The Trump administration is giving laid-off workers more time to decide if they want to stick with their prior job-based health coverage and more time to pay for it—leeway that could wreak havoc on employers.
The Departments of Labor and Treasury recently delayed the deadline for employees to sign up for and pay for up to 18 months of continued health-care coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA).
But benefits attorneys say the relief for people losing their jobs in the midst of a pandemic has the potential to create a patchwork of deadlines across the country and force employers to foot the bill for costly health insurance.
“It could be a mess if it’s not properly managed,” said Brian Johnston, a principal in the employee benefits group at Jackson Lewis PC.
Delaying the Countdown
People who lose their employer-sponsored coverage because they are terminated or their hours are cut typically have 60 days to elect COBRA coverage. The Labor Department is now telling employers and employees not to start that countdown until 60 days after the national emergency ends and to “disregard” altogether what it calls the “outbreak period.”
The agencies are considering March 1 the start of the outbreak period. It’s unclear, however, when the outbreak period will end. The guidance says it will run 60 days past the end of the national emergency or until another date is announced by the Labor Department and the IRS.
States have been issuing their own emergency declarations, so the outbreak period could end up being different in each state, said Johnston, who’s based in the Kansas office.
“The way the guidance is written, it could well be that a state like Georgia may be perceived to be out of a national emergency sooner than some other states,” he said.
Georgia, Florida, and Texas have already started to reopen, and other states are set to follow in their footsteps. Meanwhile, the number of Covid-19 cases continues to climb in the U.S. There were over 1.2 million cases and 73,000 deaths as of Thursday morning.
In an email, a Labor Department spokesperson said the relief extends through the duration of the national emergency period and currently doesn’t vary by states.
“To the extent that there are different end dates for different parts of the country, the department will evaluate whether additional guidance regarding the application of the relief is necessary,” the spokesperson said.
Plaintiffs’ attorneys say the extensions are generous and absolutely needed.
The COBRA rules were never set up to trick sponsors or beneficiaries, said Denise Clark, founder of the Clark Law Group PLLC in Washington, who represents employees in benefit disputes.
“They were always set up to give the plan the ability to give notice and the participant the ability to get the notice and act on the notice,” she said. “In this situation, which is still happening, it only makes sense that you give people the time necessary to say ‘Oh yeah, what happened here? What do we need to do to make sure we don’t lose our health insurance?’”
But COBRA coverage isn’t cheap.
Employers can charge 100% of the health-care premium plus an additional 2% administrative fee. Annual premiums for employer-sponsored health insurance in 2019 averaged $7,188 for coverage for an individual and $20,576 for family coverage, according to the Kaiser Family Foundation’s 2019 Employer Health Benefits Survey.
The Benefit Services Group Inc. said its data indicates the average commercial single monthly premium rate in 2019 was $553.15.
“When you add in the typical 2% COBRA administrative charge, the average individual paid $564.21 for single coverage COBRA,” Schuyler File, a health-care consultant with the independent risk management and consulting firm, said in an email.
As expensive as COBRA is, employers often still lose money because participants tend to be sick before they elect coverage, said Andy Anderson, a partner at Morgan, Lewis & Bockius LLP in Chicago, who leads the firm’s health and welfare task force.
Giving people more time to enroll puts employers at a greater risk of getting sicker participants who drive up their health-care costs. COBRA coverage is retroactive, so employers generally have to pay health-care claims incurred in the months the participant went without coverage.
“As helpful as this will be for participants, it will to some degree increase employers’ concerns around adverse selection, which has always been part and parcel of COBRA,” Anderson said.
The Labor Department is also giving COBRA participants more time to make their premium payments. Under the guidance, participants now have 90 days after the national emergency ends to make up payments they missed during the pandemic, but those missed premiums would all be due at once.
“It’s pretty significant in that employers are legally bound to provide COBRA coverage even if COBRA participants are not paying the premiums during the pandemic,” said Nick Welle, senior counsel at Foley & Lardner LLP in Milwaukee.
The guidance also tells employers to disregard the outbreak period when determining when to send notices to former employees about their right to COBRA coverage.
“We also note that the relief also affords employers additional time to provide the COBRA election notice during the pandemic,” the Labor Department spokesperson said. “We believe the relief provided to both individuals and employers strikes the appropriate balance.”
Attorneys, however, say the guidance has created confusion among plan sponsors about when they have to provide coverage.
“The questions have already started to come in,” Anderson said.