DEPARTMENT OF TREASURY ISSUES NEW COBRA REGULATIONS
On February 3, 1999, the Department of Treasury issued final regulations ("1999 Final Regulations") under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). The 1999 Final Regulations are based on two sets of proposed regulations which were published by the Treasury Department on June 15, 1987 and January 7, 1998, as well as on the statutory amendments to the COBRA continuation requirements since COBRA was enacted. The Treasury Department has simultaneously released a new set of proposed regulations ("1999 Proposed Regulations") which addresses many important issues that are not covered by the 1999 Final Regulations.
The 1999 Final Regulations are effective January 1, 2000. It is imperative that all clients covered by COBRA understand and begin to implement all changes required by the 1999 Final Regulations, as well as the 1999 Proposed Regulations. Until January 1, 2000, all health plans and employers must operate in good faith compliance with a reasonable interpretation of the requirements set forth under COBRA.
The 1999 Final Regulations clarify numerous issues left unclear by the prior proposed regulations, and also make various changes with regard to COBRA eligibility, liability and compliance. For example, according to the 1999 Final Regulations:
An employer must count only common law employees for purposes of determining whether the employer meets the small employer plan exception. According to the 1987 proposed regulations, self-employed individuals, independent contractors and directors also were to be counted when determining whether or not an employer was within COBRA's small employer plan exception. Therefore, based on the 1999 Final Regulations, some employers may find that they are no longer subject to COBRA.
Health Flexible Spending Accounts ("Health FSAs") are considered to satisfy the definition of a group health plan and accordingly, Health FSAs are generally subject to COBRA. However, the 1999 Proposed Regulations contain language which does limit the application of the COBRA continuation coverage requirements in the case of Health FSAs.
COBRA coverage cannot be denied to an individual who, at the time he or she elects COBRA continuation coverage, is entitled (enrolled in part A or B of Medicare) to Medicare benefits or coverage under another group health plan, if such individual otherwise would be eligible for COBRA. COBRA coverage can, however, be terminated for an individual on the date following his or her election when the individual first becomes covered under any other group health plan (which includes Medicare).
An individual's entitlement to Medicare benefits means being enrolled in Medicare and does not mean merely being eligible to enroll in Medicare. The 1999 Final Regulations also make clear that being enrolled in either part A or B of Medicare is sufficient for the plan to discontinue COBRA continuation coverage (assuming that the entitlement to Medicare benefits first arises after COBRA continuation coverage has been elected).
A termination of employment following a qualifying event that is a reduction of hours of employment does not expand the maximum coverage period.
A qualified beneficiary need not herself or himself elect COBRA continuation coverage. The election can be made on behalf of the qualified beneficiary by a third party (including a third party that is not a qualified beneficiary).
A plan must make a complete response to any inquiry from a health care provider regarding a qualified beneficiary's right to coverage under the plan during the election period. Thus, if the qualified beneficiary has not yet elected COBRA continuation coverage but remains covered under the plan during the election period (subject to retroactive cancellation if no election is made), the plan must so inform the health care provider.
A plan must treat a partial payment as satisfying the plan's premium payment requirement or it must notify the qualified beneficiary of the amount of the deficiency and grant the qualified beneficiary a reasonable period of time, thirty (30) days, for the deficiency to be corrected.
A plan is permitted to increase the amount it requires to be paid for COBRA continuation coverage during a determination period to take into account the permitted increases during the disability extension, to explicitly permit a plan that is requiring payment of less than the maximum permissible amount to increase the amount required to be paid during the 12-month determination period, and to permit an increase if a qualified beneficiary changes to more expensive coverage (but also to require a reduction if the qualified beneficiary changes to less expensive coverage).
The 1999 Proposed Regulations are intended to clarify the interaction of the Family Medical Leave Act and COBRA, as well as provide important guidance with respect to COBRA compliance rules and liability for sellers and buyers in dealing with asset sales, stock transfers and other corporate transactions. In addition, the 1999 Proposed Regulations include additional rules relating to the small employer exception.
We have merely highlighted some of the clarifications and changes which appear in the 1999 Final Regulations and the 1999 Proposed Regulations. Both sets of Regulations are extremely complex and detailed.
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Disclaimer
The ideas presented in these materials are general in nature and not intended to be contstrued as legal advice and cannot be relied on by any person or entity as legal advice pertaining to any specific situation.
