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November 30, 2008 at 02:00 PM
Suppose Melissa, the human resources director of a midsize manufacturer, feels badly that her former assistant, Shane, downsized nearly a year ago, still hasn’t found a new job. Melissa decides to give Shane a break by accepting his COBRA premium check, even though it arrives postmarked 2 days after the 30-day grace period expires.
Unfortunately, Shane then suffers severe injuries in a fall while rock climbing and, following an extended hospital stay and several surgeries, racks up bills totaling $500,000. The company submits the $500,000 claim to its carrier, which, upon learning that Shane is covered under COBRA, makes a routine request for copies of all his premium payments to ensure they were made on time.
When the carrier discovers that single payment made after the grace period for payment has expired, it declines to pay the claim because the manufacturer’s insurance policy excludes coverage for any claims that don’t fully comply with COBRA. Because of Melissa’s well-meaning gesture, her employer may now have to self-insure the claim.
This example points up why brokers, in their role as strategic benefits consultants, should and will often recommend that their clients outsource management of COBRA benefits to a competent third-party COBRA administrator.
Closer to home, outsourcing can help remove a major thorn in brokers’ sides by enabling them to defer their health care clients’ difficult COBRA questions to the COBRA administrator. This is particularly important for brokers who, in today’s highly competitive environment, must minimize time spent on ancillary, non-revenue producing services such as benefits administration.
There are several strong reasons for recommending that a client outsource COBRA administration, provided the broker exercises due diligence. The law is complex to administer, can rob human resources professionals of time better spent on other responsibilities, and can expose an employer to costly litigation.
How it works
In essence, COBRA–the Consolidated Omnibus Budget Reconciliation Act–enables employees who are terminated, or whose hours are reduced to a level below that required to be benefit eligible, to continue receiving group health coverage at group rates for up to 18 months on a self-pay basis. The employee’s spouse and dependent children may also receive extended coverage, which could run up to 36 months in the event of divorce, loss of dependent status, or the death of the employee.
The law is loaded with notice requirements, deadlines and other technical rules that can easily trip up overworked human resources personnel. Even the summary booklet for employers, published by the U.S. Department of Labor, runs 32 pages long. Keeping up with congressional amendments, new regulations and court cases interpreting the law is, in itself, a full-time job.
Unless their health plans are self-funded, employers in most states must also cope with state COBRA-like laws offering continuation of health coverage. These state continuation laws may differ from COBRA by providing additional benefits or imposing longer deadlines. In Minnesota, for example, upon an employee’s death, the employee’s spouse can remain covered indefinitely so long as he or she makes timely premium payments or does not become covered under another group health plan.
State laws are often more liberal than COBRA with respect to qualifying events such as divorce, disability or death. And, unlike COBRA, which applies to group health plans maintained by companies with at least 20 employees, some state laws cover firms with as few as two workers.
HR managers must also understand how to coordinate COBRA with related laws, such as the Family Medical Leave Act, the Americans with Disabilities Act and the Health Insurance Portability and Accountability Act. In addition to the FMLA, the ADA and HIPAA, certain types of account-based health benefits such as health flexible spending accounts and health reimbursement arrangements are subject to COBRA.
Many employers and small benefits brokerage firms don’t have a dedicated employee to manage COBRA in house. The job typically falls into the lap of one or more staffers who already have many other responsibilities. They probably aren’t adequately trained in the intricacies of the law and don’t fully appreciate the potential risks and costs of running afoul of its myriad rules. Outsourcing the job to an independent expert will lighten the work load for HR and benefits brokerage firm personnel and ease the worry over whether they missed a deadline or forgot to send a notice.
Compliance takes time
Managing COBRA on a day-to-day basis significantly distracts an HR unit from what should be its higher-level mission of helping the company achieve its talent management goals.
HR can add value by being a strategic partner to senior management–identifying gaps and opportunities in recruitment, skill development, retention and workforce performance. In today’s weak economy, HR personnel may be preoccupied with planning staff reductions and offering early retirement incentives as companies look to get leaner.
The U.S. Department of Labor recently reported that payrolls shrank by 1.2 million during the first 10 months of the year. As the number of layoffs rise, human resource departments must shoulder the added burden of offering COBRA and state continuation benefits (where applicable) to those who qualify. At some firms, human resource personnel themselves have been laid off, further straining capacity to administer COBRA.
Consider just some of the demands that COBRA imposes on administrators:
–Preparing and mailing coverage election package and enrollment form to each new qualified beneficiary and maintaining detailed, accurate records of each mailing.
–If a single notice is provided to the employee and covered spouse, ensuring that the mailing address specifically includes the spouse or in the alternative, sending a separate election package to the spouse.
–Tracking COBRA election and payment timelines and tracking payment post-mark dates.
–Providing enrollment information to carriers when qualified beneficiaries elect to continue coverage.
–Sending premium payment bills or coupons to qualified beneficiaries who elect to continue coverage.
–Receiving and tracking premium payments.
–Tracking the additional grace period if a payment is short by an amount that is “not significant.”
