COBRA and Termination for Non-Payment

[Guest cah1082]

Sorry for the length of this post, but I wanted to try to give you all the info!

Background: A former employee elected COBRA in April 2008. We pay the insurance invoices and then request payment from the COBRA participant. In this case, the new employer is making the payments. Beginning the new year (and after the large insurance cost increases), they've been lax with payments and stopped paying her dental coverage entirely. Since we mail invoices to those employees on COBRA, we let her know on each invoice that payment was still due for Jan09, then Feb09 and Mar09 dental coverage. When we didn't hear anything from her or her current employer, on 2/27/09 I canceled her dental coverage effective 1/1/09 (we only have 60days to make retroactive changes.)

The employee called me once she received a letter from the insurance company saying that her coverage was canceled 1/1/09. She stated that she repeatedly talked to her employer when she received the COBRA invoices and they assured her that it had been taken care. We've allowed COBRA participants in the past to be late for months at a time because we knew they needed monthly meds, were having money problems, etc. So, going by what we've allowed in the past, I checked with our dental carrier and they stated that we could allow her coverage to be reinstated back to 1/1/09 as a special case. I let the former employee know that we could do this and she brought in payment and said that she would take care of paying from now on, just so she wouldn't run into this problem again.

Here's my issue: I told the former employee that the dental company would allow us to reinstate her effective 1/1/09 and accepted her payment. The head of the office found out and he doesn't want to allow her coverage to be reinstated, but we're unsure what we have to do legally. Can we cancel her even though I told her we could reinstate her and she gave us a check (though it remains uncashed)?

[Guest Mr. Kite]

Cancelation may be "legal" (depending on what your plan documents state regarding termination, reinstatement, and discretion), but it will probably end up costing the employer more money, time, and goodwill than the employer would save by canceling the coverage, because it will not end pleasantly. Rather, this may be a good time to review and/or revise the cancelation and reinstatement procedures so that, when this type of thing happens again, there will be clear steps.

On another note, the payment arrangement with the new employer strikes me as odd. Generally the COBRA period ends when the participant becomes eligible under another health plan, and it seems that an arrangement whereby an employer will reimburse or cover an employee's insurance premiums would be a health plan that would terminate the COBRA coverage. Or was the new employer merely paying the employee's premiums as an agent of the employee, and treating the payments as wages to the employee?

[Guest cah1082]

Thanks! We have the general COBRA notices, etc. but I don't think anything has been updated in years. I know we don't have anything in writing to outline how to handle such problems; it's always just been thrown onto the person who sends out the bills and handles the insurance to make judgment calls.

I don't believe the new employer offers a health plan because they have very few employees and that is why they are paying the employee's premiums; I'm not sure how they're treating the payments, in regards to wages. Is there a specific reg that says a normal COBRA participant becomes ineligible for COBRA if they qualify for another plan? I know with the new ARRA bill, the assistance eligible participants become ineligible in this case, but wasn't aware this applied to all COBRA participants.

[Mary C]

COBRA ends when the participants becomes covered by another group plan. ARRA subsidy ends when they become eligible.

[Guest SLSHAHAN]

Here is the advice we give to our clients:

Follow COBRA rules - premium is due on the first, with a 30-day grace period. If the payment is not postmarked by the 30th day, refuse payment and cancel coverage.

We have had this problem in the past where a client has allowed late payments for one COBRA participant and then decided not too any more. They set precedence not only for that participant, but for all of them, because you must treat them all the same. In this case, the participant threatened to sue, so the group accepted one last late payment and then sent a letter (certified) to the participant that had the the COBRA payment rules in the letter and explained that they would not longer accept payments beyond the 30th day. When the participant was late the next time, they returned the payment with a copy of the letter and another letter explaining why they were refusing payment. The participant did contact an attorney, but because of the documentation that the employer had, was not able to make a case. This employer never accepted late payments from anyone again.

In your case, it may cause less hassle to accept the three months of premium and send out a certified letter to the participant (not the new employer) explaining the COBRA rules (put the actual rules in the letter) and inform them that no payments received after the 30-day grace period will be accepted. Put a copy of the letter in her file for future reference along with the return receipt and if they are late again, do not accept the premium and cancel coverage.

I am not an attorney - just a person that has worked in Employee Benefits for the last 12 years, so I cannot say this is the correct plan of action in your case. This is just how we would dealt with this in the past. I would encourage you to refrain from accepting late payments from any participants - if you do this for one and not for another, you could leave yourself open for lawsuits from other people.

Hope this helps!

Shannon

[Guest cah1082]

Thanks for the advice Shannon! I totally agree with making uniform decisions for all participants. (The reason I told the employee that I would accept her late payment in the first place was because we had allowed late payments in the past for other participants.) I agree that we should accept the late payment this time and make it clear that this will not be accepted in the future, just so all parties are clear and no one gets the short end of the stick, so to speak.

The matter has been turned over to HR so hopefully they make a fair decision.

Thanks everyone!!