very conservative COBRA premium payment interpretation. Your thoughts

[Guest many?s]

We sent the following scenario to a carrier we work with and the response I received was not what I expected and I'd like to know what you think…

SCENARIO:

Mr. Smith terminates 8/31. The employer outsources the COBRA to a TPA and a notice is sent to Mr. Smith on 9/27 (within 30 days). Mr. Smith elects on 10/24 (well within 60 days).

As you probably know, someone who elects COBRA has 45 days to get himself to get his COBRA premiums current from the date of election. Mr. Smith paid for September's premium when he elected on 10/24, but then never made another premium payment. The 45 days ended 12/8.

In this particular situation (which happened in another state and is not one of our clients), the carrier would not permit the employer to terminate coverage back to the 10/1 citing that the requested termination date was beyond 60 days.

I believe the standard contract with your company is also the 60 days to retroactively terminate someone. As you can see from the above example, this is not always possible. How can an employer avoid this situation here? The employer is required to follow COBRA regulations, but if they leave the plan open for the former employee, they are exposing themselves to a month's loss of premium.

THE CARRIER'S REPLY:

After a qualifying event, the employer has 30 days to notify the COBRA TPA of the QE. Thereafter, the TPA has 14 days to send the COBRA notification to the ex-employee. From the time the ex-employee receives the notification, he has 60 days to elect coverage. He can change his mind daily with his election until the 60th day. From the day he elects coverage, he has 45 days to make all past premium payments and get himself caught up to date. If he elected coverage on 10-24-02, he had 45 days to make the September and October premiums. Since he made his September premium payment, the October premium was now due by October 31, 2002. The employee does not receive another 45 days to make the October premium. On November 1, 2002, the November premium is due (he does have a 30 day grace period).

The person who received his COBRA election form and September payment should have placed a call or sent a notification to the ex-employee stating that his October premium was also due by October 31, 2002. With no payment being received by October 31, 2002, termination should have occurred. Whoever is responsible for notification to the carrier - the TPA or the employer - should have done so on November 1.

Employers can be "nice" and give the ex-employees time to make their payments late but they will run into situations where the ex-employee does not make the payments and the carriers will not make a retroactive termination date (like the situation you have right now).

MY THOUGHTS:

It appears to me that this carrier is taking an extremely conservative view that may not be permissible.

The limited materials that I have access to and what I've been told in COBRA seminars is different. What I do have states that "many employers choose (emphasis added) to have all monthly premiums which come due within the 60 day election period and 45 day grace period due by the 45th day." and "The COBRA law prohibits employers from requiring the payment of ANY premium before the 45th day (from the election date.) The employer may require that all retroactive (emphasis added) premiums be due by the 45th day to bring the Qualified Beneficiary current. The IRS advises that employers outline a procedure for collecting the retroactive premium, inform the beneficiaries of the procedure and apply it consistently." Since in this situation, if he elected 10/24 and paid a retroactive September premium, would the October premium be considered retro-active. Even if the October would be retroactive, what about November?

Which leads me to wonder, could this carrier be right (with albeit a very conservative opinion) in their take of my scenario? Have you ever heard of this extreme interpretation before?

[Guest RC]

many?s

It is my understanding, and I quote from the COBRA handbook from the US DOL, that:

"The initial premium payment must be made within 45 days after the date of the COBRA election by the qualified beneficiary. Payment generally must cover the period of coverage from the date of COBRA election retroactive to the date of the loss of coverage due to the QE. Premiums for successive periods of coverage are due on the date stated in the plan with a minimum 30-day grace period for payments.

If premiums are not paid by the first day of the period of coverage, the plan has the option to cancel coverage until payment is received and then reinstate the coverage retroactively to the beginning of the period of coverage. . . .

The plan is not obligated to send monthly premium notices."

We administer COBRA directly. I give the above-mentioned handbook to all QB to make sure they understand when payment is expected.

Hope this helps.

[Guest M L Sullivan]

I disagree with your carrier. In my 12 years of experience, I have always allowed the individual until day 45 to make current all premiums due.

If your former employee paid a premium within the 45 day period, I would have applied the premium retrospectively back to the first day the employee lost coverage (in this case, for the month of September). The employee has until 12/8 to become "current" on all premiums. At the point the employee paid one premium payment, I would have allowed him/her to pay the remainder due up through 12/8. I would not have put him on the monthly schedule at that time. However, I am referring to my COBRA Guide from Thompson Publishing, and it seems that this is up to the employer whether or not to apply the premium to a regular monthly premium or the premium due within 45 days:

"Note that during the 45-day initial grace period, a regularly scheduled monthly premium may be do. If so, employers will need to determine - and qualified beneficiaries will need to be informed - whether a payment will be for the 45-day premium or for the premium for the regular month of coverage that comes due during the 45-day grace period."

Nevertheless, your former employee may not have made his first payment until way past the 60 day deadline your carrier is holding you to. We had a carrier that did this to us and we had to write a letter explaining why we had to request the termination more than 60 days ago. I don't think they ever bent our way. We don't use that carrier anymore...

[Guest M L Sullivan]

Here is what our own benefitslink.com Q&A board has to say about this issue:

QUESTION: If a qualified beneficiary (QB) elects COBRA coverage (within the 60-day election period), the first COBRA premium payment is not due for 45 days. If the QB's FIRST month's premium is not due for 45 days, when is the SECOND month's premium due? If the premium payment for every month after the initial coverage period is subject to a 30-day grace period, it would seem that the SECOND month's premium is due before the FIRST month's premium. Is this possible?

ANSWER: To answer this question, let's put down some dates and dollars:

·Qualifying event date is Jan. 1.

·Jan. 31--the administrator sends a COBRA notice to the QB.

·March 29--the QB elects COBRA coverage (within 60 days of the administrator's notice).

·The QB has 45 days, until May 13, to pay for the period of coverage for January, February and March.

·In the meantime, the April premium will come due. Is the April premium due April 30? If so, does that mean that the payment for the first period of COBRA coverage (for January, February and March) is due AFTER the payment for the next monthly premium?

As originally enacted, COBRA could have been read to mean that the April premium would be due before the premium for the initial period. In a 1989 budget act, however, Congress changed the statute. Under the current COBRA provision:

In no event may the plan require the payment of any premium before the day which is 45 days after the day on which the qualified beneficiary made the initial election for continuation coverage.

This means that the plan cannot force the QB to pay the April premium any earlier than May 13, the end of the initial 45-day premium payment period. Of course, the May premium will then be due by May 31 (presuming regular monthly premium grace periods apply for active employees). For more information, go to 1440 of Mandated Health Benefits--The COBRA Guide, published by Thompson Publishing Group Inc.

For an interesting look at what Congress did (or tried to do) in the 1989 budget act, look at the court case Hermann v. Cencom Cable Assoc., 978 F.2d 978 (7th Cir. 1992).