New COBRA notices further explain individual exchanges

July 30, 2014

You can finally make the Affordable Care Act work for you. Newly proposed COBRA regulations update the model COBRA notices to expand the discussion of the individual Health Insurance Marketplace exchanges, through which COBRA-eligible employees may, instead, buy individual policies.

And the fewer employees who elect COBRA coverage, the fewer headaches for you.

Simultaneously with the proposed regs, the Department of Labor (DOL) released updated COBRA notices. The proposed regs won’t become effective until finalized, but the DOL says that using the new notices will show your good faith compliance with the law. (79 F.R. 26192, 5-7-14)

To COBRA or not to COBRA? In issuing the new notices, the DOL is hoping to clear up some confusion regarding the interaction between COBRA and individual policies bought on the exchanges. The COBRA election notice emphasizes the following points:

  • Individual coverage through an exchange may be cheaper than COBRA, especially when premium tax credits are figured in.
  • Employees can’t bounce between individual coverage and COBRA unless a second qualifying event occurs; electing COBRA precludes buying an individual policy until the next exchange open enrollment (employees can let COBRA lapse by not paying the premiums).
  • All factors should be considered when deciding between COBRA and individual coverage, including provider networks and service areas.

The new model notices are available at the DOL’s website. Along with the new notices, the Health Insurance Marketplace has prepared a one-page fact sheet that complements the COBRA notices.

Mind the gaps. The election periods for individual coverage and COBRA aren’t parallel, which can work to everyone’s disadvantage—employees who may be saddled with more expensive COBRA coverage and you, when you’re left administering those COBRA benefits.

How this arises: Employees have a 60-day special enrollment period after the date they terminate from their jobs to elect individual coverage through an exchange. Employers can take 30 days to notify the COBRA administrator, who has 14 days to notify employees. Employees then have 60 days to elect COBRA. That leaves employees only 16 days to evaluate the costs and benefits of COBRA and individual coverage.

A similar gap arises if you agree to continue employees’ health coverage before COBRA eligibility kicks in. How this arises: The 60-day special enrollment period for individual coverage still begins on the date employees lose their jobs; the continuation of group coverage delays COBRA notification until the group coverage ends. Upshot: Employees would have even less time to decide between COBRA and coverage through the exchange.

A third gap can arise if employers and COBRA administrators take the full 44 days to notify employees of COBRA coverage and employees incur medical costs during that time. COBRA is retroactive, which means that those bills will be covered; individual coverage is prospective only, which means employees will have to cover those bills themselves.

SHORTEN AND SAVE: Shortening the time for providing employees with COBRA notices should eliminate most of the gap problems. Communicating with employees is key if you’re going to trim severance packages of continued health benefits. Employees should perceive the reduced time as a plus, not a minus.