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Understand COBRA Termination Details Before Coverage Could Be Cut

Consider the following scenario: To streamline administration of continuing health care coverage under COBRA, an employer decides not to send bills for COBRA premiums or provide reminders when premium payments are late. However, if qualified beneficiaries don’t pay their monthly premiums by the end of the grace period, COBRA coverage is cut off retroactively to the beginning of the month without any warning. Would such actions comply with the mandated rules?

Termination Details
Although COBRA doesn’t require plans to send bills or premium payment reminders, some circumstances do require written communications. Most notably, plan administrators must provide a written notice of termination if a qualified beneficiary’s COBRA coverage terminates before the end of the maximum coverage period. This period is generally after 18 or 36 months, depending on the qualifying event that triggered the COBRA election.

An employer may terminate coverage before the end of the maximum coverage period for certain reasons specified in the COBRA statute, including a failure to timely pay premiums. When lawful termination occurs, each affected qualified beneficiary must receive a notice “written in a manner calculated to be understood by the average plan participant” that states all of the following:

  • Why coverage was terminated early
  • The coverage termination date
  • Any rights the qualified beneficiary may have under the plan or applicable law to elect alternative group or individual coverage

 

Generally, this notice of termination must be furnished ‘as soon as practicable’ following a decision to terminate COBRA coverage. Providing notice before coverage termination isn’t necessarily required. However, if a plan administrator can provide advanced notice under the ‘as soon as practicable’ standard, it must do so.

Addresses & Methods
If a covered employee and the employee’s spouse live at the same address, the plan administrator can provide one notice addressed to both. A notice to one covered employee or spouse satisfies the requirement with respect to a dependent child who lives with the person who received the notice.

On the other hand, if any of the qualified beneficiaries live at different addresses, and this fact is known to the plan administrator based on “the most recent information available to the plan,” separate notices must be provided.

Like other required COBRA notices, a notice of termination must be furnished using “measures reasonably calculated to ensure actual receipt of the material.” Methods approved by the U.S. Department of Labor include traditional mail, hand delivery, and electronic transmission. First-class mail is typically recommended.

Compliance Is Critical
Employers with 20 or more employees are generally required to offer COBRA coverage to departing staff members. As this is a federal law, it’s critical to comply with all applicable rules. Please contact us for help monitoring and managing the financial risks of offering health care benefits.

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