by admin | Mar 20, 2025 | Blog
Navigating the requirements for Summary Plan Descriptions (SPDs) under ERISA health and welfare plans can be complex. Ensuring compliance is crucial for plan administrators, especially for COBRA qualified beneficiaries. This guide will help you understand who must receive SPDs and the specific considerations for COBRA compliance.
Who Must Receive SPDs?
Plan administrators must automatically furnish SPDs to all participants covered under ERISA health and welfare plans. This includes current employees, former employees who are or may become eligible for benefits, and their beneficiaries.
COBRA Qualified Beneficiaries
COBRA qualified beneficiaries are a key group that must receive SPDs. These individuals have the right to continue their health coverage under the plan after certain qualifying events, such as termination of employment or reduction in hours. Here are the specific considerations:
- Automatic Provision of SPDs: COBRA qualified beneficiaries must receive SPDs automatically.
- Single SPD for Same Address: Separate SPDs are generally not required for qualified beneficiaries living at the same address.
Other Categories of Individuals Who Must Receive SPDs
In addition to COBRA qualified beneficiaries, the following categories must also receive SPDs:
- Employees or Former Employees Covered Under the Plan: Current plan participants and former employees, such as retirees, who remain covered under the plan.
- Alternate Recipients Under QMCSOs: Typically furnished to the child’s custodial parent or guardian.
- Spouses or Dependents of Deceased Participants: Those who continue to receive benefits under the plan.
- Representatives or Guardians of Incapacitated Persons: Sent to the individual’s representative or guardian.
Triggering Events for Automatic SPDs
ERISA specifies the events that trigger the requirement to automatically furnish SPDs. Additionally, SPDs must be provided to plan participants and beneficiaries who request them.
Understanding who must receive SPDs and the specific requirements for COBRA qualified beneficiaries is essential for compliance with ERISA health and welfare plans. By following these guidelines, plan administrators can ensure they meet their obligations and provide necessary information to all eligible participants.
Source: Thomson Reuters
by admin | Feb 27, 2025 | Blog
When managing group health insurance plans, employers often face the challenge of aligning COBRA premiums with midyear increases in insurance premiums. However, the IRS COBRA regulations generally do not permit midyear increases in COBRA premiums. Here’s what you need to know:
Understanding COBRA Premiums
COBRA (Consolidated Omnibus Budget Reconciliation Act) allows qualified beneficiaries to continue their group health coverage after certain qualifying events, such as job loss. The premium for COBRA coverage is capped at 102% of the “applicable premium” for the coverage, which can increase to 150% during a disability extension.
Fixed Determination Period
The applicable premium must be computed and fixed before the start of a 12-month “determination period” and generally cannot be changed until the next determination period. This means that even if your insurer increases premiums midyear, you cannot pass this increase onto COBRA beneficiaries until the next determination period.
Exceptions to the Rule
There are three exceptions to this general rule:
- Disability Extension: If a qualified beneficiary’s maximum coverage period is extended due to disability, the premium can increase from 102% to 150%.
- Undercharging: If the plan is charging less than the maximum permissible amount (102%), it can increase the COBRA premium to that level.
- Coverage Changes: If a qualified beneficiary changes coverage from one benefit package or coverage unit to another, the premium can be adjusted to the new rate determined before the determination period began.
Strategic Planning for Employers
To avoid the complications of midyear premium increases, employers should:
- Align the insurer’s rate period with the plan’s 12-month COBRA determination period.
- Lock in the premium charged by the insurer for the entire determination period, at least for COBRA purposes.
By understanding and planning for these regulations, employers can better manage their COBRA premiums and ensure compliance with IRS rules.
Source: Thomson Reuters
by admin | Feb 13, 2025 | Blog
When managing COBRA coverage, it’s important to know what happens if a qualified beneficiary pays less than the full premium amount. Here’s a simplified guide:
Timely Payments and Grace Periods
Qualified beneficiaries must make timely COBRA premium payments, with a 30-day grace period each month. If the full premium isn’t paid by the end of this period, coverage can be terminated. However, there are special rules for small shortfalls.
What is an Insignificant Shortfall?
An insignificant shortfall is a payment that is less than or equal to the lesser of $50 or 10% of the required premium. For example, if the premium is $490, a shortfall of up to $49 is considered insignificant.
Handling Insignificant Shortfalls
- Notify the Beneficiary: Inform them of the shortfall and give them a reasonable period (usually 30 days) to pay the difference.
- Grace Period: Allow the beneficiary to pay the remaining amount during this period to avoid termination.
- Accept Underpayment: Alternatively, the plan can accept the underpayment as full payment.
Best Practices
- Include Procedures: Clearly outline shortfall procedures in your COBRA plan.
- Prepare Notices: Have a standard notice ready for shortfalls.
- Prompt Notification: Send the notice as soon as a partial payment is received.
By following these steps, you can manage COBRA coverage effectively and ensure compliance with regulations. This helps prevent unnecessary termination and gives beneficiaries a fair chance to maintain their health benefits.
Source: Thomson Reuters
by admin | Aug 8, 2024 | Blog
COBRA, the Consolidated Omnibus Budget Reconciliation Act, provides employees with the option to continue their health insurance coverage after leaving their job. However, certain circumstances can lead to the early termination of this coverage. One such circumstance is the submission of fraudulent claims.
Terminating COBRA Coverage for Fraudulent Claims
A qualified beneficiary’s COBRA coverage can be terminated for submission of fraudulent claims if three key requirements are met:
- The health plan must allow the termination of active employees’ coverage for the same reason.
- The plan must permit the termination of COBRA coverage for cause.
- The plan’s COBRA notices and communications must disclose the plan’s right to terminate coverage for cause.
Regulatory Guidelines
COBRA regulations specify that a qualified beneficiary’s coverage may be terminated for cause on the same basis that would apply to similarly situated active employees under the terms of the plan. This includes the submission of fraudulent claims. Thus, if an active employee’s coverage can be terminated for submission of fraudulent claims, COBRA coverage can be terminated early for the same reason, provided it is allowed by the plan and disclosed in COBRA notices and the plan’s summary plan description.
Proceeding with Caution
Terminating coverage early is a decision that should be made with caution. Employers wishing to terminate COBRA coverage early for other types of misconduct would need to analyze the circumstances to determine whether the plan would allow termination of an active employee’s coverage for that type of misconduct. It is advisable to consult with legal counsel and the plan’s insurer or stop-loss insurer if applicable.
Final Steps
If you decide to terminate the qualified beneficiary’s coverage based on fraudulent submission, remember to send the required notice of termination of COBRA coverage to any qualified beneficiary whose COBRA coverage terminates before the expiration of the maximum coverage period.
In conclusion, while it is possible to terminate COBRA coverage early due to fraudulent claims, it is a decision that should be made carefully, following the guidelines set forth by your health plan and COBRA regulations.
Source: Thomson Reuters
by admin | Jul 25, 2024 | Blog
Navigating the complexities of medical coverage during unpaid Family and Medical Leave Act (FMLA) leave can be challenging for both employees and employers. One common question that arises is whether employees can prepay their share of medical plan coverage on a pre-tax basis. The answer is yes, but it depends on the specifics of your cafeteria plan.
Prepayment Option Under FMLA
The IRS FMLA regulations permit three payment options for employees wishing to pay their share of the premiums for group health coverage during an unpaid FMLA leave. These options are prepay, pay-as-you-go, and catch-up.
Prepay allows employees to pay the contributions due during the leave before the leave commences. This option cannot be the sole option offered to employees on FMLA leave, although it may be restricted to employees on FMLA leave.
Pay-as-you-go enables the employee to pay his or her share of the cost of coverage during the leave.
Catch-up involves the employer advancing payment of the employee’s share during leave, and the employee repays the employer upon return.
Your cafeteria plan may provide one or more of these payment options, as long as the options for employees on FMLA leave are offered on terms at least as favorable as those offered to employees not on FMLA leave.
How Does Prepayment Work?
Under the prepay option, employees are given the opportunity to pay, before starting FMLA leave, the contributions that will be due during the leave period. They can voluntarily elect to reduce their final pre-leave paychecks or make special salary reduction contributions to cover their share of the premiums for all or part of the expected duration of the leave. Prepay contributions could also be made on an after-tax basis.
During the leaves, your company would pay its share of the premium in the same manner as before. When an employee’s leave ends, the employee’s previous salary reduction election would resume for the rest of the plan year unless the employee makes a change in election permitted under IRS regulations upon return from leave.
Limitations of Prepayment
If an employee’s leave straddles two plan years, only the contributions for coverage during the first plan year can be prepaid on a pre-tax basis. This is due to the cafeteria plan “no-deferred-compensation” rule that generally prohibits the use of one year’s contributions to fund benefits in a subsequent year. However, a cafeteria plan with a grace period under its premium payment component could arguably allow employees taking an FMLA leave that straddles two plan years to make pre-tax prepayments for up to 2-1/2 months of coverage during the second plan year before the leave begins.
Conclusion
Understanding the options for medical coverage during unpaid FMLA leave is crucial for both employees and employers. While prepayment is a viable option, it’s essential to consider the specifics of your cafeteria plan and the IRS regulations to ensure compliance.
Source: Thomson Reuters
