1. COBRA Compliance: Understanding Roles and Responsibilities

2. Agenda/Goals COBRA Description/Definition Background/Overview
Employer Obligations
Notice Descriptions
Participant Obligations
Carrier Obligations
Sample COBRA Continuation Lifecycle
Common Mistakes That Increase Risk
Risks of Non-Compliance
Financial Impact for Non-Compliance
I realize everyone in the audience may not have thorough knowledge of COBRA background so I’ll use a few slides to define common terminology and acronyms used throughout the presentation. For those of you who are familiar with this material I thank you in advance for you patience while I cover material that may seen like review.
We will cover various notice descriptions. What’s in these notices and why are they required?
From there we will discuss employer and employee obligations and also carrier responsibilities maybe you weren’t aware of?
This is followed by a sample COBRA continuation lifecycle
Ceridian’s experience as a COBRA administrator allows us to identify several common employer mistakes that undermine compliance
Next – we cover Risks of non compliance and their financial impact
And then cover Statistical COBRA data from a reliable third party surveyor.
Did you know there have been over a thousand court cases since the inception of COBRA? We provide a few examples of court rulings here to illustrate the importance of compliance
Lastly some common questions and answers to address some of the more complex situations related to COBRA
© 2008 Ceridian Corporation. All rights reserved.

3. COBRA Description/Definition
COBRA - Consolidated Omnibus Budget Reconciliation Act
Three Federal Agencies provide group of laws from:
IRS – Internal Revenue Code
DOL – Employee Retirement Income Security Act
US Dept. of Health & Human Services – Public Health Services Act
Applicable to employers with 20+ employees & group health plan
Not applicable to the Federal Government and church groups
COBRA is NOT insurance, only the right to continue coverage
The word Omnibus is defined as “Including or covering many things”
3 different agencies are in charge of COBRA legislation and enforcement.
IRS adds teeth to COBRA by permitting the law to levy an impact tax for non-compliance
DOL governs all employers who are not Federal, State or Municipal
And ERISA as part of the DOL governs group health plans
PHSA governs schools, cities other gov’t municipalities who don’t pay taxes
COBRA applicable to ER’s with 20 or more EE’s even if less than 20 EE’s are enrolled in the plan
COBRA is not applicable to the Federal government and church groups
A common misconception is that COBRA is insurance – no - it’s only the right to continue coverage temporarily
© 2008 Ceridian Corporation. All rights reserved.

4. Background/Overview History – enacted 4/27/86
Established the right for employees, spouses and covered dependents to elect to temporarily continue coverage upon qualifying events
Eased ‘job lock’ condition for employees who were keeping their jobs for health insurance purposes
Stiff penalties for non-compliance keep employers responsible to communicate and extend COBRA rights
Enacted just over 20 years ago COBRA established the right for employees, spouses and covered dependents to elect to temporarily continue coverage upon qualifying events
By the early eighties our Government realized employees were placing more importance on their employer provided health insurance then their careers. Employees were fearful of being without coverage in between jobs. Gov’t wanted to solve this because job lock will slow down the economy.
In order to make a law that companies would adhere to, hefty fines were established from the very beginning to ensure companies complied with COBRA
© 2008 Ceridian Corporation. All rights reserved.

5. Background / Overview
COBRA coverage must be offered for the following types of insurance:
Medical Coverage
Dental Coverage
Vision Coverage
Hearing Coverage
Prescription Drug Coverage
Employee Assistance Programs (if the program satisfies the definition of providing health care)
Healthcare FSA
Healthcare Reimbursement Arrangement
COBRA must be offered by employers with a group health plan containing the following coverages.
The law defines health and medical care similarly in that they both include diagnosis, cure, mitigation treatment or prevention of disease and any other undertaking affecting any structure or function of the body.
COBRA needs to be offered for certain types of EAPs – and this ties back to the medical care requirement. Employers must determine the COBRA obligations for their EAP based on the services provided by that coverage. If the EAP is referral based only - where the operator puts the employee in touch with care giver or provides the contact info - then no COBRA is required .
However if the EAP include integrated counseling sessions or a nurse hotline then health care is provided and COBRA continuation should be offered.
FSA does have some conditional rules but the simplest way to offer FSA on COBRA is with every QE but only until the end of the FSA plan year with no option to continue at open enrollment
© 2008 Ceridian Corporation. All rights reserved.

6. Terminology/ Acronyms
Background / Overview
Terminology/ Acronyms
PD = Plan Document
Description of benefits under which the employer’s health and welfare plan is administered
SPD = Summary Plan Description
Document required by ERISA to provide information about a health plan to plan participants in simple language
PA = Plan Administrator
The person controlling money or property contributed to the plan
PD is a formal document describing the group plan, what coverage is offered, eligibility criteria, claims appeal process, plan administration and responsibilities.
SPD is a summary of the PD in plain language to clearly communicate the plan rules and responsibilities to the participants. An important note concerning the SPD. Legal cases that uncover inconsistent, inaccurate or missing information in COBRA specific communication, courts have decided verdicts based on language in the SPD.
The PA is the one responsible for ensuring plan compliance is upheld. They can be personally liable for damages assessed against the plan.
© 2008 Ceridian Corporation. All rights reserved.

7. Terminology/ Acronyms
Background / Overview
Terminology/ Acronyms
QB = Qualified Beneficiary
Person(s) allowed to elect COBRA continuation coverage due to loss of coverage on the group plan due to a qualifying event. Must be allowed to make an independent election
QE = Qualifying Event
Specific event that causes a loss of group health benefits by an employee, former employee, covered spouse, or covered dependent children
QB’s must be covered in the group health plan the day before the QE
Or born to or placed for adoption with a covered former employee during that individual’s COBRA coverage.
Let me ask you a question about Qualified Beneficiaries.
Here is the Scenario
Mr. J has coverage by his plan at work. His spouse - Mrs. J is covered under her own employer's plan. Mr. J has a Qualifying Event. Is Mrs. J a QB?
No- because she was not covered under his plan and she did not lose coverage.
Qualifying Event - Specific event that causes a loss of group health benefits by an employee, former employee, covered spouse, or covered dependent children
© 2008 Ceridian Corporation. All rights reserved.

8. Background / Overview Qualify Event Details
Employee event allowing up to 18 months COBRA continuation, if the event causes a loss of coverage:
Termination of employment
Reduction of work hours
Dependent event allowing up to 36 months COBRA continuation, if the event causes a loss of coverage:
Entitlement to Medicare of employee
Divorce or Legal Separation from employee
Death of covered employee
Ineligible dependent child of employee
Employee QEs (permitting 18 months of coverage) include termination, all types, quit, layoff excluding gross misconduct. And reduction of hours that causes loss of coverage
Dependent event allowing up to 36 months COBRA continuation:
Entitlement to Medicare
Divorce or Legal Separation
Death of covered employee
Ineligible dependent child
© 2008 Ceridian Corporation. All rights reserved.

9. Qualifying Event Details
Background / Overview
Qualifying Event Details
Stacking Event = Secondary Qualifying Event
COBRA may be extended for the covered spouse and covered dependents from the original Qualifying Event date.
Stacking events allowing up to 36 months of coverage:
Medicare entitlement of employee
Divorce or legal separation from employee
Death of the covered employee
Ineligible dependent child of employee
There are situations that can occur during the COBRA continuation period that allow for a secondary QE or stacking event which allows the affected spouse or covered dependents to continue COBRA beyond the 18 months provided by the initial QE.
This is because the QB’s lost coverage due to the second event
Stacking events that permit 36 months of coverage - this is the total length of coverage mind you - not in addition to the first 18 months.
include
death of covered employee,
divorce or legal separation
Ineligible dependent child
Medicare entitlement
© 2008 Ceridian Corporation. All rights reserved.

10. Qualifying Event Details
Background / Overview
Qualifying Event Details
Stacking event allowing up to 29 months of coverage:
Disability extension, must meet the following criteria:
SSA must determine disability within first 60 days of COBRA continuation or prior to the QE date
QB must provide SSA notice of determination within 60 days of the later of the date of the QE, BTD, Date of the Notice, or the date that the QB was informed of the rules via the General Notice of COBRA Rights
Disability must last at least until the end of the 18 month COBRA period
Employers can charge up to 150% of the monthly premium for disabled QBs
Another stacking event which provides for up to 29 months of COBRA coverage is for a QB who becomes disabled.
The QB must prove to the employer or TPA with a letter from the social security administration that they are in fact disabled. The disability determination must also occur within the first 60 days on COBRA.
Although disability allows for a COBRA period extension, employers have the right to increase the monthly premium from 102 to 150%
© 2008 Ceridian Corporation. All rights reserved.

11. Employer Obligations/ Best Practices
Timely notifications – General Notices & Qualifying Event Notices
Proof notice was sent – signatures, copies of letters or mailing manifests
Record retention – archiving
COBRA Procedures Manual - recommended
Standardized administration – consistent processes limit possible discrimination/bias
Employers must ensure that COBRA related communications are sent in accordance with the timeframes established by the law.
In additions to being timely, employers must be able to prove the various notifications were sent to the last know address of the employee Spouse and or dependent
The proof of notification must be retained for seven years either by the employer or the COBRA administrator.
A COBRA procedures manual is recommended for several reasons. This is typically the first thing requested if the employer were to be audited for COBRA compliance. The auditors use this to confirm that there are procedures in place and ownership identified to manage the COBRA administration
It identifies roles and responsibilities specific to each part of COBRA administration and should be maintained with or without a TPA.
For example how are QE’s communicated for company with multiple divisions or multiple benefit plans? The manual should contain these answers.
A COBRA procedures manual also helps establish standardized administration with consistent processes to prevent discrimination or bias
© 2008 Ceridian Corporation. All rights reserved.

12. Employer Obligations / Best Practices
Treat COBRA participants the same as a similarly situated active employee coverage
Open Enrollment
Track and manage elections and payment deadlines
Manage eligibility (additions, terminations and changes) with carriers
Compliance - remaining up-to-date on changing laws
Employers are obliged to treat COBRA participants with same benefit rights as active employees.
For example during OE- COBRA continuants must be provided the same material as active EE’s defining their benefit choices during OE.
In order to stay compliant - COBRA elections and payments must be tracked for timeliness. For example, if an COBRA election is made after 60 days from the latter of the QE date or benefit end the election should not be honored –or- if a COBRA payment is received after the grace period end date - the coverage should be cancelled.
After COBRA premiums are paid the employer still needs to communicate with the carrier to ensure that continuant’s eligibility is updated so insurance claims will be paid. Any changes on that record (ATC) must also be shared with the carriers.
Finally employers must stay abreast of COBRA law and modify their procedures when the law changes. For example hurricane Katrina allowed an extension of several months for COBRA elections and premium payments for dozens of affected zip codes and Parishes.
This is a real example of how a complicated law can get even more complicated and burdensome for employers.
© 2008 Ceridian Corporation. All rights reserved.

13. General Notice Must be provided within 90 days after coverage begins
Written in easy to understand “plain” language
Definitions of QE/QB
Employer/ Participant obligations
Descriptions of QEs and coverage periods
Statement that more complete info from SPD and/or PA
General Notice within SPD acceptable
Hand delivery is sufficient, but does not constitute notice to a covered spouse
This notice - also referred to as the Initial Notice must be provided to the appropriate individual within 90 days of the group health plan coverage begin date. The notice is not required for covered dependents, but can be provided if the employer plan identifies covered dependents also be notified.
The notice describes COBRA continuation rights in clear English.
It must contain…
Definitions of QE/QB
Employer/ Participant obligations
Descriptions of QEs and coverage periods
Statement that more complete info from SPD and/or PA
Courts have ruled that the general notice can be provided as part of the summary plan description.
There is no rule that says the notice must be mailed - for example it could be hand delivered and employee can sign a ledger or a copy of the notice documenting they received it - but if the employee has a spouse and they are covered on the plan, the employee signature in the ledger does not prove the spouse was sent a notice.
© 2008 Ceridian Corporation. All rights reserved.

14. General Notice (Continued)
Single notice addressed to both the employee and a covered spouse is acceptable
Separate notices must generally be provided if coverage begins on different dates (i.e. marriage, retirement.)
Exception to 90 day rule – QE notice can suffice for General Notice.
Sample General Notice available online:
If the employee and spouse live at the same address an single notice addressed to both is acceptable. If they live in separate locations then two notices are required to be sent , one to each address.
If a spouse is added to the plan at a later date another notice must be sent to the spouse.
It seems for every rule there is an exception! The exception to the 90 day rule for the general notice is a situation where an employee experiences a COBRA QE within 90 days of the plan coverage start, in this case the QE notice can double as an initial notice. This is to limit the employee confusion that may arise from receiving multiple notices in a short amount of time.
A sample notice is available at the following link
© 2008 Ceridian Corporation. All rights reserved.

15. Qualifying Event Notice
Description of the continuation coverage that is available
Explanation of how continuation coverage is elected
Plan’s policies and requirements for payment of premiums
Description of conversion options and their impact on
continuation coverage
Consequences of electing or declining COBRA coverage
Statement that more complete info from SPD and/or PA
This notice is sent at the time of a QE. The employer has 14 days from the date of the QE to send the notice. If there is a TPA handling the COBRA administration then the employer has 30 days to notify the TPA and the TPA has 14 days to notify the QBs for a total of 44 days.
The notice describes what coverages are available and at what rates, the QB can elect coverage equal to or lesser than the coverage provided the day before the QE.
A description of how to elect coverage is provided. There may be ways to elect other than paper. Phone IVR or web self service for example.
Payment timelines are clearly identified with a description between the due dates and the grace dates.
Explanation of how electing COBRA or not will impact future rights to elect coverage. For example – electing COBRA continuation can help prevent exclusion of coverage under a future plan due to a preexisting condition because the preexisting condition clause can not be applied to those who have had continuous coverage.
© 2008 Ceridian Corporation. All rights reserved.

16. Early Termination Notice
Plan Administrators must notify COBRA recipients “as soon as practicable” in the event their coverage is terminated prior to the end of the maximum coverage period.
Notice must be provided if participant loses coverage for any
reason (i.e. non-payment of premiums, employer closes group health plan)
Can be combined with a HIPAA certificate of creditable coverage
Coverage termination notice must include:
Reason coverage is terminated
Date coverage terminated
Statement of any rights the participant may have to elect other coverage (e.g. conversion rights)
This notice is required for participants who lose COBRA coverage prior to the end of the maximum coverage period. Although there is not a specific deadline - the law states this notice must be furnishes as soon as practicable.
Coverage can be lost for any reason for example late or non payment of premiums or if the employer closes the group health plan..
This notice can be provided with a HIPAA certificate of Creditable coverage.
It must be written in a manner calculated to be understood by the average plan participant
Coverage termination notice must include:
Reason coverage is terminated
Date coverage terminated
Statement of any rights the participant may have to elect other coverage (e.g. conversion rights)
© 2008 Ceridian Corporation. All rights reserved.

17. Unavailability of Coverage Notice
A Plan Administrator is also required to notify a participant or QB whenever the administrator determines that the individual is not eligible for COBRA coverage due to divorce/legal separation, ineligible child or when a disability extension is being denied.
This notice must:
Include an explanation of why continuation coverage is not available
Be provided within 14 days after the administrator receives notice of the qualifying event
© 2008 Ceridian Corporation. All rights reserved.

18. Maximum Coverage Notification
Used to communicate the date coverage is no longer permitted under COBRA - 18, 29 or 36 months
Identified the date coverage ends and the carrier who is providing the coverage
Must include conversion language to individual coverage if applicable
No requirement to provide coverage options or plan rates
A reminder to continuants that their right to continue COBRA coverage will soon end.
Used to communicate the date coverage is no longer permitted under COBRA - 18, 29 or 36 months
Identified the date coverage ends and the carrier who is providing the coverage
May include language to convert to individual coverage if eligible. If the option is available then the contact information for that carrier will be provided.
No requirement to provide coverage options or plan rates
© 2008 Ceridian Corporation. All rights reserved.

19. COBRA Notice Volumes
This visual helps explain the quantities of each type of notice bases on an employer with 200 employees.
It is clear that the Initial COBRA notice is the most common required for everyone (and their spouses) participating in the group health plan.
By applying percentage results from the 2004 Spencer Survey you can see the typical volumes of each type of notification from largest to smallest
© 2008 Ceridian Corporation. All rights reserved.

20. Participant Obligations
Elect within 60 days of the QE Notice or Benefits Termination Date, whichever is later
Coverage must be continuous
Make 1st payment within 45 days of the election
Make subsequent payments within Grace Period
Notify Employer or Plan Administrator within 60 days of a dependent QE or within 30 days of a new dependent addition
60 days to elect from the latter of the coverage end date or the date the QE notice was mailed
COBRA mandates that coverage must be continuous.
For example. If terminate January 1 I have until March 2 to elect COBRA.
I have no medical expenses in January but I break my leg mid February. I don’t have the option to avoid the January premium and start my coverage in February or when I incur medical expenses.
I must elect and pay for coverage from the QE date of January 1 in order to get the coverage for February also.
First payment can legitimately be made several months after end of coverage.
Let’s consider this scenario
My coverage ends January 1, employer has a TPA (which allows total of 44 days (30 for ER / 14 for TPA)) so the QE letter gets mailed on time Feb 14th, I have 60 days to elect and I may draw our electing to see if I have medical expenses.
Say I wait and elect April 14th I still don’t have to pay anything until June 1 but if I pay, It has to be all the way back to Jan 1, six months worth of premiums!
Doing some quick math- If my monthly premium is $400 I would need to send a check for 2400 dollars just to be current on my premiums, the next $400 would be due in 30 days.
© 2008 Ceridian Corporation. All rights reserved.

21. Insurance Carrier Obligations
Carrier’s are obligated to comply with COBRA
Carrier’s can restrict eligibility if employer or participant did not comply with election/payment requirements
Carrier have right to scrutinize COBRA participant adherence to the law
Now lets consider how COBRA impacts the insurance carriers…
They are obligate to comply also and could be liable if a case proved they were allowing for exceptions for some and not for others. Which is discrimination.
But think about the carrier a second…
Probably more important than the compliance risk are the costs they incur by paying claims for COBRA continuants.
These are typically sicker people maybe requiring surgery or expensive medications or they might have injuries requiring regular treatments or rehabilitation
It’s logical to expect their claim expenses to be higher than active employees. When we discuss COBRA statistics later on you will see exactly how much higher these claims amounts are.
So it’s in the carrier best interest financially to pay attention to the timeliness of COBRA premium payments and participant eligibility so they are not incurring claim costs higher than necessary.
© 2008 Ceridian Corporation. All rights reserved.

22. Sample COBRA Continuation Lifecycle
We use a picture as another way to describe some events and their sequence as I am sure some of you learn material better with a visualization
This helps describe the interplay between the continuant and the employer throughout the COBRA lifecycle and some of the responsibilities of each.
Although this doesn’t show every possible scenario, some common events like Open Enrollment, address changes and addition of dependents are depicted.
This is also a good example of the ongoing responsibility of the employer or TPA to keep track of COBRA continuants and changes that occur through out the continuation period
© 2008 Ceridian Corporation. All rights reserved.

23. Common Mistakes That Increase Risk
No up-to-date COBRA Manual
Not providing or having an General Notice of COBRA Rights
Not providing the Qualifying Event Notice
Not maintaining proof
Making a decision that “feels right”!
Making exceptions to the Plan Documents and then not applying exceptions consistently under similar circumstances
Not offering COBRA for other health coverages such as dental, vision, EAP and FSA.
Overlooking the COBRA continuants at open enrollment
Understanding COBRA in regard to FMLA
By not having a COBRA manual or keeping one current it is much harder to prove during an audit that COBRA admin ownership is defined and standard processes are followed.
It is hard for some employers to grasp COBRA communication is required at the beginning of coverage for active employees, some think COBRA admin starts upon termination. But the law mandates that employees and covered spouses be notified of their COBRA rights and obligations early on.
Not providing the QE notice is considered a red flag. This omission is a common cause of COBRA lawsuits.
Risk of non compliance clearly increases if proof of providing notification is not maintained. The extra effort required to be compliant doesn’t do much good if the employer cannot prove steps were taken correctly & timely.
Making decision that feels right- this ties in with the importance of a procedures manual. Say you manage the COBRA admin and the continuant is your friend, they ask for some slack on the premium payment due date- after all they are out of work and don’t have cash flow! Seems fair right? But you put the plan at risk be making exceptions due to judgment instead of rules.
© 2008 Ceridian Corporation. All rights reserved.

24. Risks of Non Compliance
Greater exposure to litigation
Risk of fines
Reinstating coverage to avoid lawsuits can be costly
Once an exception is made it needs to be consistent for others with the same situation
COBRA participants typically have large medical expenses, typically greater than 102% of monthly premium
Insurance companies include COBRA claims when determining plan risk and premiums for active employees
© 2008 Ceridian Corporation. All rights reserved.

25. Financial Impact for Non Compliance
DOL- up to $110/day for failure to provide timely notification
Attorney fees for prevailing party
Medical expenses
Other relief (i.e. worsening medical conditions)
IRS- up to $100/day ($200/day for more than 1 QB) for each day’s failure to comply
© 2008 Ceridian Corporation. All rights reserved.

26. COBRA Statistics 17% of QB’s elect coverage
COBRA claims were 146% of employee claims
9.6 months average COBRA duration (18 month event)
$8,353 Average annual COBRA cost
4.8 million participants on COBRA at any given time
Job lock reduction of 40-50% due to COBRA rights
Increased probability that 1/3rd of employees can chose to retire early and use COBRA to bridge the ‘insurance gap’ prior to Medicare eligibility
Source 2004 Spencer Benefits Reports
© 2008 Ceridian Corporation. All rights reserved.