FAQ: Our employee is enrolled in an HSA qualified HDHP plan that also covers her spouse, who will soon be eligible for Medicare. Can the employee still contribute to an HSA, and if so, how much? Can she use the HSA to pay for her spouse’s medical expenses?
January 19, 2022
Answer: First, it is important to keep in mind that the employee’s HSA eligibility is based upon whether she meets the HSA eligibility criteria, regardless of whether her spouse or any other individual enrolled on the HDHP is also HSA eligible.
To review, to be eligible to make or receive HSA contributions, an individual must:
- Be covered by a qualified HDHP.
- Not have other “impermissible coverage” (i.e., coverage that provides medical benefits before the HDHP statutory minimum deductible is met, with certain exceptions - e.g., preventive care).
- Not enrolled in Medicare (It is actual enrollment in, and not simply eligibility for, Medicare that precludes HSA eligibility).
- Not be claimed as a dependent on someone else’s tax return.
Therefore, if the employee’s spouse enrolls in Medicare, the spouse would no longer be eligible to make HSA contributions. However, the employee’s HSA eligibility would not be impacted.
Second, the employee’s HSA contribution limit would be based upon the IRS annual maximum for the applicable HDHP coverage tier. For 2022, the annual HSA contribution limit is $3,650 for self-only coverage and $7,300 for family coverage; the additional catch-up contribution (for those ages 55 or older) is $1,000.
Accordingly, if the employee maintains the family HDHP coverage through 2022, the annual family limit of $7,300 would apply. (The family HSA contribution limit applies to an employee with family tier coverage, regardless of the HSA-eligibility status of the other covered individuals.) If the spouse did not make any HSA contributions in 2022 prior to Medicare enrollment, the employee could make or receive a total of $7,300 in contributions to her HSA plus, if applicable, the additional $1,000 catch-up contribution. (Note that if the spouse had remained HSA eligible, the couple could not collectively contribute more than the annual family coverage limit.)
Alternatively, if the employee switches to single-only coverage midyear following the spouse’s Medicare enrollment, the employee could only contribute the maximum based upon the single coverage tier for the remainder of the year. For example, assume the employee is HSA eligible for the entire 2022 tax year but switches from family to single HDHP coverage as of July 1, 2022. In such a case, the employee could contribute 6/12 (or 1/2) of the family contribution maximum of $7,300 or $3,650, plus 1/2 of the single contribution maximum of $3,650 or $1,825. So, her maximum permitted contribution would be $5,475 plus an additional $1,000 catch-up if she is eligible.
Finally, the employee can use her HSA funds to reimburse the qualified medical expenses of herself, her spouse and any tax dependents on a tax-free basis. Her spouse can be enrolled in Medicare (or other disqualifying coverage) at the time the distribution is made. The HSA funds can be used to reimburse the spouse’s Medicare deductibles, coinsurance and copays, unreimbursed dental and vision expenses, over-the-counter drugs, medicine, equipment and other qualifying expenses.
However, the spouse’s Medicare premiums could only be reimbursed when the employee turns 65 and then, only prospectively. But Medicare supplemental policies cannot be reimbursed from the HSA on a tax-advantaged basis even after the employee reaches age 65.
To summarize, the spouse’s Medicare enrollment does not impact the employee’s eligibility to contribute to an HSA based upon the applicable HDHP coverage tier(s). Additionally, the employee’s HSA funds can continue to be used to pay the spouse’s qualified medical expenses after the spouse’s Medicare enrollment.
FAQ: We are a small group with age-banded rates imposed by our insurance carrier. Can we create and utilize a composite rate for our employees?
January 04, 2022
We do not recommend that employers create composite rates where the carrier is billing on an age-banded basis. This is because it can result in issues under ERISA and the Age in Employment Discrimination Act (ADEA).
Specifically, it is a violation of ERISA if the employer rate for some employees is higher than the insurer rate for those employees. Additionally, if the employer calculates its own composite rates, it becomes unworkable if new employees are hired or if employees present when the rates were set to terminate or retire. Essentially, if the client hires a new employee (or an employee is dropped from coverage), the average rate per employee would be affected (i.e., the employer will have to calculate a new composite rate based on the newly hired or fired employee). In other words, the insurer would be billing for a higher or lower total premium, and the employer’s calculated composite rate may not match the premium charged by the insurer.
This scenario is further augmented by the dependent tiers since even though an insurer could calculate composite rates for dependents, the employer composite rate for dependents may not accurately reflect the actual amount charged by the insurer. With or without the dependent tier structure, this would cause the employer to over or undercharge plan participants and would be viewed as a violation of their ERISA fiduciary duty. Conversely, where the insurer creates a composite rate, they are required to maintain that composite rate throughout the year regardless of the change in the employer’s employee demographic changes.
The other possible issue with an employer setting their own composite rates is the ADEA, which prohibits employers from discriminating against employees aged 40 and older. For a plan that is community rated with individual rates, the employer has two choices if they want to stay in compliance with the ADEA:
- Contribute a percentage of the premium charged by the insurer (i.e., a percentage based on the individual rates received from the insurer); or
- Implement a fixed dollar contribution amount for employees’ payroll deduction (and the employer would absorb the rest).
If the employer structures the employee contribution in any other way, including a set employer contribution, the result will violate the ADEA.
So, setting composite rates when the insurance carrier passes on age-banded rates could cause employers to violate both ERISA and the ADEA. Employers should consult with legal counsel if this is an issue they need to remedy.
FAQ: For the Form W-2 reporting requirement (including the applicable employer-sponsored coverage amount to report on an employee’s Form W-2, Box 12 Code DD), must an employer report on union employees covered under a union plan? And are union employees included in the count to determine if the W-2 reporting requirement applies?
December 21, 2021
Under transition relief that is still in effect, an employer that contributes to a multiemployer plan (the term used to describe a union plan) is not required to include the cost of coverage provided to an employee under that multiemployer plan in determining the aggregate reportable cost. Thus, if the only applicable employer-sponsored coverage provided to an employee is provided under a multiemployer plan, no reporting is required on the Form W-2 for that employee. That transition relief was published back in 2012 (when the W-2 reporting obligation first became effective) but is still in effect. So, the employer would not be required to report on union employees' Forms W-2.
That said, union employees would be included in the count to determine if the employer has to report on other employees’ Forms W-2. As background, employers that file fewer than 250 Forms W-2 for the previous calendar year are not required to include the aggregate reportable cost on the current year’s Forms W-2, and that count is determined on an EIN-by-EIN basis (the aggregation/controlled group rules do not apply). So, generally speaking, to determine if an employer must report the cost of coverage for 2022, the employer would look back and determine if they filed fewer than 250 Forms W-2 under their EIN in 2021. If the count is less than the 250-form threshold, then the employer wouldn’t be subject to the Form W-2 cost of coverage reporting for 2022.
Applying that to the union employee example, if in 2020 the employer employed 200 union employees and 75 non-union employees, the employer would have filed more than 250 Forms W-2 in 2021. Therefore, the employer in 2022 would have to report the aggregate reportable cost on the non-union employees’ Forms W-2 (even if they didn’t have to report on the union employees’ forms, per the above exception).
The W-2 reporting requirement also applies to employer-sponsored major medical coverage, both fully and self-insured (e.g., PPO, POS or HDHP). In addition, the requirement applies to prescription drug coverage and any dental/vision coverage that is combined with major medical coverage. However, an employer would not report any “excepted benefits” (those not subject to HIPAA, and thereby exempt from ACA), including stand-alone dental or vision plans, non-coordinated and independent benefits (such as hospital indemnity or specific-illness plans), and health FSA salary reduction elections (but there are special rules regarding optional employer flex credits that could be used to contribute to an FSA). HRAs, HSA contributions, long-term care and coverage under Archer MSAs are also not included.
Employers will also want to review their EAP, wellness and on-site medical clinic arrangements and programs. If COBRA applies to those plans, then the cost of these programs will need to be included in the reportable cost. Whether COBRA applies is a trickier analysis, but it basically comes down to whether the EAP, wellness program or on-site medical clinic provides medical care. Employers should work with outside counsel in making that determination.
If the employer continues to have questions, they should review their obligations under this requirement with their advisor. Additionally, the IRS has provided a Q&A to assist employers in both determining whether they are subject to the reporting requirement and calculating the total cost of coverage. NFP has information as well. Please ask your advisor for more information.
FAQ: Why shouldn’t employers offer health coverage to independent contractors?
December 07, 2021
Before addressing the issues of whether coverage should be offered to independent contractors, it is important to understand the difference between an independent contractor and an employee. An employer needs to be very careful in classifying workers. If the worker is correctly classified as an independent contractor, it is not recommended that the employer offer them coverage or consider them “common law employees.”
The determination of who is an employee versus an independent contractor takes a facts and circumstances based analysis of the nature of the individual’s employment. It includes an analysis of factors such as who directs the individual’s work, provides tools, determines work processes, etc. In plain terms, a contractor is given a project or goal to accomplish. The contractor determines how the project gets completed. If the employer dictates exactly how a project must be completed, then the individual is most likely an employee.
Courts have used the following factors to determine whether an individual is an employee or independent contractor:
- the hiring party's right to control the manner and means by which the product is accomplished
- the source of the instrumentalities and tools
- the location of the work
- the duration of the relationship between the parties
- whether the hiring party has the right to assign additional projects to the hired party
- the extent of the hired party's discretion over when and how long to work
- the method of payment
- the hired party's role in hiring and paying assistants
- whether the work is part of the regular business of the hiring party
- whether the hiring party is in business
- the provision of employee benefits
- the tax treatment of the hired party
The DOL has two helpful resources on this issue – a fact sheet and eLaws Advisor. Both resources outline discussion points and questions that should be asked when determining the status of independent contractors. They are available at:
Fact Sheet: Fact Sheet 13: Employment Relationship Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor (dol.gov)
eLaws Advisor: elaws - Fair Labor Standards Act Advisor (dol.gov)
The DOL and many states have made misclassification a focal point of investigation. Penalties can be high for misclassifying an employee as an independent contractor if the federal investigator believes the practice to be motivated by an avoidance of paying taxes on the workers or offering them benefits. See the following information on the DOL Initiative: Misclassification of Employees as Independent Contractors | U.S. Department of Labor (dol.gov)
Generally speaking, an employer would want to limit its offerings to independent contractors- including tools, supplies, equipment, and benefits. If there is too much integration of the employer and the contractor, the DOL and IRS may determine the employee to be a misclassified employee. This would have tax implications for the employer as well as past liability on the group health plan. An employer could owe back employment taxes and have past liability for workers’ compensation.
Health Plan Eligibility
Under ERISA and the Internal Revenue Code, only employees and common law employees can be offered coverage under an ERISA group health plan. That term would not include an independent contractor. An independent contractor is a self-employed individual. They are not a common law employee. If an employer determines and offers them the benefits that should only be provided to common law employees, the DOL could view that as evidence that the workers are misclassified as independent contractors.
As self-employed workers rather than employees, independent contractors would not be eligible for coverage under any ERISA plan- group medical, dental, vision, health FSA, life, disability or HRA. If an independent contractor is offered coverage under a group health plan, there could also be an argument that the plan would be considered a multiple employer welfare arrangement (MEWA). This could subject the plan to MEWA filings and state-imposed MEWA regulations.
The employer mandate requires the employer to offer coverage to and report full-time employees (including common-law employees). If the employer offers coverage to an independent contractor or reports them as a full-time employee, they are adding weight to the argument that they have misclassified the worker as an independent contractor and that the contractor should have been classified as an employee.
If the individual is classified as an independent contractor, not offered coverage and the DOL later determines them to be a common law employee, this could result in the employer being subject to employer mandate penalties if the person goes to the exchange and receives a premium tax credit.
Employment practices are beyond our scope. Employers should carefully consider the factors discussed above and whether the workers will be independent contractors or employees, consulting with employment counsel as necessary. If the workers are independent contractors, then offering them coverage may give rise to compliance and legal issues. If they are employees, then the employer would have to look at their terms of eligibility to see if they remain eligible for coverage.
FAQ: Which mid-year election change requests are still impacted by the extension of certain timeframes?
November 09, 2021
Mid-year election change requests due to the exercise of HIPAA special enrollment rights (SERs) remain subject to the temporary relief provided by the extension of certain timeframes. Accordingly, certain requests that are made after the plan’s notification deadline may still need to be administered.
Generally, under IRC Section 125, elections are irrevocable for the plan year and once a participant makes an election, the participant generally may not change that election for the duration of the coverage period (usually the plan year) until the following open enrollment. There are two exceptions to this rule – HIPAA SERs, (which arise due to birth, adoption/placement for adoption, marriage, loss of eligibility for other group coverage, loss of Medicaid or CHIP and gain of eligibility for Medicaid or CHIP premium assistance program), and IRS permissible qualifying events.
In 2020, the DOL published temporary guidance allowing an extension of certain notice requirements due to the ongoing COVID-19 public health crisis, including an extension for HIPAA SERs. While generally, a HIPAA SER should be administered within plan deadlines (with HIPAA requiring a minimum of 30-days to make the enrollment request, and 60-days in the event of loss of eligibility under Medicaid or CHIP), this guidance requires that plans toll these deadlines until the earlier of one year from the date the individual is eligible for relief or 60 days following the declared end of the COVID-19 national emergency. However, only HIPAA SER requests are subject to the extension of certain timeframes; the permissible qualifying events are not. (For further information on the extensions, see our March 2, 2021, Compliance Corner article.)
This means that enrollment requests due to a HIPAA SER should be considered even if they are made after the timeline permitted by the plan is over. For example, an employee has a baby on 8/20/2021. The birth of a child gives rise to a HIPAA SER, and the plan normally allows 30 days from the date of birth for the employee to request mid-year enrollment. However, the 30-day deadline does not begin until the earlier of the 60 days after the end of the national emergency or 8/19/2022.
Keep in mind that HIPAA SERs are only enrollment requests. An election change request to drop coverage due to marriage would not involve a HIPAA SER, but rather an IRS permissible qualifying event that is not subject to the extension of certain timeframes.
Lastly, while the HIPAA special enrollment period allows retroactive enrollment for births (and adoption/placement for adoption), for all other special enrollment events (e.g., marriage) it only requires plans to make the enrollment effective no later than the first day of the first calendar month following notification of the event. As such, while the request may be made after the timeline permitted by the plan, it generally will be administered prospectively (other than due to birth/adoption/placement for adoption). However, if the plan document permits enrollment as of the date of the event (rather than first of the month following notification of the event), employers should discuss with counsel how the application of the extension of time would apply to the plan’s provisions. Also keep in mind that the extension of certain timeframes would not require an employee to elect and pay coverage for the baby back to the date of birth, but could be elected prospectively.
FAQ: If an employee declines coverage while on FMLA leave, and does not return to work, is that employee entitled to COBRA? If so, then when does the COBRA maximum coverage period begin?
October 26, 2021
There are three things that must happen in order for a COBRA qualifying event to occur under these circumstances. First, the employee must have been covered under the employer’s group health plan on the day before the first day of the FMLA leave. Second, the employee does not return to employment with the employer at the end of the FMLA leave. Finally, in the absence of COBRA coverage, the employee would lose coverage under the group health plan before the end of the maximum coverage period when they fail to return to work.
In most cases, the COBRA maximum coverage period will begin on the last day of the period of leave to which the employee is entitled. The maximum coverage period may begin earlier if the employee notifies the employer that they are not returning to work. Any lapse of coverage under a group health plan during the FMLA leave, either due to the failure to pay premiums or due to the employee’s choice, is not considered when determining when the maximum coverage period begins.
For example, Wiley is covered under Acme, Inc.’s group health plan on July 15, 2021. Wiley takes FMLA leave beginning July 16, 2021, and declines group coverage for the duration of the leave. On August 28, 2021, Wiley tells Acme that he will not be returning to work. According to FMLA regulations, his last day of FMLA leave is August 28, 2021. Accordingly, Wiley experiences a qualifying event on August 28, 2021, and the maximum coverage period (which is generally 18 months) begins on that date.
Note that the COBRA election notice must be “furnished” (i.e., as of the date of mailing, if mailed by first class mail, certified mail or Express Mail; or as of the date of electronic transmission, if transmitted electronically) within 14 days after receipt of notice of the qualifying event (or 44 days after the qualifying event, if the employer is also the plan administrator, for qualifying events requiring notice from the employer to the plan). Since the failure to return to work after FMLA leave is a qualifying event that triggers an offer of coverage under COBRA, the notice should be furnished within 14 days (or 44 days) from either the last day of the FMLA leave, or the date the employer is informed that the employee will not return to work.
FAQ: Will the COVID-19 relief options for telehealth services continue to be available for the upcoming plan year?
October 12, 2021
The CARES Act and subsequent guidance provided plan sponsors with additional flexibility to offer telehealth services to participants. Generally, the relief was intended to ensure that healthcare services remained accessible to participants while minimizing the potential spread of COVID-19. Although some of the telehealth relief provisions have a set expiration date, others continue until the declared end of the COVID-19 public health emergency.
For example, the CARES Act allowed a high deductible health plan (HDHP) to cover telehealth services without a deductible or with a deductible below the minimum deductible normally required for an HSA-qualified HDHP. Importantly, such coverage could be provided even if the telehealth services were not related to COVID-19. Accordingly, plan sponsors could amend their plans to permit coverage of telehealth services before the statutory deductible was met, without these services being considered “impermissible” coverage for HSA eligibility purposes. As a result, participants of such amended HDHPs could continue to make HSA contributions while using the telehealth services.
Unfortunately, this temporary HDHP relief allowing for broad coverage of telehealth services is only available for plan years beginning on or before December 31, 2021. (Despite the immense popularity of this particular provision, no regulatory announcement has yet been made to extend the relief further.) Accordingly, the provision currently expires for calendar year plans on December 31, 2021. For non-calendar year plans, the relief would continue for the remainder of the plan year that ends in 2022. For example, the relief would extend through June 30, 2022, for a plan year beginning July 1, 2021.
The CARES Act also requires that group health plans cover COVID-19 testing without cost-sharing, whether provided via telehealth or otherwise. The plans must cover items and services provided to participants that result in administration of a COVID-19 diagnostic test for individual evaluation purposes. However, this requirement does not extend to testing for workplace surveillance purposes.
In separate guidance, the IRS stated that coverage of COVID-19 testing and treatment could be provided by a qualified HDHP prior to satisfaction of the statutory deductible, without such coverage being considered impermissible coverage. Therefore, participants could continue to contribute to HSAs while receiving such services. This relief was intended to reduce financial and administrative barriers to COVID-19 testing and treatment, whether provided through an in-person or telehealth visit.
The Cares Act requirement for coverage of COVID-19 testing without cost-sharing and the IRS relief (referenced in the preceding paragraph) remain in effect as the COVID-19 public health emergency continues. However, it is unclear if this IRS relief could apply to coverage for testing provided for other than individual diagnostic purposes; additional guidance would be welcome. Employers that sponsor HDHPs and wish to provide COVID-19 testing coverage without cost-sharing for workplace safety purposes should consult with counsel for guidance.
Additionally, COVID-19 relief was provided for a telehealth arrangement sponsored by a large employer (generally defined as an employer with over 50 employees) and offered only to employees or their dependents not eligible for coverage under any other group health plan offered by the employer (e.g., part-time employees). Under this relief, the telehealth arrangement is exempt from certain (but not all) ACA requirements, such as the prohibition on annual and lifetime limits and the preventive services mandate.
This relief extending telehealth services to otherwise ineligible employees is in effect for the duration of any plan year beginning before the end of the COVID-19 public health emergency. For example, if the emergency ends in June 2022, the relief would extend through the end of 2022 for a calendar year plan.
We will continue to monitor the regulatory guidance for further telehealth updates.
FAQ: If a new employee takes leave during their waiting period, are they still eligible to begin coverage on their original effective date?
September 28, 2021
This will depend on the reason the employee took leave. HIPAA prohibits discrimination based on a health factor. Before HIPAA was implemented, many plans had provisions stating that employees had to be actively-at-work on the day their coverage would otherwise begin. However, one of the implications of HIPAA is that any plan that has an actively-at-work clause must treat an employee who is absent because of a health problem as being at work.
This would mean that medical-related leave taken during an employee’s waiting period would be counted in the days needed for the employee to meet the waiting period. Likewise, plans that don’t allow for coverage to begin unless the employee is at work on the first effective date of the coverage would have to have a carve out for those who are absent due to a medical condition.
Consider the following example:
An employee begins work on October 1 and has a 30-day waiting period. Coverage under the plan would become effective on the first day of the month following that waiting period (November 1). On October 20, the employee takes leave to have surgery and is unable to return to work until November 12.
Because the employee was out for a medical reason, the employee’s leave is disregarded for waiting period and effective date purposes. The employee would be eligible to begin coverage on November 1.
If the leave is a nonmedical leave, the plan terms will dictate whether the employee has met their waiting period requirement and is eligible to begin coverage. If there is an actively-at-work clause, then employees taking nonmedical leave may not be eligible to begin coverage if they take leave during their waiting period or on the first day that coverage should be effective. Employers should ensure that they ultimately follow plan terms.
FAQ: What is a MERP, and what are the compliance obligations associated with one?
September 14, 2021
A medical expense reimbursement plan, or MERP, is a type of HRA meant to assist employees with their medical expenses. While specially named, for all compliance-related purposes, a MERP functions and should be treated like an HRA. Specifically, a MERP (like an HRA) is a 100% employer-funded account that reimburses employees (and their spouses/dependents) for incurred medical expenses on a tax-advantaged basis (the MERP reimbursements are not included in the gross income of the employees). There are no employee pre-tax contributions towards MERPs, so there are no related Section 125 compliance issues. Employers sometimes offer MERPs alongside a medical plan or to a specific group of employees.
Generally, compliance issues posed by a MERP will depend on the structure of the MERP itself, including the group of employees eligible for the MERP, the types of expenses that qualify for reimbursement, the maximum reimbursement amount, and the types of plans it is coupled with (including an HDHP/HSA plan). Below are a few of the compliance considerations when offering a MERP.
First, the Section 105 nondiscrimination rules apply directly to self-insured plans, and MERPs are considered a type of self-insured plan. Generally, the nondiscrimination rules prohibit plan designs from favoring highly compensated individuals (HCIs, defined very generally as the top-25% of all employees with respect to compensation, although it also includes a top-five-paid officer and a more-than-10% shareholder/owner). If a MERP is offered to a classification of employees that consists primarily of HCIs, the MERP would likely be viewed as favoring HCIs. The general consequence is that the HCIs would lose the tax benefits associated with the plan (the reimbursements, or a portion thereof, would become taxable to the HCI). So, if the MERP is offered only to a group of executives or managers (which is a common MERP design), then it is likely to have trouble with the nondiscrimination rules.
Second, if the MERP is offered alongside an HDHP/HSA plan, then the MERP will likely cause employees in those plans to lose HSA eligibility. This is because a MERP is generally considered “first dollar” (impermissible) coverage, since it is reimbursing coverage under the statutory minimum deductible for HSA-qualifying HDHP plans. So, employers should consider offering a MERP alongside a non-HDHP plan so that there's no HSA issue, and then make it available to anyone that enrolls in that non-HDHP plan so that there's no nondiscrimination issue. Another possibility is to offer a MERP in lieu of the HSA option, as the primary way to assist employees with the cost-shifting burden of a low deductible.
A third issue is the ACA. The ACA’s employer mandate requires an offer of coverage to any employee working 30 hours or more per week, and a MERP will not generally constitute an offer of coverage. So, a stand-alone MERP offering (in lieu of major coverage) may not meet the employer mandate offer requirement. Further, the ACA requires HRAs to be integrated with a group health plan — so the MERP should be offered alongside an employer plan (integrated) anyway. If it is not integrated, then the MERP on its own (considered a group health plan subject to ACA) would violate at least two of the ACA's requirements: coverage of preventive services without cost-sharing and prohibition on annual dollar limits for essential health benefits. So, the MERP should be offered alongside the employer's major medical plan rather than as a stand-alone MERP, as a way to avoid these ACA issues.
Lastly, a MERP would generally be considered a group health plan, and that means it must comply with ERISA, COBRA, and other benefit laws and regulations. The best approach is to build the MERP in as a component benefit of the group health plan itself. If it is integrated, then the plan as a whole (bundled together) will satisfy ERISA, COBRA and other compliance requirements. If it's offered on its own, the MERP would have to meet those requirements independently (e.g., the MERP must have its own plan docs). In addition, wherever the MERP benefits are described, it is important to clearly outline eligibility, MERP reimbursement limits, and the types of medical expenses that could potentially be reimbursed. Some MERPs limit the types of expenses to dental and vision only, which would create a limited purpose type of HRA, and that could eliminate the HSA and some ACA issues above. Regardless, a clear description and communication of MERP benefits will help employees clearly understand what they are getting with the MERP.
FAQ: How does an individual qualify for the 11-month extension under COBRA for a total of 29 months maximum coverage period?
August 31, 2021
There are three conditions that must be satisfied for an individual to qualify for the 11-month COBRA coverage extension for a total maximum coverage period of 29 months.
The first condition is that the qualified beneficiary’s (QB’s) initial COBRA triggering event must be the employee’s termination of employment or reduction of hours.
The second condition is that the Social Security Administration must determine that the QB is disabled during the first 60 days of COBRA coverage. The QB can be the employee, spouse or child. The QB’s disability determination may have occurred before the COBRA effective date.
The third condition is that the QB or the employee must notify the plan administrator in a timely manner of their disability determination. They must do so within 60 days of any one or more of the following, whichever is later:
- The date of the disability determination.
- The COBRA triggering event date.
- The date that the QB lost coverage under the group plan due to the triggering event.
- The date in which the employee was notified of their obligation to provide notice either through a COBRA Initial Notice or SPD- whichever date is later. Note that the COBRA Initial Notice and SPD should have been provided to the employee when they were initially enrolled in coverage under the employer's plan. The COBRA Initial Notice must also be provided to covered spouses upon enrollment. This is one reason why the COBRA Initial Notice is so important.
Keep in mind, though, that the third condition is currently impacted by the extension of certain time frames relief that was provided due to the COVID-19 pandemic. Specifically, recent IRS guidance on the ARPA COBRA premium assistance clarifies that individuals who received a disability determination from March 2020 through now (and ongoing) will be entitled to a year and 60 days to notify the employer of their disability determination.
If all of these conditions are met, the maximum coverage period extends to 29 months. The extension applies to all QB family members. The employer may charge up to 150% of the premium or premium equivalent during the 11-month extension as opposed to the normal 102%.
The ARPA does not extend a QB’s maximum coverage period, but does provide a subsidy for the premiums if they lost coverage due to reduction of hours or involuntary termination of employment. You can find more information about this in our article in the May 25, 2021, edition of Compliance Corner.