Don’t trip up on COBRA, Continuation & Trusts/Associations

Most companies are aware of COBRA rules as they apply to medical coverage, but there are more forms of continuation that have a habit of tripping people up.

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When a covered member (employee and/or dependent) is no longer eligible for insurance coverage, they may be eligible to continue group-based coverage. Most people know about COBRA continuation, since it is Federally-mandated and receives lots of attention. But there are other types of continuation that every agent needs to know about, as well as some “gotchas” when a person is looking to move to an individual medical plan.
 
COBRA
Groups with 20+ employees need to offer covered members continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). The member pays the full cost of the coverage, plus can be charged a 2% administration fee. Typically the extension period can last up to 18 months, but there are some instances where the coverage can continue up to 29 months (disability) or 36 months (dependent qualifying event). 
 
Which employers are subject to COBRA?
It is important to understand that COBRA applicability is determined every January 1st, for every employer group, not at each group’s renewal date. An employer with 20+ employees on more than 50% of the typical business days in the previous calendar year will be subject to COBRA for the entire upcoming calendar year. For the 2020 calendar year, that means looking at the employee numbers for all of 2019. Each full-time (FT) employee is counted as 1, while part-time (PT) employees are a fraction equal to hours worked divided by the employer’s FT hour definition. (An employer’s FT definition will be based on factors other than benefits, such as which employees are eligible for FT vacation, etc.)
 
Will a carrier remind clients to review their employer size?
I would not count on the insurance carrier alerting their clients of the need to recalculate COBRA eligibility, or at least alerting them timely. Last year, we saw one carrier notify their groups in March, asking for their COBRA size determination well after the effective date of 1/1/2019.
 
What if a group’s COBRA status changes?
If a group renews on January 1st, it is easy to change the COBRA status on the Group Master Application (GMA); if a carrier does not require a new GMA, be sure to alert them of the change. For groups that do not renew on January 1st, their status could change mid-contract (either being newly required to offer COBRA or no longer qualifying) – be sure to alert your clients who renew “off-calendar-year” that they need to check their numbers. Then let the carrier know if the employer’s COBRA status changes. 
 
Which coverages are subject to COBRA?
COBRA applies to medical/prescription, dental, vision, telehealth, and Health Reimbursement Arrangements (HRA).  It can also apply to certain Employee Assistance Programs (EAP) – a good rule-of-thumb is to offer COBRA if the program provides more than 3 face-to-face sessions per issue. For groups with a Flexible Spending Account (FSA), COBRA continuation may need to be offered through the end of the FSA plan year.
  
Can those eligible for COBRA choose to enroll on an individual plan instead?
The short answer is yes, the person can choose between COBRA and individual coverage. Of course, there are rules that need to be understood. A COBRA qualifying event opens up a Special Enrollment Period (SEP) window. The individual has 60 days from losing active group-based coverage to purchase an individual plan. However, if the person enrolls on COBRA and then wants to move to an individual plan within that same 60 days from losing active group-based coverage, they will not be allowed to. In effect, enrolling in COBRA closes the SEP window. 
 
Can those enrolled on COBRA ever move to an individual plan?
Once enrolled on COBRA, a person can move to an individual plan either at the next individual Annual Enrollment (January 1st effective date each year), after exhausting their maximum COBRA duration, or if they have some other Special Enrollment Period while on COBRA. 

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Medical Continuation in Washington State
Each state can have additional rules regarding the extension of employer-sponsored health plans.  For example, California has Cal-COBRA which provides COBRA-like coverage for employers with 2-19 employees. In Washington State, we have Continuation plans. Insurance carriers selling small group medical plans must offer the employer the option to include a continuation provision in the plan policy.
 
Continuation coverage is optional?
Most agents believe that Washington-based small employers must offer continuation coverage; this is incorrect. While it is advisable for the employer to offer continuation since most carriers include continuation language in their booklets, an employer is not required to extend this to employees and dependents. Just be aware that if the employer offers the extension to one person losing coverage, they have to offer it to all those losing coverage. 
 
Who does the employee pay?
Like COBRA, the employee pays the employer for the cost of the medical coverage during the continuation period. Typically the employee will have 60 days from the date of their active coverage termination to pay premiums. 
 
How long can a person continue coverage?
Most medical carriers provide up to 3 months of continuation coverage. There are, of course, outliers.  Aetna offers up to 6 months. Regence is in the process of changing their continuation maximum from 1 month (2019 group plans) to 3 months (2020 group plans, as each group renews). 
 
Can those on continuation move to an individual plan?
When a person loses small group coverage it opens a Special Enrollment Period (SEP). The individual has 60 days from losing active group-based coverage to purchase a plan. It is imperative to understand that the time on a continuation plan is not considered “active group-based coverage”.  Every year there are thousands of people who end up without coverage after their Continuation is exhausted because they did not understand this rule. I have heard rumors that Premera and Lifewise are more lenient and will use the end of continuation coverage to start the 60-day individual election clock, but I cannot guarantee that.

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Trusts / Associations
In Washington State, we have more than 15 different Trusts & Associations, each pooling together small employers to obtain large group rates and plan designs. Most of these programs subject all member-groups, regardless of size, to COBRA. There is at least one exception – the Association of Washington Business (AWB) – that provides COBRA only to those employers who qualify as 20+ and 3 months of Continuation for employers under 20.

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The Bottom Line
There’s so much more to know about COBRA and Continuation, this is just the tip of the iceberg. Our focus today has been on the areas that seem to trip employers and members up the most. For employers, that’s needing to determine whether they must abide by COBRA for the coming calendar year, and if they do not need to, whether they wish to offer Continuation under their medical plan.  For members, it’s understanding how to preserve their right to enroll under an individual medical plan, both when COBRA is offered, or Continuation is available.  ​​​

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