The DOL and IRS have been busy tinkering with deadlines and issuing "guidance." The impacts on COBRA, FSAs and HRAs is widespread, but many questions remain. Here is what we know so far.
The DOL and IRS announced in late April that certain deadlines would be extended for participants to make health plan election changes, elect and pay for COBRA, and submit benefit plan claims. Certain employer notice deadline requirements also fall under this new guidance. The race to peel back the onion to determine exactly what would need to be done to comply with the new rules began immediately. There would need to be notice wording changes for sure, but since the guidance became effective retroactively, there would need to be reversals of enrollment denials, terminations for nonpayment, and claims denials. As the language of the April 29th guidance was dissected, it became apparent that Flexible Spending Accounts and Health Reimbursement Arrangements would be subject to the new rules. Of concern to administrators - their automated systems will need an upgrade to allow for open-ended deadlines. As for carriers – they will need to add processes to pend COBRA coverage for Qualified Beneficiaries who have not paid their premiums. Unfortunately, this new guidance won’t be easy to actually implement.
The Outbreak Period
The new guidance “tolls” deadlines during the Outbreak Period, which is defined as beginning on 3/1/2020 and ending 60 days after the announced end of the COVID-19 National Emergency. Basically, “tolling” ignores the days during the Outbreak Period when calculating deadlines. For example, assume an employee is eligible for COBRA starting on 4/1/2020, and the employer provided the COBRA notice prior to 4/1/2020. Under normal COBRA rules, the Qualified Beneficiary would have 60 days from 4/1/2020 to elect COBRA (deadline of 5/30/2020). Under this new rule, they would now have 60 days from the end of the Outbreak Period to elect COBRA.
It gets more complicated for deadlines where the clock started ticking prior to 3/1/2020. For example, assume an employee elected COBRA back on 2/25/2020, but they have not yet paid their first premium. Under normal COBRA rules, they would have 45 days from 2/25/2020 to pay retroactive premiums. Under this new rule, they would have used up 4 days toward their 45-day deadline (2/26-2/29). Once the Outbreak Period has ended, they will continue to have their remaining 41 days to pay the retroactive premiums.
Notices, Elections, and Payments Affected
ERISA plans (including Health FSAs, Dependent Care FSAs, and HRAs) will be required to provide additional time for employee notification of eligibility changes to alter current elections. When an employee has a change in family status, it can trigger an opportunity to make a change to benefit elections for the employee and in some cases their dependents. Now the typical 30 or 60 day notice window will be extended to ignore any days within the Outbreak Period.
COBRA Qualified Beneficiaries will have additional time to elect COBRA, make their first payment, and remit additional payments. They will also have more time to request an extension of COBRA coverage, which changes the duration of COBRA from 18 to 29 months due to a determination of disability by Social Security. Employers will have a reprieve as well. Under normal COBRA regulations, the employer and administrator have up to 30 days and 14 days, respectively, to provide COBRA Qualifying Event notices to terminating participants. While the new guidance allows employers to ignore any days that fall into the Outbreak Period, it is still recommended the Qualifying Event notice be sent out timely.
Because the Outbreak Period is open-ended, changing automatic systems and procedures will not be straight forward. Most administrators and insurance carriers are starting to realize the massive impact these changes are going to require them to make in their internal systems. They will all need a three-pronged approach to deal with “active” participants’ deadlines, prior participants’ deadlines, and future communications to all affected participants once the government ends the COVID-19 National Emergency.
Deadline periods that begin on 3/1/2020 or after will be fairly straightforward; once the Outbreak Period ends, the normal deadline timing will be applicable. For deadline periods that started prior to 3/1/2020 and had not yet ended prior to 3/1/2020, this is where tracking will be paramount since each participant’s deadlines will be different; once the Outbreak Period end-date has been established, administrators will need to notify each participant of their new final deadlines.
Continuation coverage under COBRA has specific deadlines for an employer’s notification of a Qualifying Event and the employee’s election period, initial payment, and ongoing payment grace period. The typical process under COBRA has been for the employer (or administrator) to notify the carrier to terminate the Qualified Beneficiary from active coverage. Once the person elects and pays for their COBRA coverage, the employer (or administrator) would send payment to the carrier and request reinstatement of coverage.
Insurance carriers are not required to pay claims during any COBRA months for which payment has not been received. If a provider requests coverage specifications, the carrier must provide that information and advise that the person is either in their COBRA election period or their payment grace period. Typically, providers will submit the claims to the carrier, who will pend the claims until receipt of premium payment for the month in which claims were incurred.
This of course can cause issues now that the payment of premiums can be extended indefinitely. It appears that while the employer (or administrator) will need to provide the carrier with payment of COBRA premiums as they come in the door, the carrier will need to manage their internal system to continually suspend eligibility for nonpayment and then release claims as these participants remit monthly premiums.
A word of caution, however. Some carriers include COBRA members along with active participants on one billing statement and require the employer to pay the bill in full without adjustments. If the client pays a lower-than-invoiced amount, the entire group can be pended or even terminated for insufficient payment. But employers are not going to be able to afford to float COBRA premiums that are several months late. Plus, the carrier is going to need to know which Qualified Beneficiaries should be suspended in their system so that claim payments are put on hold. A seemingly easy fix would be to have the carrier create a separate billing statement for COBRA members. But will the carrier require the COBRA billing to be paid in full without adjustments too? What if five of an employer’s COBRA members pay timely and a sixth does not? Will the carrier allow the client to remit just the payments they have received, with an indication of which Qualified Beneficiary paid and the amount they paid? Or will the carrier suspend all of the employer’s COBRA enrollees’ benefits until the straggler gets their payment in? It may behoove carriers to send a separate billing statement per COBRA qualified beneficiary to the employer to accurately track payments and process claims for those who have paid their COBRA premiums.
What’s an employer to do if their carrier(s) requires them to keep COBRA members on the active billing statement (or a separate COBRA statement) with a “pay in full” requirement? It will be a monthly yo-yo effect of terminating COBRA members, requesting reinstatement once another payment has been received, terming again effective at the end of the “paid through” month, and so on, and so on. Some employers (and administrators) continue COBRA members as “covered” during premium grace periods, then request refunds for those whose payments never arrive. In this new world, it would be better to terminate COBRA members who have not paid their premiums by the carrier’s internal billing deadline. This will reduce the amount of COBRA premiums being fronted by the employer, and will also alert the carrier to pend the COBRA participant’s coverage status. This method is not the best solution, but at least the employer won’t be fronting multiple months of premiums for all their COBRA participants until the Outbreak Period ends.
Health FSA, Dependent Care FSA and HRA Programs
Two deadline “tolling” rules will affect FSA and HRA programs: special enrollment rights and claims processing. Special enrollment rights allow an employee to change their election due to a qualified change in family status, such as marriage, divorce, or birth. If their deadline to notify the employer fell on or after 3/1/2020, they now have more time to request these special enrollment rights.
As for claims processing deadlines, there is an interesting twist. Most plans run on a calendar-year basis from January 1 – December 31, with a grace period for remitting claims incurred during the plan year. This grace period typically is set by the administrator of the program, with submission deadlines ranging from 45 days to 90 days after the end of the plan year. Calendar-year contracts with less than a 61-day grace period would not be subject to extending the claims submission deadline since it would have ended prior to 3/1/2020. However, for calendar-year contracts with a 61-day or longer grace period, the “tolling” of the Outbreak Period will now extend the grace period; any prior claim denial due to missing the grace period deadline will now need to be rescinded and processed.
Note: Another notice (2020-29) was published on May 12th which allows an employer to amend their health plan and FSA policy retroactive to 1/1/2020; however, these changes are not mandatory. First, the employee can be allowed to add, drop, or change their health plan and/or FSA elections at any time in 2020 (prospectively) without needing to have a qualified change in family status. Second, the employee can be reimbursed for qualified expenses through 12/31/2020 tapping unused funds remaining in their health FSA or dependent care account if the plan year ends in 2020 or if the grace period of the plan ends in 2020.
Since the new rules retroactively take effect on 3/1/2020, there are a number of prior denials that will need to be rescinded and notification templates where deadlines will need to be changed. Some of these are noted below, and all assume that the notice, election, or payment deadline fell on or after March 1, 2020.
The Bottom Line
Administering the extended notice, election, and payment deadlines will present challenges for employers, administrators, and carriers. Prior determinations of lapses in coverage may need to be rescinded, denied claims may need to be reprocessed, new notifications will need to be created and mailed, and deadline information in current notices will need to be revised. A new carrier process for enrolling, pending, and releasing claims for those late in paying their premiums will need to be formulated. Plus, automated systems (such as those that kick out termination notices for those who have not paid COBRA within the usual grace period) will need to be updated or turned off. We may even see some carriers revolutionize the way COBRA billing is processed.
What are we seeing so far? Administrators seem to be reprocessing elections and claims and revising/mailing notices quickly. However, most insurance carriers are still trying to determine how best to manipulate their systems to comply with the new guidelines.
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I love numbers. I'm a math geek. I read benefits industry articles and periodicals for relaxation (but, honestly, I'm still a fun gal). I also like to share what I've learned and you'll find it all here.