Transcript Slide 1

COBRA and the Health
Reimbursement
Arrangement
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COBRA and the
Health Reimbursement
Arrangement (EBC HRA)
Peter Antonie
Compliance Communications Specialist
Employee Benefits Corporation
The material provided in this webinar is by Employee Benefits Corporation and is for
general information purposes only. The information does not constitute legal advice
and may not be relied upon by anyone as such. Nor may the information be
disseminated in any form.
© 2012 Employee Benefits
Corporation
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COBRA & the EBC HRA
• The EBC HRA is a group health plan
maintained by the employer
• The EBC HRA is subject to COBRA
• COBRA applies to qualified beneficiaries (QBs)
who experience a triggering event that causes
the QB to lose the EBC HRA coverage
• We can answer your questions about
applying COBRA to the EBC HRA
• We can administer COBRA for the EBC
HRA through our COBRASecureSM service
© 2012 Employee Benefits
Corporation
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Our Agenda
• COBRA’s basic requirements
• Application of COBRA to the EBC HRA
• Calculating the COBRA premium for the
EBC HRA
• Determining the coverage available after a
qualifying event (the EBC HRA balance)
• Common compliance issues involving
COBRA and the EBC HRA
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Corporation
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COBRA Basics
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A qualified beneficiary (QB)
Who experiences a triggering event
That causes loss of group health plan coverage
Must be offered COBRA continuation
For a specific time period
With a premium not to exceed 102% of the
“applicable” premium
(150% during the disability extension)
© 2012 Employee Benefits
Corporation
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COBRA Basics
Qualified Beneficiary (QB)
• The employee, spouse* or dependent child**
• Who is covered the day prior to the loss
of coverage
* Under federal regulation, same sex spouses and/or
domestic partners are not spouses
** Children are eligible for tax free health coverage to
the end of the year they attain age 26 (health plan
can limit coverage to the 26th birthday)
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Corporation
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COBRA Basics
• Triggering Events*
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Termination of employment
Reduction in hours
Divorce or legal separation
Death of the covered employee
Dependent child ceases to be a dependent
Covered employee becomes entitled to Medicare
Employer bankruptcy
* All apply to the EBC HRA
© 2012 Employee Benefits
Corporation
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COBRA Basics
Loss of Coverage
• Triggering event date and loss of coverage date need
not be the same (can postpone loss)
• Triggering event must cause loss of coverage
within the maximum continuation period for
the triggering event (e.g., maximum period for
termination of employment is 18-months. Loss
of coverage must occur within that 18-month
period. COBRA offered for 18-months from
loss of coverage date)
© 2012 Employee Benefits
Corporation
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COBRA Basics
COBRA Coverage Offered
• QB is offered same coverage as in place the
day prior to the loss of coverage
• If coverage included spouse or dependents,
each family member has independent
election rights
• QB is offered the coverage under the same
terms and conditions that applied prior to the
loss (e.g., plan type, applicable premium, etc.)
© 2012 Employee Benefits
Corporation
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Calculating the COBRA
Premium for the EBC HRA*
• IRS guidance is that EBC HRA premium is
calculated using actuarial methods – same
as a self-funded health plan
• Past cost method may be used in some cases
– never in first year
* The only time a participant can provide any
funding for the EBC HRA is by paying
COBRA premium for EBC HRA coverage
© 2012 Employee Benefits
Corporation
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Calculating the COBRA
Premium for the EBC HRA
• Cannot be based on the actual claims paid for
the specific former employee or family member
• Cannot equal the maximum benefit available,
unless the plan can demonstrate that all of the
EBC HRA dollars are always reimbursed
• The 2% COBRA administrative fee (or 150%
during the disability extension) can be added to
the applicable premium
• Most plans use an arbitrary calculation based
on previous claims history for the group
applied to the future maximum reimbursement
© 2012 Employee Benefits
Corporation
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Calculating the COBRA
Premium for the EBC HRA
Example:
• Employer A has an EBC HRA that
reimburses up to $2,000 of the single plan
deductible or up to $4,000 of the family plan
deductible each year
• Employer A reviews prior plan utilization and
determines that the average reimbursement was
25% of the maximum benefit available for single
or family coverage
© 2012 Employee Benefits
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Calculating the COBRA
Premium for the EBC HRA
Example: (continued)
• Employer A determines that the applicable
premium will be $41.67 per month for a
single participant*
$2,000 / 12 months x 25% = $41.67
• Employer A determines that the applicable
premium will be $83.33 per month for a
family participant*
$4,000 / 12 months x 25% = $83.33
*Does not include the 2% COBRA fee
© 2012 Employee Benefits
Corporation
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Applying COBRA to the
EBC HRA
EBC HRA “linked” to group plan
• Employees who enroll in the group plan are provided
the EBC HRA (do not separately enroll)
• QB is offered COBRA for both plans – cannot elect one
without the other
• Example – ABC Co. provides the EBC HRA only to
employees that enroll in the company’s health
insurance plan. Joe is laid off and is offered COBRA
continuation for the health plan including the EBC
HRA. Joe cannot elect just the health plan since the
health plan and EBC HRA are linked. He must choose
both or choose no COBRA coverage.
© 2012 Employee Benefits
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Applying COBRA to the
EBC HRA
EBC HRA provided as a stand-alone plan
• Employees are provided the EBC HRA separately from
other plans
• QB is offered the EBC HRA as a separate election from
any other plans offered
• Example – ABC Co. provides an EBC HRA for all
employees that work 30 hours per week or more,
regardless of any other plans the employee enrolls in.
Joe is laid off and is offered COBRA for the EBC HRA
and any other plans he was enrolled in as separate plans
to continue. Joe can elect COBRA continuation
coverage for any or all of the plans.
© 2012 Employee Benefits
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EBC HRA Balance After a
Qualifying Event
• QB is provided COBRA coverage for the
balance of funds available from the
EBC HRA
• Calculating the EBC HRA balance
available depends on the EBC HRA design
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
• EBC HRA with no rollover
(carryover)
• EBC HRA with rollover
• EBC HRA with Post Employment
Benefit (PEB)
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EBC HRA Balance After a
Qualifying Event
EBC HRA with no rollover provision
• QB is offered standard 18, 29 or 36 months
of COBRA coverage
• Applicable COBRA premium based on
coverage level (e.g., single, family)
• Balance of unused EBC HRA is available
• Independent election rights apply for
family members
• QB eligible for new plan year benefit
funding when next plan year begins
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
EBC HRA with no rollover provision
Example: Beth’s EBC HRA reimburses 75% of her $2,000 single
plan deductible
• At the time of her qualifying event, Beth has already been
reimbursed $750 (75% of the $1,000 of deductible
expenses she incurred)
• Beth is offered COBRA with a balance available for
reimbursement of $750 for the rest of the plan year
• Beth pays the applicable COBRA premium for
EBC HRA coverage
• If continued, Beth will have $1,500 available for the next
plan year (assumes no change in EBC HRA benefit for
active employees)
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
EBC HRA with rollover
• QB offered standard 18, 29 or 36 months of
COBRA coverage
• EBC HRA including rollover balance is subject
to COBRA
• Applicable COBRA premium is cost to the employer for
providing the EBC HRA with rollover to active employees
(e.g., single plan with rollover)
• Independent election rights apply for family members
• QB eligible for new plan year benefit funding plus
remaining rollover balance for next plan year
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
EBC HRA with rollover
• Example: Luke is enrolled in a single plan EBC HRA with
rollover. Each year single plan participants have $1,000
available plus any rollover in their EBC HRA account
 At the time Luke loses coverage, he has an EBC HRA
balance of $5,000 (current year available funding +
roll over – claims reimbursed to date of event)
 Luke’s COBRA premium is the applicable cost to
provide the EBC HRA with roll over to other single
plan employees – not a premium based on Luke’s
account value
 If Luke elects COBRA, he would have another $1,000
available in the EBC HRA at the beginning of the
next plan year plus any remaining rollover balance
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
EBC HRA with PEB
• Generally designed for retirees or others
who terminate employment
• One-time funding by the employer could be:
 Roll over accumulated while employed
 Funding based on a formula (e.g., X $ for each
day of unused sick leave, etc)
• Participant “spends-down” the PEB
 Can be limited to a certain time period (e.g., 3
years) and/or until the account is exhausted
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
EBC HRA with PEB – 3 options
#1 - Active employee EBC HRA balance is converted into PEB
HRA at termination or retirement
 Must offer COBRA for the active employee EBC HRA when
an event occurs
 If COBRA is elected, active employee EBC HRA remains in
effect (QB pays premium and normal claims reimbursement
continues)
- This is an issue when the health plan & EBC HRA are
linked; expectation that PEB would be used to pay
COBRA premiums for health plan
 When COBRA coverage ends or is not elected, PEB HRA begins
 PEB HRA is a spend down account and no COBRA rights
apply for family members if participant dies, divorces, etc.
while using PEB
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
EBC HRA with PEB – 3 options
#2 - No active employee EBC HRA, eligible employees receive a
PEB HRA at termination or retirement
 Family members who experience a qualifying event (e.g.,
divorce) while covered by the PEB are offered COBRA for
the remaining PEB balance
 Applicable COBRA premium is the cost to the employer
of providing the PEB for its other PEB participants
 Example: PEB usage is 30% of account value each year.
Ex-spouse Mary is offered COBRA for PEB account with
value of $9,000. Applicable monthly premium is:
$9,000 X .3/12 months = $225 + 2% fee
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
EBC HRA with PEB – 3 options
#3 - PEB HRA as an alternative coverage
 Employer has an active employee EBC HRA linked to
the health plan
 Employer maintains an alternative health plan & PEB
HRA for employees who experience a specific event
(e.g., termination of employment, retirement, etc)
 When a qualifying event occurs, the employee can
choose COBRA for the active employee health plan &
EBC HRA or coverage under the alternative health
plan and PEB HRA
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
EBC HRA with PEB – 3 options
#3 - PEB HRA as an alternative coverage (continued)
 Employees who opt for the alternative health plan &
PEB HRA waive their COBRA rights
 Family members who experience a qualifying event
(e.g., death of former employee) while covered by the
alternative health plan and PEB HRA are offered
COBRA for the alternative health plan and PEB
HRA balance
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
#3 - PEB HRA as an alternative coverage; example
 George can elect COBRA and stay in the active
employee health plan & EBC HRA or he can select an
alternative health plan and PEB HRA of $10,000
when he terminates his employment
 George selects the alternative health plan with PEB
HRA and waives his COBRA rights to the active
employee health plan and EBC HRA
 George dies while still covered by the alternative
coverage. His wife is offered COBRA for the
alternative coverage for a period of up to 36-months
from George’s death.
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
• EBC HRA balance is subject to plan design
• Aggregate benefit design versus individual
embedded amount with family maximum design
affects the balance available for a QB
• Could affect
 Deductible
 Co-insurance
 Co-pays (drugs, office visits, etc.)
• Majority of EBC HRAs provide
reimbursement for deductible expenses
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EBC HRA Balance After a
Qualifying Event
Deductible designs
• Aggregate deductible – health plan only
pays after expenses for any or all
individuals exceed the deductible amount
 Example: Sam covers his wife and two children in a
health plan with a family aggregate deductible of $4,000.
Sam’s health plan will cover the family’s medical
expenses only after Sam and/or his family members have
had $4,000 in out-of-pocket deductible expenses
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
Deductible designs
• Individual embedded deductible with family
maximum
 Health plan pays when any individual has expenses that
exceed the individual embedded deductible amount; or,
 Health plan pays when the family’s deductible expenses
exceed a maximum threshold amount
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
Deductible designs – individual embedded
deductible with family maximum
• Example: Mary covers her husband and a child in a health
plan with a $2,000 individual embedded deductible with a
family maximum deductible of $4,000
 Mary’s plan will reimburse expenses when any covered
family member has deductible expenses of $2,000
 If remaining family members incur an additional $2,000
of deductible expenses (a total of $4,000 in deductible
expenses), the plan will cover all future expenses
 The health plan will also reimburse future expenses if the
family incurs $4,000 of deductible expenses even though
no individual has incurred $2,000 of deductible expenses
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
Changes from family coverage to single
coverage (divorce or loss of dependent status)
– EBC HRA balance will vary upon aggregate or
individual embedded deductible design
• The following examples all use the same facts
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EBC HRA Balance After a
Qualifying Event
Changes from family coverage to single
coverage – examples
Facts:
• John and Jane Doe are married
• John has an EBC HRA linked to the health insurance
plan that reimburses 100% of the health plan’s deductible
expenses
• Single EBC HRA reimburses the $2,000 deductible and
family EBC HRA reimburses the $4,000 deductible
• John and Jane divorce
• Jane is offered COBRA
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
Changes from family coverage to single
coverage – examples
Facts: (continued)
• Prior to the divorce, Jane had $1,500 in deductible
expenses reimbursed from the EBC HRA
• John had $800 in deductible expenses reimbursed from
the EBC HRA
• Single and family premium for health plan plus EBC
HRA are established monthly premium amounts
• Single premium is $350 and family premium is $900
(health plan + EBC HRA)
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
Aggregate deductible – divorce balance
• Based on facts
 $2,300 towards the aggregate deductible satisfied
($1,500 from Jane, $800 from John)
 Jane is offered COBRA for a single plan
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
Aggregate deductible – divorce balance
(continued)
• Jane’s deductible changes from $4,000 to $2,000
 In an aggregate design, the EBC HRA doesn’t track
claims against specific individuals
 Jane is credited with $2,300 towards the $2,000
deductible (deductible is satisfied)
 Jane pays $350/month for single health plan with EBC
HRA coverage
 Jane has no EBC HRA funds available for the remainder
of the plan year
 Jane will have $2,000 of EBC HRA funding available the
next plan year
© 2012 Employee Benefits
Corporation
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EBC HRA Balance After a
Qualifying Event
Individual Embedded Deductible – divorce balance
• Based on facts
 Jane has satisfied $1,500 of deductible expenses
 Jane is offered COBRA for a single plan
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EBC HRA Balance After a
Qualifying Event
Individual Embedded Deductible
– divorce balance (continued)
• Individual embedded deductible of $2,000 applies
to each person
 With individual embedded design, claims are tracked
against specific individuals
 Jane is credited with $1,500 toward $2,000 single deductible
 Jane pays $350/month for single health plan with EBC
HRA coverage
 Jane has possible additional $500 of EBC HRA funds for
the rest of the plan year
 Jane will have $2,000 of EBC HRA funding available the
next plan year
© 2012 Employee Benefits
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Corporation
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Common compliance issues
• Not offering COBRA for the EBC HRA
• Not offering COBRA for all of the qualifying events
(e.g., not offering COBRA to ex-spouse, etc.)
• Offering COBRA for the EBC HRA separately
when the EBC HRA is linked to the health plan for
active employees
• Not creating an applicable premium for the EBC HRA or
creating an unreasonable applicable premium
• Automatically moving participants to a PEB HRA
without offering COBRA for the active employee
EBC HRA
© 2012 Employee Benefits
Corporation
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Summary
• COBRA applies to the EBC HRA
• All COBRA rules apply (e.g., QBs, events,
applicable premium, etc.)
• EBC HRA COBRA coverage after an event is
affected by plan design
• We can answer your questions about applying
COBRA to the EBC HRA
• We can administer COBRA for the EBC HRA
through our COBRASecure service
© 2012 Employee Benefits
Corporation
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Thanks for Attending
Questions on this issue or any COBRA, EBC
HRA or Cafeteria Plan issue can be directed
to:
Compliance Department
1-800-346-2126
Or
[email protected]
© 2012 Employee Benefits
Corporation
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