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COBRA and HIPAA


Guest kp
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In a spinoff of a sub, the "same desk rule" applies. Asset sale where ees are termed but sit at the same desk. Spun off sub (New Co.) offers comparable health benefits. So no loss of coverage. But what if New Co. offers an option to waive out of benefits. Is this a loss of coverage if ee waives benefits. If so, who gives notice? Certificate of coverage? What if beneficiaries lose coverage under new plan because New Co.'s coverage costs more for family members, and ee drops their beneficiaries' coverage? Guidance? Rulings?

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Regarding the time period to distribute the COBRA notice, who is considered the plan administrator? What if a plan administrator administers the health plan, but a third party administrator takes care of the COBRA notices? If an employee terms mid-month, but health coverage does not end until the end of the month, how much time does the ER have to distribute the COBRA notice? 14 days? 30 days? or 44 days?

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Let's address these issues one by one:

First, generally, the employer is the plan administrator. If you are unsure about this, check the ERISA page of your plan's SPD. However, regardless of whether you have a TPA or not, the employer is ultimately responsible for issuing COBRA notification. This must be done within 14 days of the qualifying event. The qualifying event in most cases is the termination of employment, not the loss of insurance coverage. We use a TPA for our COBRA coverage and they issue notification. However, just to be on the safe side, so do I. I include it in my certificate of creditable coverage.

On the latter point, back when this law was first enacted, you should have received an election form from your carrier which asked who would be responsible for this notification. HIPAA states that the carrier is ultimately responsible for this certificate, but the issuance can be done by the employer.

Back to the COBRA question: If the employee waives benefits, it is NOT a COBRA qualifying event for either the ee or QBs. It does, however, require that a certificate of creditable coverage be issued. Seems to me that COBRA was invented to protect the QBs when the ee lost coverage due to some circumstance beyond his control, i.e, loss of coverage due to termination of employment, whether by the company or the employee. Seems to me the ee was in full control of his benefits and elected to waive coverage for his dependent. Not a qualifying event regardless of the motivation of the ee not to spend the extra money on family coverage.

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Regarding your comments about EE waiving coverage for himself or for his beneficiaries, I would agree that it does not trigger a COBRA notice under normal circumstances where no termination of employment has occurred. However, here if we assume that a termination occurs in this corporate transaction, isn't this event beyond the employee's control? Do we address issues of what exactly the new health plan covers, examining every detail to see if it is comparable to the coverage of the company that the EE just terminated from? Is a loss of coverage defined as an event the causes the qualified beneficiary to lose group health plan coverage provided by the employer (do we assume the employer is the old job?) What is the harm of the old employer providing the notices (aside from administrative burden) in order to avoid future potential liability if the old employer was supposed to provide notices. Is this one question too many?

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As I read the Code and the regulations, the plan administrator, not the plan sponsor, is responsible for providing COBRA notices. (In many cases, of course, the plan administrator and the plan sponsor are the same.) Although there may be a few cases decided to the contrary, I believe that a plan sponsor which is also the plan administrator has 44 days, not 14, within which to provide the notices. Similarly, under HIPAA, both the insurance provider AND the plan are responsible for providing notice; however, the plan is deemed to have complied with the requirement to furnish a certificate if the insurance provider does furnish a certificate. The plan will not be subject to penalties if neither the plan nor the insurance provider gives a HIPAA certificate, provided that there is an agreement between the plan and the insurance provider that the insurance provider will be the responsible party. Of course, compliance with these provisions does not guarantee that the plan administrator would not be sued.

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As I read the Code and the regulations, the plan administrator, not the plan sponsor, is responsible for providing COBRA notices. (In many cases, of course, the plan administrator and the plan sponsor are the same.) Although there may be a few cases decided to the contrary, I believe that a plan sponsor which is also the plan administrator has 44 days, not 14, within which to provide the notices. Similarly, under HIPAA, both the insurance provider AND the plan are responsible for providing notice; however, the plan is deemed to have complied with the requirement to furnish a certificate if the insurance provider does furnish a certificate. The plan will not be subject to penalties if neither the plan nor the insurance provider gives a HIPAA certificate, provided that there is an agreement between the plan and the insurance provider that the insurance provider will be the responsible party. Of course, compliance with these provisions does not guarantee that the plan administrator would not be sued.

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This issue was addressed in Paul Hamburger's question and answer section in the Q&A part of BenefitsLink. Any comments on the termination of coverage (still to be commented on by the IRS as I understand) or the loss of coverage issue?

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