Late COBRA Election or Payment Exceptions

Question:  Can an employer make an exception for an individual who failed to timely elect or pay for COBRA coverage?

Compliance Team Response:

The COBRA rules generally require that qualified beneficiaries elect COBRA within 60 days of receiving the election notice, and that they make the first premium payment no later than 45 days after the COBRA election.  Subsequent payments must be made by the end of the 30-day grace period for each month of coverage.

There are two major issues with making an exception to permit a late COBRA election or premium payment:

  • Insurance Carrier Approval

The insurance carriers (or stop-loss providers if self-insured) are required to pay claims only for those participants and beneficiaries who are eligible for and properly enrolled in the plan pursuant to the terms of the applicable insurance policy.  The carriers generally will permit coverage for individuals through COBRA only if the individual meets all of the conditions to receive COBRA coverage.  In other words, the individual must timely elect and pay for COBRA coverage.

COBRA has inherent adverse selection risks for carriers.  Those heightened concerns are magnified even further by extending the election and payment deadlines.

If the insurance carrier (or stop-loss provider) were ever to discover that an individual was permitted to maintain COBRA coverage despite missing the applicable election or payment deadlines, the carrier would be within its right to deny paying all claims for that individual from the date the issue arose.  That would make the employer responsible for self-funding all claims incurred during the period at issue.

Accordingly, it is crucial that the insurance carrier (or stop-loss provider) agree to provide coverage for any late COBRA election or payment if the employer wishes to make an exception.  The carrier would be well within its right to deny the coverage.

  • ERISA Plan Precedent

Under ERISA, employers are required to administer the plan in accordance with the terms of the written plan document.  The plan document will not permit individuals to maintain COBRA coverage unless they timely elect COBRA and make the required premium payments within the applicable deadlines.

If the employer makes an exception, it effectively acts as a plan amendment that must be applied consistently for all similar situated employees.  In other words, exceptions create an ERISA plan precedent requiring the plan to permit late election or payment for all COBRA participants in similar circumstances.  An individual denied the ability to make a late COBRA election or payment in similar circumstances would have a potential claim for ERISA breach of fiduciary duty or claim for benefits.

In most situations, COBRA exceptions will create a very difficult plan precedent to manage.

Summary

For the reasons described above, we recommend not permitting individuals to make a late COBRA election or premium payment in the vast majority of situations.  If the employer wishes to permit the exception nonetheless, we suggest carefully considering the issues described above before proceeding.

(Note: There are situations where an individual is incapacitated and unable to timely make a COBRA election or premium payment.  In such extraordinary circumstances, courts have found that it is appropriate to extend the applicable deadline to the point where those circumstances end or there is an appropriate representative in place to make the election/payment.  Any exception in these special situations would need to first be approved by the insurance carrier (or stop-loss provider).)

Regulations

Treas. Reg. §54.4980B-6, Q/A-1(a):

Q-. 1. What is the election period and how long must it last?

A-1. (a) A group health plan can condition the availability of COBRA continuation coverage upon the timely election of such coverage. An election of COBRA continuation coverage is a timely election if it is made during the election period. The election period must begin not later than the date the qualified beneficiary would lose coverage on account of the qualifying event. (See paragraph (c) of Q&A-1 of §54.4980B-4 for the meaning of lose coverage.) The election period must not end before the date that is 60 days after the later of—

(1) The date the qualified beneficiary would lose coverage on account of the qualifying event; or

(2) The date notice is provided to the qualified beneficiary of her or his right to elect COBRA continuation coverage.

Treas. Reg. §54.4980B-7, Q/A-1(a)(2):

Q-. 1. How long must COBRA continuation coverage be made available to a qualified beneficiary?

A-1. (a) Except for an interruption of coverage in connection with a waiver, as described in Q&A-4 of §54.4980B-6, COBRA continuation coverage that has been elected for a qualified beneficiary must extend for at least the period beginning on the date of the qualifying event and ending not before the earliest of the following dates—

(1) The last day of the maximum coverage period (see Q&A-4 of this section);

(2) The first day for which timely payment is not made to the plan with respect to the qualified beneficiary (see Q&A-5 in §54.4980B-8);

Treas. Reg. §54.4980B-8, Q/A-5:

Q-. 5. What is timely payment for COBRA continuation coverage?

A-5. (a) Except as provided in this paragraph (a) or in paragraph (b) or (d) of this Q&A-5, timely payment for a period of COBRA continuation coverage under a group health plan means payment that is made to the plan by the date that is 30 days after the first day of that period. Payment that is made to the plan by a later date is also considered timely payment if either—

(1) Under the terms of the plan, covered employees or qualified beneficiaries are allowed until that later date to pay for their coverage for the period; or

(2) Under the terms of an arrangement between the employer or employee organization and an insurance company, health maintenance organization, or other entity that provides plan benefits on the employer’s or employee organization’s behalf, the employer or employee organization is allowed until that later date to pay for coverage of similarly situated non-COBRA beneficiaries for the period.

(b) Notwithstanding paragraph (a) of this Q&A-5, a plan cannot require payment for any period of COBRA continuation coverage for a qualified beneficiary earlier than 45 days after the date on which the election of COBRA continuation coverage is made for that qualified beneficiary.

ERISA §402(a):

(1) Every employee benefit plan shall be established and maintained pursuant to a written instrument. Such instrument shall provide for one or more named fiduciaries who jointly or severally shall have authority to control and manage the operation and administration of the plan.

Regents of the Univ. of Cal. v. Stidham Trucking, Inc. (E.D. Cal.2017):

Plaintiff cites two cases in support of its contention that equitable tolling is required under COBRA. In Sirkin v. Phillips Colleges, Inc., 779 F. Supp. 751 (D.N.J. 1991), the court held that “where an insured misses a premium deadline under [*10]  COBRA due to the insured’s incapacity to know of or meet her obligation, the deadline for that premium payment is tolled for a reasonable period of time until the insured or her legally appointed guardian is able to cure the deficiency,” id. at 758. Similarly, in Branch v. G. Bernd Co., 955 F.2d 1574 (11th Cir. 1992), the Eleventh Circuit held that the deceased former employee’s “60-day election period was tolled from the date of his incapacitation until the date that [his court-appointed estate administrator] was empowered to make the election on [the decedent’s] behalf,” id. at 1582.

Assuming, without deciding, that equitable tolling of COBRA’s 60-day election period is available due to Franklin’s incapacity, equitable tolling provides no support for Plaintiff’s claims. In the Ninth Circuit, equitable tolling functions as follows: “[T]he . . . clock stops running when extraordinary circumstances first arise, but the clock resumes running once the extraordinary circumstances have ended or when the petitioner ceases to exercise reasonable diligence, whichever occurs earlier.” Luna v. Kernan, 784 F.3d 640, 651 (9th Cir. 2015). Here, the alleged extraordinary circumstances—Franklin’s incapacitation—ended when he left the UC Davis Medical Center. Thus, taking Plaintiff’s allegations as true, the 60-day election period was tolled from the time Franklin was incapacitated until the end of his incapacitation. That is, the election period was tolled for the 10 days Plaintiff was receiving treatment. His election period was, therefore, at most 70 days. Plaintiff only attempted to elect continued coverage under COBRA on August 18, 2016, which is almost two years after Franklin received his COBRA notice.

 

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship.  Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).

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