As the global Covid-19 pandemic stretches into what feels like its millionth month, business owners continue to struggle with how to administer benefits, a situation that is not helped by the constant rule changes orchestrated under the Department of Labor (DOL) and the Internal Revenue Service (IRS). One question that seems to continue to come up — especially in light of the multiple layoffs that companies have had to make — is when employers can terminate COBRA coverage while still in the midst of a pandemic?
In the “before times,” a qualifying employee experiencing a COBRA qualifying event has a 60-day period in which they can elect COBRA continuation coverage. However, in April, the DOL and IRS issued regulations effectively extending the deadlines for several benefit deadlines, including exercising COBRA rights, paying COBRA rights, and submitting claims and appeals. This benefit deadline extension runs for the “outbreak period,” which the two agencies have designated as the period from March 1 through until 60 days after the president’s national emergency declaration for COVID-19 expires.
One problem that has emerged, however, is when individuals who elect COBRA coverage do not make their premium payments, leading employers to question when they are authorized to terminate their coverage. Since we’re still in the midst of the “outbreak period,” the presumed answer would be “not yet.” However, to understand when employers are off the hook, we must first understand the COBRA coverage process. In general, the initial COBRA premium is due 45 days after the beneficiary opts into the coverage, with subsequent payments made on the first of the month for the time thereafter, although most plans offer a grace period that allows payments to be made within 30 days of that due date. Failure to pay those premiums would typically result in the coverage being terminated, but the DOL and IRS also required that these deadlines be paused during the outbreak period.
The COBRA regulations suggest that there are two ways that this could go. Under the first option, the plan can continue coverage during the election and initial payment period and then retroactively cancel coverage if either the election payment or premium payment is not made in a timely fashion. Under the second option, the plan can cancel coverage as of the date it would otherwise be lost due to the qualifying event and then retroactively reinstate coverage once the election and premium payment is received. Where it gets a bit murky, however, is if the employee has paid the election premium and first month premium, with any lapse in payments for months thereafter falling into a bit of a gray zone.
A second, rather interesting, component is that an employee’s COBRA status must be clearly communicated to the health care provider when they are seeking care. Specifically, the healthcare provider must be told – via the plan administrator – that the employee is COBRA covered during the election period and during any period where the plan has not received a payment (including the election period and the first 30 days). During the election period, the plan administrator must warn any provider that coverage could be retroactively terminated if the anticipated beneficiary declines COBRA coverage but is covered under the plan, or could be retroactively covered if they do elect into the coverage during the election period when they weren’t covered by the plan. During the payment period, meanwhile, if a plan doesn’t receive payment during the election period or during any grace period, and thus cancels coverage retroactively, the plan must provide complete information to any healthcare provider about the possibility that coverage could be retroactively terminated if payment is not received (or retroactively covered should payment be received!)
The main takeaway here is that the DOL and the IRS regulations don’t really discuss what employers can do in terms of terminating COBRA coverage, but the plans themselves can almost conduct business as usual and can warn providers about the possibility of retroactive coverage cancellation. However, if the plan continues coverage while waiting for payment from the employee it should be noted that the employer will have to pay the qualified employee’s COBRA premiums during these periods. The employer can, however, pursue unpaid premiums legally if the employee refuses to pay them, although the legal costs associated with recovering such fees would likely surpass what you would ultimately recover and thus isn’t really worth it.
