By Damian Myers, Proskauer Rose LLP

Recent guidance issued jointly by three federal agencies opens the window to plan administrators providing more information on the health insurance marketplace options under healthcare reform in their Consolidated Omnibus Budget Reconciliation Act (COBRA) election notices. The following explains the benefits to providing such enhanced disclosures to COBRA qualified beneficiaries. But it also cautions plan administrators to be careful not to mislead individuals about their choices in selecting health coverage.

Background

The Departments of Labor (DOL), Health and Human Services (HHS) and Treasury recently issued Part 32 of their ongoing series of Frequently Asked Questions (FAQ) regarding the implementation of the Affordable Care Act(ACA).

Part 32 of the Agencies’ FAQ series contained only one question—whether a group health plan administrator is permitted to include information about Marketplace options in addition to what is already included in the DOL’s model COBRA election notices. Currently, those model notices contain a few sentences alerting qualified beneficiaries that the Marketplace is another source of health coverage, and that in some cases, it could be a cheaper alternative.

FAQ Part 32 encourages, but does not require, employers to provide additional information related to the Marketplace in COBRA election notices. For example, the election notice could include information regarding:

• how to obtain assistance with enrollment (including special enrollment),
• the availability of financial assistance,
• information about Marketplace websites and contact information,
• general information regarding particular products offered in the Marketplaces, and
• other information that may help qualified beneficiaries choose between COBRA coverage and other coverage options.

The agencies also explained that the additional Marketplace information can be tailored toward particular groups such as young adults who “age-out” of eligibility under a parent’s plan. Plan administrators were reminded, however, that the COBRA election notice should be easily understood by the average plan participant and should not be “too lengthy or difficult to understand.”

The benefits

Enhanced disclosures regarding the Marketplace could benefit both qualified beneficiaries and the group health plans:

• For qualified beneficiaries, enhanced disclosures related to the Marketplace is beneficial because Marketplace coverage is often a cheaper option, particular given the possibility of premium and cost-sharing assistance.
• For group health plans, employers and plan administrators may benefit by nudging potentially high-cost claimants toward the Marketplace.

Although these additional disclosures may be a good thing, as explained below, plan administrators should take care to avoid potentially misleading qualified beneficiaries to think that the Marketplace is the better option in all cases.

COBRA and Marketplace timing

By way of background, employers have 30 days to notify a plan administrator of a qualifying event. Upon learning of a qualifying event, a plan administrator has 14 days to provide the qualified beneficiary with the COBRA election notice.

If the employer is the plan administrator, the employer/plan administrator is required to send the COBRA election notice no later than 44 days after the qualifying event. The qualified beneficiary has 60 days from the later of the loss of coverage or the date the COBRA election notice is received to elect COBRA coverage. If the qualified beneficiary elects COBRA coverage on a timely basis, the coverage is effective retroactively to the loss of coverage date.

Similar to group health plans, the Marketplace allows enrollment both during an open enrollment period and during special enrollment periods that are triggered by the occurrence of certain events coupled with a loss in health coverage.

When an employee loses coverage under a group health plan due to a qualifying event, the Marketplace will allow special enrollment during the period beginning 60 days before and ending 60 days after the loss of coverage. Importantly, the voluntary termination of group health coverage, including COBRA coverage, does not give rise to a Marketplace special enrollment period.

Unlike COBRA coverage, enrollment in the Marketplace during special enrollment is not effective retroactively to the date of the loss of coverage. Instead, if the Marketplace application is accepted between the first and fifteenth day of a month, coverage is effective on the first day of the following month. If the Marketplace application is accepted between the sixteenth and the last day of the month, coverage is effective on the first day of the second following month.

Imperfect Overlap

Although the COBRA election period generally coincides with the Marketplace special enrollment period, the overlap is not perfect and circumstances could arise that might result in a qualified beneficiary having a gap in coverage. Therefore, plan administrators electing to add enhanced disclosures regarding the Marketplace in COBRA election notices should consider the following:

• Although qualified beneficiaries may elect COBRA coverage at any time during the COBRA election period and avoid a gap in coverage, the COBRA election period and the Marketplace special enrollment period may not match up.

  As an example, following a qualifying event coupled with a loss of coverage, an employer notifies the plan administrator of the qualifying event 30 days after the loss of coverage. The qualified beneficiary gets the COBRA election notice on a timely basis 44 days after the loss of coverage. At that point, the qualified beneficiary has another 60 days to elect COBRA coverage.

  However, there would only be 16 days left in the Marketplace special enrollment period. Potentially making matters worse for the qualified beneficiary, if the COBRA election notice happens to be received in the latter half of the month, the Marketplace coverage would not be effective until the first day of the second month following the receipt of the COBRA election notice.

  It is not the responsibility of the plan administrator to ensure that a qualified beneficiary enrolls in the Marketplace on a timely basis, but if the COBRA election notice mentions Marketplace special enrollment periods, the notice should explain important timing differences.

• HHS released guidance in 2014 explaining that one way to avoid a gap in coverage between a qualifying event and the effective date of Marketplace enrollment is to elect COBRA coverage for only the gap period.

  The way that this would work is the qualified beneficiary would apply for Marketplace coverage during the Marketplace special enrollment period. Because the Marketplace coverage is always effective prospectively, the qualified beneficiary could elect COBRA coverage retroactively to the loss of coverage date and then terminate the COBRA coverage when the Marketplace coverage becomes effective.

  This can certainly be explained in a COBRA election notice, but the explanation should be clear that this will only work if the qualified beneficiary enrolls in the Marketplace during the special enrollment period (which may only have 16 days left at the time the COBRA election notice is received) or an open enrollment period. Outside of those periods, a qualified beneficiary cannot voluntarily drop COBRA coverage and trigger a new Marketplace special enrollment event.

• Caution should be taken when subsidized COBRA coverage is offered for a period of time following termination of employment.

  For example, suppose that in connection with a reduction in force, an employer decides to offer affected employees a severance package that includes subsidized COBRA coverage that for 3 months only requires the employees to pay the same employee premium they were paying immediately prior to termination.

  That may sound like a good deal for the employee initially, but after the 3-month period, the employee may realize that the COBRA premium far exceeds the cost that they could pay on the Marketplace. The problem is that by that time, the Marketplace special enrollment period would have closed and the employee cannot voluntarily drop COBRA coverage and enroll in the Marketplace until the next Marketplace open enrollment period.

Do proper vetting

DOL has stated that use of the model COBRA election forms, which already include some Marketplace information, is deemed compliance with the election notice requirement. Although FAQ Part 32 encourages additional disclosures, plan administrators will have to weigh the benefit of the disclosures (that is, fewer COBRA enrollees) with the potential risks (that is, failure to adequately disclose important aspects of Marketplace operation). It is recommended that any deviation from the model COBRA election forms be vetted by counsel.