The Affordable Care Act and COBRA

One of the most frustrating aspects of the Affordable Care Act (ACA) seems to be the fact that the law’s requirements involve so many other compliance responsibilities, many of which were complicated enough as it was.

One of the ripples in the pond is how the ACA relates to COBRA continuation coverage. Since COBRA was intended to provide an option for individuals losing coverage under a group health plan, especially those who may have had difficulty obtaining other coverage due to a pre-existing condition, it would then seem to follow that with the ACA’s restriction on pre-existing condition exclusions/limitations and the availability of coverage through the Marketplace, COBRA would no longer be required. Unfortunately however, the obligation remains.

So, how does the ACA affect COBRA? Well, practically it should lead to fewer elections, but that may not be true for many plans. Frustration with enrollment through the healthcare.gov website, increasing Marketplace premiums and uncertainty regarding coverage of specific services and prescription drugs may lead many COBRA qualified beneficiaries to stick with the “devil they know” and remain on employer plans. Marketplace plans may also offer limited provider networks, forcing enrollees to switch doctors, which can be another incentive to continue coverage with an employer plan. Many COBRA qualified beneficiaries may also be unaware of the specific options and potential subsidies that are available through the Marketplace. To help employers communicate that information, the DOL has updated the language in its model COBRA notices to briefly describe Marketplace opportunities and reference the 2014 elimination of pre-existing condition exclusions.

In conjunction with the prohibition of pre-existing condition exclusions, the requirement to issue HIPAA Certificates of Creditable Coverage has been eliminated effective December 31, 2014. As a reminder, HIPAA Certificates detail the amount of time employees and dependents have been covered under a group health plan and are used to reduce a pre-existing exclusion period upon subsequent enrollment in a new plan. These certificates are currently required to be issued upon request and automatically upon any termination of coverage (not just those terminations that trigger the obligation to offer COBRA). Note: HIPAA Certificates should not be confused with the Medicare Part D “Creditable Coverage” notices, which are still required to be distributed to all Medicare-eligible participants by October 15 of each year.

Aside from those changes noted above, the substance of COBRA has not been modified by the ACA. The basic concept remains the same—qualified beneficiaries who lose group health coverage under the terms of the Plan due to a qualifying event are entitled to continue coverage for up to 18, 29 or 36 months on a self-pay basis. For employees, those “qualifying events” are termination of employment (other than for gross misconduct) or a reduction of hours. Since the obligation to offer COBRA requires both a loss of eligibility for coverage and the occurrence of a qualifying event, things can get complicated for employers using a look-back measurement period since an employee’s reduction of hours will not generally cause eligibility to terminate until the end of the associated stability period. In that case, COBRA should be offered at the time eligibility for coverage is actually lost.

Example: Company ABC offers coverage under its group health plan only to full-time employees (those with 30+ hours of service per week). To determine plan eligibility, it uses a look-back period of November 1-October 31 and a stability period of January 1-December 31. From November 2014 to October 2015, Mary qualified as a full-time employee and would be thus be eligible for coverage from January 1, 2016 through December 31, 2016. Mary enrolls in ABC’s plan. In February of 2016, she begins working part-time (20 hours per week) and does not meet the hours requirement for full-time status during the November 2015-October 2016 measurement period.

Even though Mary’s COBRA qualifying event (reduction of work hours) occurs in February, her coverage will not terminate until December 31, 2016. Mary should be offered COBRA as of January 1, 2017.

Same basic facts as above, except that in February 2016, Mary decides to drop coverage under ABC’s plan and seek coverage through the Marketplace. In this situation, Mary’s coverage terminates due to a voluntary decision rather than a loss of plan eligibility; therefore there is no obligation to offer COBRA under the ABC plan. {Note: ABC has amended its cafeteria plan to permit a mid-year revocation of coverage due to reduced work hours.}

Other ACA provisions also have an indirect impact on COBRA. Coverage provided to COBRA qualified beneficiaries must be the same as that provided to other similarly situated individuals, so any ACA-required plan changes that apply to active employees will also apply to COBRA participants (e.g., the addition of no-cost preventive services). COBRA participants must also be included as “covered lives” for purposes of the Patient Centered Outcomes Research Institute (PCORI) and Transitional Reinsurance fee calculations.

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About Dawn Kramer

Dawn is an attorney and Certified Employee Benefit Specialist (CEBS) in J.W. Terrill’s Consulting Services department. She advises clients on legal and regulatory issues affecting their employee benefit plans.

View all posts by Dawn Kramer

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