On May, 4, 2020, the U.S. Departments of Treasury and Labor and the Internal Revenue Service issued new rules extending deadlines and timeframes for certain employee benefit plans. The agencies intend the new rules to minimize the possibility of individuals losing benefits because of a failure to comply with these deadlines and timeframes in light of the COVID-19 pandemic. This post provides a brief explanation of these new rules, which are referred to as the “new COVID-19 rules.”
In general, as described below, the new COVID-19 rules provide an extension of these obligations during the “Outbreak Period,” which the agencies define as starting on March 1, 2020, and lasting until 60 days after the end of the national emergency.
Stevens & Lee Comment:
- These rules make significant changes for events that occur during the “Outbreak Period.” The end date of the Outbreak Period, however, is unknown at this time; this adds additional complexity to the new COVID-19 rules.
COBRA Elections and Payments
Under COBRA, an individual who incurs a loss of group health plan coverage resulting from a qualifying event (e.g., a termination of employment, reduction of hours, and divorce, among others) has the right to elect to continue such coverage for an 18- or 36-month period (depending on the type of qualifying event). These individuals are called “qualified beneficiaries.” Upon such a loss of coverage, the employer or plan administrator must send a notice within 44 days informing each qualified beneficiary of his or her right to elect COBRA. Each qualified beneficiary then has 60 days from its receipt of such notice to elect COBRA. Qualified beneficiaries have a 30-day grace period to pay the applicable premiums for coverage.
Under the new COVID-19 rules, for purposes of calculating the employer/plan administrator and qualified beneficiary notice timeframe as well as the grace period for a qualified beneficiary to make premium payments, the period of the Outbreak Period is ignored. Insurers and plans many not deny coverage during the Outbreak Period and may make retroactive payments for benefits and services that the qualified beneficiary received during this period.
Stevens & Lee Comments:
- There appears to be no requirement to notify participants about the extension of the election and premium payment timeframes. The agencies may release more information about this in subsequent guidance.
- Some qualified beneficiaries may wait for the entire Outbreak Period to see the extent to which they incur health care expenses before deciding whether to elect COBRA or pay COBRA premiums. This may result in adverse selection and increased claims experience.
- A qualified employee who lost coverage during the Outbreak Period will still have 60 days after receiving the election notice from the employer to elect COBRA so delaying sending the election may result in even more adverse selection. We recommend continuing to send COBRA election notices as soon as practicable after a loss of coverage.
- There is no obligation to continue coverage or make retroactive payments except to the extent a qualified beneficiary makes payments for the premiums for the cost of coverage for months that payments were tolled. This amount may be beyond the means of many qualified beneficiaries.
- A qualified beneficiary who, for example, lost coverage effective March 31 and who makes only two monthly COBRA payments, will be entitled to COBRA coverage for April and May but a plan many deny claims incurred after that period.
HIPAA Special Enrollment Rights
HIPAA provides for portability of health benefits by, among things, requiring plans to provide special enrollment periods employees and dependents to enroll in group health coverage in certain circumstances, including where the employee or dependent loses other group coverage or Medicaid or CHIP coverage, when a person becomes newly eligible for coverage in the employee’s plan due to birth, marriage, or adoption. In general, HIPAA requires the plan to provide the individual at least 30 days (60 days, in the case of the loss of Medicaid or CHIP coverage) to request enrollment in the plan.
The new COVID-19 rules will toll the 30- and 60-day period to request a special enrollment until the end of the Outbreak Period. If an employee requests a special enrollment at any time during this period, his or employer must enroll the applicable persons in its group health plan.
Stevens & Lee Comments:
- The employee must pay the applicable cost of coverage for the full period in order for the coverage to be effective. This amount may be beyond the means of many employees. Employers may want to permit employees to make periodic payments through payroll deduction to spread out the payments.
- Depending on the length of the Outbreak Period, many employers will be in their open enrollment period when or soon after the Outbreak Period ends. Even so, some employees will want to exercise their special enrollment rights to get coverage retroactively.
Claims and Appeals
Under ERISA’s claims procedures rules, plans must provide for reasonable periods for participants to bring claims and appeals for ERISA benefits. For instance, some plans provide that a claim for benefits must be brought within 365 days of when the claim was incurred. In addition, ERISA requires that plans provide certain specified periods in which to appeal an adverse benefit determination. Finally, under the Affordable Care Act, a non-grandfathered health plan must provide participants who have exhausted the plan’s internal appeals procedure the right to an external review.
As with HIPAA and COBRA rights, the new COVID-19 rules toll the periods in which participants must bring claims and appeals, including an external review, during the Outbreak Period. For instance, if a participant in a plan with a 365-day deadline to submit a claim incurs a claim in the middle of the Outbreak Period, the participant will have 365 days after the end of the Outbreak Period for its end to submit a claim.
Stevens & Lee Comments:
- The new COVID-19 rules apply to benefit claims and appeals for not only group health plans; they also apply to other welfare plans and to retirement plans. For instance, these rules toll the 60-day period to appeal an adverse benefit determination from a 401(k) retirement plan.
- Third party administrators and insurers will be tasked with complying with the new COVID-19 rules but an employer who self-administers an ERISA benefit will need to keep these rules in mind. In addition, employers should reach out to their administrators to make sure they are aware of and are complying with the new COVID-19 rules.
- There appears to be no requirement to amend plan documents or summary plan descriptions to inform participants about the tolled timeframe. The agencies may release more information about that in subsequent guidance.
The Department Labor has separately released new COBRA model Initial and Election Notices. Look out for another blog post explaining the new notices and a description of the implications that they present.
There are many open issues left unresolved under the new COVID-19 rules. Contact Charlie Scheim or the Stevens & Lee attorney who you work with for more information.