Eventual Death Knell for COBRA? DOL Issues New Model COBRA Notices Regarding Options for Coverage Through the Health Insurance Exchange
June 26, 2014
On May 2, 2014, the U.S. Department of Labor (DOL) announced a proposed change to its regulations. The DOL will require that notices sent to employees regarding Consolidated Omnibus Budget Reconciliation Act (COBRA) health insurance coverage must also include information about the new health insurance marketplace, or exchange, established under the Affordable Care Act (ACA). The purpose is to help employees decide whether to elect COBRA coverage or opt instead to purchase a plan on the exchange under ACA. What the New Model COBRA Notices Are Designed to Accomplish Generally, opting for COBRA coverage allows an employee and his or her family to continue employer-sponsored health insurance coverage for a given amount of time (usually 18 months) after a qualifying event, such as leaving employment, by paying the premium under the employer-sponsored plan at the group rate. The proposed rule would require that the employer notify such employees and their dependents of the availability of health insurance plans through the exchange for which the employee may be eligible, which may be cheaper than COBRA coverage due primarily to subsidies, tax credits and cost-sharing reductions. Besides revising this "election" model notice, the DOL also has revised the "general" model COBRA notice that is provided to the employee when he or she first becomes covered under an employer-sponsored group health plan. The new features in the new model notices include advising employees that coverage through the health insurance marketplace may be less expensive than COBRA coverage; specific information on when employees can enroll in marketplace coverage; and certain implications of electing marketplace coverage instead of COBRA coverage, such as that if an employee opts for marketplace coverage, he or she cannot thereafter change his or her mind and sign up for COBRA coverage based on the same qualifying event. The new model notices can be found at the DOL website at: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra. The New Special Enrollment Period Also on May 2, 2014, the Department of Health and Human Services (HHS) issued a bulletin that provided individuals already enrolled in COBRA with a special enrollment period until July 1, 2014, to switch to a plan in ACA's federal marketplace despite their having previously elected COBRA coverage. Normally, enrollment in COBRA coverage precludes enrollment in marketplace coverage outside of the annual enrollment period for marketplace coverage (the first of which ended on March 31, 2014), but HHS felt this modification was necessary to permit individuals who may not have understood their rights to make the switch from COBRA to marketplace coverage. A Wrinkle in the Ointment? As stated, COBRA continuation coverage can be expensive, while marketplace coverage is comparatively cheaper, especially when the employee is eligible for subsidies or tax credits. Also, COBRA continuation coverage normally is capped at 18 months after termination of employment (36 months for certain other qualifying events), while coverage under an ACA plan can last as long as the employee wishes to remain with the plan. For a typical employee, these factors would seem to favor selecting a plan on the exchange rather than electing COBRA coverage. But even with the revised model notices and special enrollment period, there still are potential Hobson's choices for some employees in choosing between COBRA continuation and marketplace coverage. First, the special enrollment period only applies to federally run exchanges. For states whose exchanges are state-based, the special enrollment period does not apply. (This is not an issue in Illinois, since the exchange in Illinois is federally based). More significantly, however, an employee choosing marketplace coverage rather than COBRA coverage could wind up with a gap in coverage. This is not explained in the new model notices. It is a problem stemming from the fact that marketplace coverage is prospective only. To illustrate, when a COBRA qualifying event occurs, such as a job loss, coverage is lost immediately or by the end of the month in which the qualifying event occurs. The group health plan is not required to offer continuation coverage until it receives an appropriate notice of such a qualifying event, and the employer has 30 days to notify the plan. By the time the employee receives notice of his or her COBRA rights, a gap in coverage thereby already has been created. But COBRA is designed to fill that gap: once the employee timely elects such coverage, the coverage is retroactive to the date of loss of coverage. Choosing marketplace coverage, on the other hand, is prospective only, so an employee who chooses a plan on the exchange risks being uncovered for any claims incurred during the gap. This factor may favor electing COBRA coverage, but with the drawback that the employee likely will have to pay more for coverage and then cannot transition to a marketplace plan until the next open annual enrollment period, which could be months away. Perhaps the solution will be to further relax the intervals in which a person can opt out of COBRA coverage. But whatever the case, it is likely that, over the course of time, diminishing numbers of terminating employees will be choosing COBRA over purchasing a plan on the exchange. Eventually, such a trend may relegate COBRA to "the road not taken."