Benefits Review-PPACA and COBRA

What Employers need to know

Once PPACA is implemented, what happens to COBRA?

As employers are waiting for the dust to settle on PPACA, some are wondering how this new law will impact other regulations such as COBRA. If there will be state exchanges, do employers still have to offer COBRA? Can an employer drop someone from COBRA once they begin to participate in another health plan? Does and employer have to provide W2 information on individuals who are receiving health benefits even though they are no longer employees?

These are just a few of the questions that employers are beginning to think about as we move towards implementation of the new PPACA regulations. Like most new regulations, there are more questions than answers at this point. However there are a few things we do know at this point.

Employers Must Still Follow the COBRA Regulations.

PPACA does not eliminate COBRA or its requirements. This means if you have a qualified health plan and are required to provide the opportunity for a person to elect COBRA coverage, you must continue to follow all the rules currently in force. While it would seem that with the options available, COBRA may not be needed. Some employees may still want to elect COBRA to keep the benefits they currently have in force (we are unsure if the State Exchange plans will be as robust as an employer plan at this point or if the cost will really be less than COBRA premiums), not to mention PPACA does not cover dental, vision, Medical Flexible Spending Accounts (FSA), Health Reimbursement Accounts (HRA) or Employee Assistance Plans (EAP) that are subject to COBRA regulations.

COBRA can extend Coverage for Adult Children to Age 29.

One of the qualified events that trigger the need for a COBRA notice is a dependent losing eligibility under the health plan. Now that the age for dependents to lose coverage has been extended to age 26 under PPACA, it is possible that an adult dependent can continue for an additional 36 months under COBRA or until age 29 on the employer’s health plan.

To complicate matters you also will need to add in those states like Florida who require that plans cover dependents to age 30 under certain conditions, which adds even more complexity to the mix.

Shortened waiting periods along with window to avoid Individual Mandate Penalty will affect need for COBRA.

Under PPACA, waiting periods for coverage will be no more than 90 days. This means former employees may not need COBRA coverage for as long as in the past. However, depending on the viability and quality of health plans offered through the State Exchanges, it may be better for a former employee to elect COBRA coverage if it looks like they will have more than a 3 month gap in coverage during the year that could result in a penalty under the individual mandate.

COBRA communications will most likely have to include PPACA language.

Once the State Exchanges become operational in 2014, employers will most likely need to ensure that their COBRA communications include information on the availability of coverage through the exchange. Even if it is not required by the regulations, the employer may want to include this information to encourage former employees to move to the State Exchange plan instead of electing COBRA. At a minimum, employers may need to include language that indicates the consequence of not electing COBRA coverage could subject the former employee to the individual mandate penalty if they do not obtain qualified health coverage in less than 3 months.

Areas that will need clarity are still emerging.

How will the need for the government to receive information on who has health coverage and who does not affect W2 reporting?

Initially it may not appear that the employer will be involved, but it could happen if the IRS determines that they are not getting enough information to determine if an individual has coverage. There may be other means to get this information, including having the former employee simply provide proof of COBRA coverage, the insurance carrier provide this information or even have an employer simply confirm they are covered under COBRA. But this is an area that will need to be watched and further defined as PPACA is unrolled.

Can an employer drop an employee from COBRA coverage if they elect a plan in a state exchange?

Again, one would think this would be the case except for the ‘comparable coverage’ language in COBRA. Hopefully further guidance will be provided that will allow an employer to assume any plan offered in a State Exchange will meet this requirement. Again, depending on the difference between the employer plan and the plan the former employee can afford; some may decide to continue the COBRA plan even when enrolled under a plan with lesser benefits. As the State Exchanges emerge under PPACA, coordination between the employer sponsored plan and the State Exchange will be further complicated by COBRA.

In reality, even though the employer will still have to offer COBRA, utilization may be reduced for the employer’s group health plan. Most former employees will probably look to the State Exchanges after 2014 as the plans may not be as expensive as COBRA due to the subsidy that will be available to them if their earnings are below the required poverty level for a tax credit.