Summer, 2016

By Sandra Henderson, Vice President, Insurance

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This issue of Insurance Insights lets you know the most recent changes with COBRA and what you need to know as an employer.

Who is Subject to COBRA?

Employer groups with 20 or more full time equivalents for 50% of the preceding calendar year.  This includes seasonal employees even if their work days are broken up by different months.

  • If you are an employer with common ownership (80%) in more than one company, you will be treated as a single employer when it comes to determining COBRA responsibility.
  • Church plans are exempt unless they have a school or book store connection (as examples).
  • Types of Plans subject to COBRA are Medical, Dental, Vision, Prescription Drug Plans, FSAs, HRAs, and Executive Reimbursement Plans.
    • FSAs: COBRA is only required to be offered when the account is “underspent” and only if the cost to continue the health FSA is less than the benefit remaining.
  • COBRA does not apply to HSAs, LTC, Life Insurance, Disability Insurance, or other ancillary insurance.
    • The exception to this rule is if it is paid through a 125 Plan
  • Qualified beneficiaries do not include domestic partners.
  • Remember that COBRA participants must be treated the same as employees at open enrollment.  They must be notified of a plan change and offered the same options if your employer plan is changing.

Qualifying Events for COBRA Continuation

Employees:

  • Termination of an employee, voluntary or involuntary (except for “gross misconduct” as defined by the employer and spelled out in the Employee Handbook)
  • Reduction in hours resulting in loss of benefits

Spouses & Dependents

  • Divorce or legal separation
  • Loss of dependent child status
  • Death of covered employee/retiree
  • Employee entitled to Medicare

COBRA Timelines

  • Employer: 30 days to notify Plan Administrator of qualifying event
  • Plan Administrator: 14 days to send out election notice
  • Qualified Beneficiary: 60 days to elect COBRA, then 45 days to make the first payment
  • Participant: MUST be given a 30-day grace period for monthly premium payments

From the Department of Labor:

Random audits (you know the ones they have been promising to do?), to assure employers and insurers, and everyone in-between, are being compliant with the ongoing ACA rules and changes. The IRS is the agency enforcing the penalties that can begin at a cost of $100 per day per individual for COBRA penalties.

Notification Requirements:

General Notice (“formerly Initial Notice”) which tells employees of their rights under COBRA must be sent:

  • Once the company becomes subject to COBRA.
  • When new employees and spouses (if any) become covered under the plan or when employee adds a spouse to the plan.
  • First Class mail to employee, NOT inserted as a payroll stuffer or posted on a bulletin board

ACA Compliance: FSAs, HSAs, & HRAs

  • Use it or lose it still applies to FSAs
  • $500 carry-over provision for FSAs
  • Employers can impose the annual dollar limit for FSAs
  • When offering benefits to an employee, FSA cannot be offered by itself.  Employer must offer Group Medical Coverage along with it, but they do not have to be integrated (an employee could elect only the FSA without the group plan).  No free standing HRAs to cover medical expenses or used to cover expenses for individually purchased health insurance that is billed to their home.
  • Legally married, same-sex spouses can now use tax-free funds in an employer’s FSA, HRA, or HSA
  • Who can’t participate in FSAs and HRAs?  Sole proprietors, partners in a partnership, members of a LLC, or 2% or greater shareholders of a S Corporation

Consult an accountant or attorney for advice on how insurance strategies apply to your own personal situation. This material contains the current opinions of the author but not necessarily those of Plan Financial and such opinions are subject to change without notice. This material is distributed for informational purposes only. PFI Insurance Services, a licensed insurance agency and division of Plan Financial, provides clients with access to insurance issued by leading insurance companies. Insurance products are underwritten and issued by participating insurance companies. This is not an offer or solicitation in any jurisdiction where the policies are not approved for sale. Any obligations under the policies are the exclusive obligations of the insurance companies and are subject to the financial conditions of the insurance companies. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission. Plan Financial is a trademark or a registered trademark of Plan Life & Wealth Management, Inc., in the United States.© 2016, Plan Financial.