When Can Employers Terminate COBRA Coverage During the COVID-19 Outbreak Period?

As the COVID-19 pandemic continues, many employers have struggled with the practical problem of how to administer the various time extensions applicable to employee benefit plans due to COVID-19.  On April 28, 2020, the DOL and IRS issued regulations (the “DOL/IRS regulations”) extending deadlines for individuals to request mid-year enrollments, exercise COBRA rights, pay COBRA premiums, and submit claims and appeals (see our previous client alert here).

The DOL/IRS regulations designate the period from March 1, 2020 until the date that is 60 days after the President’s national emergency declaration for COVID-19 expires as the “outbreak period” for purposes of these deadline extensions.  Employee benefit plans (namely, group health plans) must disregard the outbreak period for plan participants, beneficiaries, qualified beneficiaries, and claimants in determining various deadlines, including the deadline for individuals to elect COBRA coverage and pay COBRA premiums.  With the outbreak period unlikely to expire anytime soon, a common question is: When can employers terminate COBRA coverage during the outbreak period?

General Rules and Deadline Extension

In general, after a qualified beneficiary experiences a COBRA qualifying event, the individual has a 60-day election period to elect COBRA continuation coverage.  Under the DOL/IRS regulations, this 60-day election period must be paused during the outbreak period.  For example, if an individual becomes eligible to elect COBRA continuation coverage during the outbreak period, his or her 60-day deadline to make a COBRA election will not start running until the end of the outbreak period.

In addition, the initial premium payment is due 45 days after the qualified beneficiary elects COBRA.  Subsequent COBRA premium payments are typically due on the first day of every month, but will be considered timely if they are made within 30 days of the due date (i.e., the grace period). Premium payments must be made on time.  Otherwise, a plan may terminate COBRA coverage.  Similar to the 60-day election period, the initial 45-day period and subsequent 30-day grace periods for qualified beneficiaries to make COBRA premium payments must be paused during the outbreak period.

When Can Employers Terminate COBRA Coverage During the Outbreak Period?

As the outbreak period continues, employers are increasingly encountering situations where individuals who elect COBRA coverage do not make COBRA premium payments.  This has led employers to ask when they can terminate COBRA coverage during the outbreak period.  The DOL/IRS regulations that require an extension of the COBRA premium payment deadlines during the outbreak period do not address this issue.

The best analogy is to use the group health plan’s practice of providing COBRA during the COBRA election period and subsequent grace periods.  In other words, how does the plan treat claims received from a qualified beneficiary during the 60-day period in which the qualified beneficiary may elect COBRA continuation coverage and the 45-day period to pay for that coverage?  Similarly, how does the plan treat claims incurred during the normal 30-day grace period?

With respect to how to treat claims during the election/initial payment period, the COBRA regulations provide two options:

Option 1

The plan may continue coverage during the election/initial payment period (beyond the date that coverage would otherwise be lost due to the qualifying event) and then retroactively cancel coverage if either the COBRA election or premium payment is not timely made.

Option 2

The plan may cancel coverage as of the date that it would otherwise be lost due to the qualifying event and retroactively reinstate the coverage upon timely election and payment for COBRA coverage.  While the COBRA regulations are clear that this option is permissible during the election/initial payment period, the COBRA regulations are silent with respect to whether this option is permissible during subsequent 30-day grace periods.  However, many plans use this option with respect to the treatment of claims during both the election/initial payment period and subsequent 30-day grace periods.  We are unaware of the DOL taking any adverse action against plans that use this option with respect to the treatment of claims during the 30-day grace period.

Communication with Health Care Providers

The COBRA regulations also require that a plan (through its plan administrator or third-party administrator) clearly spell out a qualified beneficiary’s COBRA coverage status to a health care provider during: (a) the election period; and (b) the period for which the plan has not yet received payment (which includes both the initial 45-day period and subsequent 30-day grace periods).

During the Election Period

With respect to a qualified beneficiary’s COBRA coverage status during the election period, if the qualified beneficiary has not yet elected COBRA coverage but remains covered under the plan during the election period, the plan must inform the health care provider that the qualified beneficiary has coverage but that it could be retroactively terminated.  Conversely, if the qualified beneficiary is not covered during the election period (before any election is made), the plan must inform the health care provider that the qualified beneficiary does not have current coverage, but may have retroactive coverage if COBRA coverage is timely elected.

During the Payment Period

With respect to a qualified beneficiary’s COBRA coverage status during a payment period, if the plan provides coverage during the initial payment period or grace period but cancels coverage retroactively if payment is not made, the plan must provide complete information regarding this procedure in response to an inquiry from a health care provider.  In other words, if a health care provider requests information about the coverage status of a qualified beneficiary who has not made a timely premium payment but is within the initial payment period or grace period, the plan must inform the health care provider that the qualified beneficiary has coverage but that coverage will be retroactively terminated if timely payment is not made.  Similarly, a plan that cancels coverage if payment is not made as of the due date but then retroactively reinstates coverage if payment is made by the end of the initial payment period or grace period, the plan must inform the provider that the qualified beneficiary currently does not have coverage but will have coverage retroactively if timely payment is made.

Takeaways and Conclusion

With the lack of guidance from the DOL and IRS regarding a qualified beneficiary’s COBRA coverage status during the outbreak period, it appears that both options 1 and 2 above are permissible.  But it makes sense for a plan to treat a qualified beneficiary’s COBRA coverage status during the election period and payment period—which are lengthened by the outbreak period—using the same method as the plan treats a qualified beneficiary’s COBRA coverage status during the election and payment periods absent the outbreak period.  And, whatever option a plan chooses, it must make sure that a qualified beneficiary’s COBRA coverage status during the election and payment periods is clearly communicated to any health care provider that inquires.  We also recommend that this information is communicated to qualified beneficiaries.

With no end to the outbreak period in sight, this may make retroactive changes difficult (or even impossible), especially retroactive cancellations (i.e., under option 1).  If a plan continues a qualified beneficiary’s COBRA coverage during the election or payment period with the intent to retroactively cancel coverage if the qualified beneficiary doesn’t timely elect or pay for that coverage, but is unable to do so, the employer will have to “front” the qualified beneficiary’s COBRA premiums during these periods.  While the qualified beneficiary is legally required to pay these premiums, the employer may need to pursue unpaid premiums legally if the qualified beneficiary refuses to pay.  However, the cost of legally pursing unpaid premiums may outweigh the amount recovered.

If you have any questions, please contact the authors or one of the members of the Miller Johnson Employee Benefits Practice Group.