin offering the ancillary coverage as a stand alone option to all our QBs?

A: In this case, retirement before age 65 is a qualifying event because coverage is "lost" due to retirement. That is, the coverage after retirement is not identical to coverage in effect before retirement. Thus, some COBRA coverage must be offered here aside from the retiree coverage. Note that it is possible to give retirees a choice: 18 months of true COBRA coverage at full cost; or retiree coverage (subject to the plan's terms) at the retiree cost.

In any case, COBRA coverage would require that retirees be offered the bundled package with all "ancillaries." Also, retirees would have to be offered an unbundled package of medical only, referred to as "core" coverage under COBRA. That would include ALL medical coverage other than dental and vision. Dental and vision benefits are generally non-core coverage under COBRA.

Prescription drug coverage is CORE coverage and is not treated like dental and vision coverage. Thus, retirees under COBRA must be offered the choice of medical only (including prescription drug) or medical plus dental and vision coverage. They would not have to be offered an option of dental coverage only or vision coverage only if active employee coverage is bundled.

Again, as always, please consult with an expert advisor for the particular facts as every case is different and answers vary with the particular facts involved.

Q: A terminated employee elects COBRA coverage after termination of employment. He is then declared disabled by the Social Security Administration retroactively as of a date prior to termination of employment. Twenty-seven months after termination, he becomes entitled to Medicare (he is still under COBRA coverage due to the disability extension). Is his wife entitled to 36 months of COBRA coverage? If so, from which date, the date of termination of employment or the date of Medicare entitlement?

A: Under the COBRA multiple qualifying event rule, if a second qualifying event (like Medicare entitlement) occurs within 18 months of a termination or reduction in hours of employment, the original 18-month period is extended to 36 months measured from the date of the first event.

If the 18-month period is extended to 29 months due to the COBRA disability extension, then the multiple qualifying event rule applies during that entire 29-month period. Therefore, when this employee became entitled to Medicare during that 29-month COBRA period, she became eligible under the multiple qualifying event rule to up to 36 months of COBRA coverage measured from the original event -- the termination of employment.

Q: Is an employee who retires at age 66 eligible for COBRA? At 65, the employee is eligible for Medicare. Isn't someone who is age 65 automatically "entitled" to Medicare Part A?

A: This is a question that never seems to disappear. Medicare entitlement is one of the most confusing and confused areas of COBRA administration. Many people confuse entitlement (covered by) with eligibility (available to, or eligible for) In brief:

1. Entitlement to Medicare is not the same as eligibility for Medicare. Under COBRA, only entitlement counts.
2. Attainment of age 65 does not mean someone is entitled to (covered by) Medicare.
3. To be entitled to Medicare due to age (like age 65), one must take some affirmative act either to commence Social Security income payments (which makes one entitled to Part A benefits) or actually elect and pay for Part B Medicare benefits.
4. (And this is the tricky part.) The timing of when someone becomes entitled to Medicare is a key to the liability question. If a person becomes entitled to Medicare before a COBRA election, that Medicare entitlement might not disqualify someone from electing COBRA. Only post-COBRA election Medicare entitlement will clearly allow a plan to terminate COBRA coverage.
5. The bottom line is that merely because someone retires at or after age 65, do not assume that COBRA can be ignored.

This section contains questions submitted to COBRA Quarterly.

If you are an employer, email your COBRA-related questions.

Please note that because of the volume and nature of our business, we cannot respond to all queries. Only those with a broad appeal will be answered in this column.