COBRA Q&A Series 2: Incorrect Election Notice

Posted on November 15, 2007. Filed under: COBRA & Health Insurance |

In this next installment of my COBRA Q&A Series we’ll look at a question involving an incorrect COBRA Election Notice (also known as a COBRA Specific Rights Notice).  As always with this series, my goal with these posts is to create something of a “knowledge base” over time with these posts, but please always keep in mind when reading these that I am not an attorney, and I am not providing legal advice.  If you have a legal question concerning COBRA, HIPAA, USERRAFMLA, or any other ERISA matter, you should consult an attorney who specializes in these areas of law.  Finally, if you’d like a basic overview of COBRA with some links on where to find more official information, please see my earlier post here, and if you’d like to see other posts in this series visit the COBRA Q&A Series index page here.

Question

We have a question about how best to update a QB’s plans in COBRApoint properly.  The QB in question is [John Doe] for our client [ABC Company].  When [ABC Company] notified us of [John Doe’s] Qualifying Event, they told us he was on [Medical Plan A].  We sent him his COBRA Election Notice, and he responded by electing [Medical Plan A], and he included payment for his first month of coverage.  We have since learned from [ABC Company] that he was never on [Medical Plan A] as an employee.  He was on [Medical Plan B].  If we simply drop [Medical Plan A] from his record as of his First Day of COBRA and add [Medical Plan B] as of his First Day of COBRA, will COBRApoint accurately reapply the premium he has paid (note that the premiums for [Medical Plan A] and [Medical Plan B] are different)?  Alternatively, if you were in this position, would you start over and send [John Doe] a new Election Notice?  How would this action affect us given the regs’ requirement that we send the Election Notice in a timely manner after receiving notice from the employer [plan administrator] of the Qualifying Event.

Answer

Yes, and yes.  Yes, if you drop the QB’s incorrect plan as of his First Day of COBRA and add the correct plan as of the First Day of COBRA, COBRApoint will “unallocate” the QB’s payment(s) to date from the incorrect plan premium(s) and reallocate the payment(s) to the new plan’s premium(s).  If you have already remitted premium payments to the client, COBRApoint will apply remittance adjustments if necessary to your next remittance period’s remittance report.  This is standard anytime you drop and add plans from a QB record. 

More importantly, in this scenario, yes, we also believe from our experience that the best course of action is to send the QB a brand new Election Noticesince the original notice was incorrect — the QB was not entitled to elect an incorrect plan and needs to be properly informed about the plan(s) he is eligible to elect.  In fact, any time you drop or add a plan as of the First Day of COBRA when you have already generated an Election Notice (Specific Rights Letter), COBRApoint will automatically regenerate a new Election Notice and restart the QB’s Election Period.

In addition, we’d encourage you to consider the following actions as well:

1.  Call the QB.  Let him know what is going on and make sure he understands the situation.
2.  Consider “terminating” the current QB record to generate a “notice of unavailability” (Termination Notice) to formally inform the QB that the COBRA rights offered under the original Election Notice are not actually available to him.  Then create a whole new QB record to generate the new Election Notice.  You should consult your legal counsel on this point.  If you choose to simply generate the new Election Notice in the original QB record, COBRApoint will maintain the history of both the original Election Notice and the new Election Notice.
3.  When we were faced with this type of scenario in the past, we also called the employer (client) to encourage the employer to subsidize any difference between the premium of the incorrect plan and the premium of the correct plan if the correct plan’s premium was higher — at least for the month or months for which the QB has already paid.  We never encountered any difficulties with this request when the employer clearly knew they had made a mistake.
4.  Attempt to ensure that the insurance carrier(s) clearly understand what is going on.  COBRApoint will automatically generate communications detailing the specific changes to the appropriate carrier, but it can’t hurt, and may save headaches and confusion later, if you make sure the carrier(s) clearly understand now.

Finally, you asked about whether this raises issues concerning your timely delivery of the Election Notice to the QB after you’ve been informed by your client of the Qualifying Event.  The 2004 DOL “final COBRA regulations” indicate that the employer has 30 days to notify you of the Qualifying Event (from the date of the event), and you have 14 days to generate and mail the Election Notice (from the date the employer notifies you).  As long as you generate and mail an Election Notice within 14 days each time the employer notifies you, we believe you are in compliance.  So, in this case, if you’re still within 44 days of the Qualifying Event (even when you learn of the correct plan), we believe that both you and your client are still in compliance when you generate the second Election Notice.  However, if greater than 44 days have passed, we think you continue to be in compliance as long as you generate each of the two Election Notices within 14 days of your notification from the employer.  The employer, however, may be out of compliance if greater than 44 days have passed.  I think it is likely that any court would find that as long as (a) the employer first notified you of the Qualifying Event within 30 days, (b) you generated an Election Notice each time within 14 days, and (c) the employer notified you immediately when they discovered the error, that both you and the employer acted in good faith throughout this process.  However, this is an issue I would strongly encourage you and your client to consult legal counsel about.  I would also again recommend the strategies of calling the QB to explain the situation and encouraging your client to subsidize any difference in plan premiums for the months for which the QB has already paid.  This will be much less painful for your client than the potential alternative (legal fees, IRS and statutory penalties, a court requiring the employer to self-insure the QB for the maximum COBRA period, etc.).

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  • About

    Mark Waterstraat

    VP Sales

    Benaissance

    www.benaissance.com

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