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Model notices highlight ACA's Marketplace coverage as a COBRA alternative
last updated 5/21/2014
The Obama administration announced updates to model notices that employers must provide to employees, informing workers of their eligibility to continue health care coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA).
The Department of Labor (DOL) on May 2, 2014, released a new model general notice form and
model election notice form for providing COBRA notices to employees, and a related notice of proposed rulemaking on the COBRA notice requirements, published in the May 7 edition of the Federal Register.
Federal agencies also released an updated model notice regarding premium assistance under Medicaid and the Children’s Health Insurance Program (CHIP).
The updated notices make it clear to workers that if they are eligible for COBRA continuation coverage when leaving a job, they may choose to instead purchase coverage through the Affordable Care Act’s (ACA) Health Insurance Marketplace, as the government-run exchange is formally known.
Employees directed to the public exchange/Marketplace, where they may qualify for federal subsidies, are less likely to feel they need to pay the full premium to continue with their former employer’s health coverage through COBRA.
---------------------------------------------------------------------------Employees directed to the Marketplace are less likely
to feel they need to continue with their
former employer’s coverage through COBRA.
The DOL, along with the departments of Health and Human Services (HHS) and Treasury, also published frequently asked questions related to the proposed changes to model notices. The FAQs are cross-posted on the DOL website and on the HHS website.
In addition, HHS published a clarifying bulletin regarding a special enrollment period in the Marketplace for individuals already enrolled in COBRA continuation coverage and COBRA qualified beneficiaries (typically the departing employee's spouse and children).
Workers and their families who are eligible for employer-sponsored coverage generally must be informed of their right to COBRA continuation coverage at the start of employment. They must also be informed of their right to purchase COBRA coverage when separating from a job. The proposed changes to the model notices would offer information on more affordable options available through the Marketplace, where workers and families may be eligible for financial assistance that would not otherwise be available for COBRA continuation coverage.
"In many cases, workers eligible for COBRA continuation coverage can save significant sums of money by instead purchasing health insurance through the Marketplace," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi in a news release. "COBRA continues to play an important role in helping workers and families maintain coverage after a job loss, and it is important that workers know that in some cases there is a Marketplace option as well."
"For a variety of reasons, employers may prefer to have fewer rather than more COBRA beneficiaries on their participant rolls, and the new COBRA notices offer an opportunity for employers to provide further encouragement and education to plan participants about non-COBRA coverage options," observed Timothy G. Verrall, an attorney shareholder in the Houston office of Ogletree Deakins, on the firm's Employee Benefits blog.
Timothy Jost, a professor at the Washington and Lee University School of Law, posted a commentary on the Health Affairs Blog regarding the new model notices and related proposed guidance. He wrote: “Group health plans are not required to use the model notices, which must in any event be modified if the plan is not a single employer plan, but plans that do use the model notice are presumed to meet COBRA notice requirements.”
Advised Keith R. McMurdy, an attorney at Fox Rothschild LLP posting on the firm's Employee Benefits Legal Blog, “even before the regulations are final, plan administrators should consider immediately implementing use of these revised model notices.”
Jost added that earlier COBRA election model notices “did not inform COBRA beneficiaries of their right to exchange coverage. Because some potential beneficiaries were not therefore aware of their enrollment rights, HHS establishes a special enrollment period, allowing COBRA beneficiaries in states covered by the [federally facilitated Marketplace] until July 1, 2014 to drop COBRA coverage and enroll through the exchange by calling the Marketplace call center.”
The guidance encourages state-run health insurance exchanges to provide similar special enrollment periods for COBRA beneficiaries.
Attorneys Paul M. Hamburger and Damian A. Myers of Proskauer Rose LLP, writing on the firm’s ERISA Practice Center Blog, note that serious issues remain for those trying to choose between COBRA and Marketplace coverage. As they explain:
When a COBRA qualifying event occurs, coverage could be lost either immediately or, in many cases, at the end of the month in which the event occurs. Notice of COBRA rights (which will now explain Marketplace rules) is not provided for weeks and, sometimes, a couple months after the qualifying event. At that point, there is a gap between the loss of coverage and someone’s actual choice of COBRA or Marketplace coverage.
During that gap, individuals could incur significant claims. The hallmark of COBRA coverage is that it is retroactive to the date of the loss of coverage—it is designed to fill that gap. Marketplace coverage, by contrast, applies prospectively only. Therefore, individuals will be faced with a choice: (a) elect the more expensive COBRA coverage retroactively to make sure claims are paid but then be forced to continue that coverage until the next annual enrollment period (or a special enrollment period if earlier); or (b) take the cheaper Marketplace coverage but suffer the gap in coverage and be forced to pay for the claims incurred without coverage.
That conundrum is not explained in the new model COBRA notices. Perhaps future guidance will solve this problem by simply allowing individuals the choice to opt out of COBRA coverage and into Marketplace coverage on more frequent intervals.
“Employers may want to review their COBRA notice procedures to maximize the period their former employees have to compare the terms and conditions and prices of COBRA coverage with the coverage available
on [the ACA’s] Marketplace so that employees have time to review all of the information and make an informed decision,” advises law firm Winstead PC. “For example, if instead the
employer/plan administrator issues the notice within 30-days of the termination of employment and loss of coverage, then the former employee would have 30 days in which to consider the values of COBRA as opposed to Marketplace coverage and elect between the choices.”
Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.
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