In a recent post, we mentioned that millions of people are losing their jobs and, as a result, their group health coverage because of the Coronavirus pandemic, and many of these individuals will qualify for COBRA continuation coverage.
We also pointed out that COBRA may not be the best option for some of these folks, especially since their household income will have just taken a big hit. You need to be sure to discuss their other options, including individual health coverage, possibly with the assistance of a premium tax credit, short-term health coverage, and even fixed-indemnity plans.
As you are discussing the various options with your clients, though, it’s important to understand the new COBRA rules so that you can advise your clients properly.
COBRA, as you probably know, allows workers and their family members who lose their group health coverage due to a qualifying event to continue that coverage for a period of time. If an employee quits, is fired, is laid off, or has her hours cut, she and her covered family members will qualify for up to 18 months of COBRA if the company has 20 or more employees and the company’s group health plan remains in effect. There are other qualifying events like divorce or legal separation, the employee enrolling in Medicare, the death of the covered employee, or a child losing dependent status under the plan, which will give the dependents the opportunity to continue their coverage for up to 36 months.
During the COBRA continuation period, qualified beneficiaries pay the full health insurance premium. That means that they pay what they were previously paying when working full-time, plus the portion of the premium the employer was previously paying. That can be expensive, of course, but continuing the group coverage might allow people to have better benefits or a broader provider network than is available in the individual market, so this option has to be considered.
Normally, former employees have 60 days from the date they lose coverage to elect COBRA, and then they have another 45 days to make their initial premium payment. When they do, they have to pay the premium back to the date they lost coverage, so that initial payment can be pretty hefty for those who wait to make a decision.
Now, due to the COVID-19 pandemic, the government has extended the timeframe to sign up for COBRA and to make the initial premium payment until 60 days after the national emergency has ended. And as of now, it’s still ongoing.
In regard to the COBRA election decision and COBRA premium payments, a May 4, 2020, joint rule from the Internal Revenue Service and the Department of Labor’s Employee Benefits Security Administration explains it this way:
All group health plans…subject to ERISA or the Code must disregard the period from March 1, 2020 until sixty (60) days after the announced end of the National Emergency or such other date announced by the Agencies in a future notification (the “Outbreak Period”) for all plan participants, beneficiaries, qualified beneficiaries, or claimants wherever located.
Perhaps an example would help. Let’s assume an employee is laid off in April and loses his group health coverage April 30. Normally, he would have until June 30 (60 days after the loss of coverage) to elect COBRA, and then he’d have another 45 days to make his premium payment back to May 1. Any eligible claims incurred since May 1 would be covered by the COBRA policy. Now, though, the same individual would have until 60 days after the end of the national emergency. If President Trump declares the COVID emergency over at the end of August, the former employee could elect COBRA through the end of October and make his payment back to May 1. However, having this option—this “right to buy”—might make some clients delay purchasing other health coverage until their COBRA decision period expires.
As a broker selling individual policies, short-term plans, and other solutions for individuals and families, it’s important to understand these temporary COBRA rules so you can accurately explain them to your clients. Yes, it’s always good to make a sale, and these sales opportunities will certainly increase over the next few months as more and more people lose coverage, but it’s also important to make sure your clients understand their options. The COBRA option is a little confusing, but for people who are struggling to pay the bills right now, holding off on a decision while they still have the opportunity to sign up for COBRA might be the best thing they can do.