How is this different from The “Big Moving Parts” of a COBRA Administration Business we talked about in our last post?  As Neil Diamond wrote in I Am…I Said, “Well except for the names and a few other changes if you talk about me, the story’s the same one.”  This ultimately is the whole point.  The business of running a COBRA administration business is almost identical to the business of running a non-COBRA continuation individual direct bill administration business, i.e. retiree health insurance billing, leave of absence health insurance billing, carrier individual policy holder billing, non-COBRA church plan health insurance continuation, etc.  The potential list goes on and on.  We even have customers talking about performing regular tithing billing for large churches and their parishioners via scheduled ACH.  This is why Benaissance offers two complete stand alone systems – COBRApoint for COBRA and SPMpoint for individual direct billing – but we can deliver them as one fully-integrated system.  By the way “SPM” stands for “Special Plan Member.”

The one big difference is obviously #7 in our prior post, as “COBRA Administration” needs to be replaced with “Customizable Individual Direct Bill Administration.”  Otherwise the differences are rudimentary.  In #2, “Capturing Data”, for example, instead of capturing data about new hires and new QBs, you need to capture data about new direct bill participants.  So, here is the new #7.

7. Customizable Individual Direct Bill Administration – When administering COBRA, we all follow more or less the same basic rules regarding billing.  QB’s are offered COBRA for a given period of time mandated by COBRA and/or applicable state laws, and they pay monthly with a 30-day grace period.  When they reach the end of their continuation period or if they don’t pay on time, they’re terminated.  For individual direct billing though, the core technology platform needs to support customizing the billing rules for each client or even for different “plans” within a client.  So, multiple billing frequencies must be supported – weekly, bi-weekly, monthly, quarterly, or annually.  Grace periods must be able to be customized per billing frequency, or sometimes grace periods need to be ignored and not enforced.  Admin fees which are tacked onto a QB’s monthly premium under COBRA are pretty universally set at 2%, but in individual direct billing they may be any flat amount or percentage and they may be split where part of an admin fee is bookable (retained by the administrator) and part of it is remittable (passed on to the client).  A completely different letter set is required, and they must be easily customized for each client or even client division.  The key is that all of this customization should be configured within the technology platform.  Once this customization is then set up and enforced by the platform, the operational processes within the administrator’s business are the same as they are when performing COBRA administration.

When we talk to administrators who are prospective COBRApoint customers about their businesses and the services Benaissance provides, we often talk about the “big moving parts” of a COBRA administration business.  We know these first-hand because we ourselves ran a large scale COBRA administration business before founding Benaissance.  Several of our customers have asked recently that we write these down so that they can use this discussion themselves in conversations with large prospective clients or broker/consultant partners.  So, while we know that by doing this we’ll be teaching some basic software vendors out there things they should have known 20 years ago before they wrote their first line of code, here they are:

1.       Client and Member Service/Support – Traditional COBRA administrators on traditional COBRA administration platforms rely upon large call centers to handle all client and member service and support.  Not only is this the most inefficient and expensive way to provide service and support, it is very difficult to scale effectively and usually only provides support to clients and members during business hours.  It also perpetuates the “black box” nature of most COBRA administration where employers “throw COBRA over the fence” to their COBRA administrator and then cross their fingers hoping the COBRA administrator does a good job.  Benaissance believes that the provision of COBRA service to employers is a trust relationship which requires a fully transparent operation. So, while our administrator customers certainly do and always will run a call center to take calls from clients and members, our customers also provide 24/7 access to COBRApoint for all of their employer clients and members through secure, dedicated web portals.  Our administrator customers believe in total transparency and total service, and they manifest this belief by providing all of their clients and members with immediate access to the data they need when they need it wherever they are.  The simplest example of this is the following.  When an administrator runs a traditional COBRA operation without dedicated secure portals for each client and member, 80% of the phone calls they take from Qualified Beneficiaries are simple calls asking, “Did you get my last payment?  When is my next payment due, and how much do I owe?” However, when an administrator provides a secure web portal for each member which provides this simple information, their call volume from Qualified Beneficiaries drops over 40%.

2.       Capturing Data – Employers need to notify their COBRA administrator each time one of their employees or an employee dependent experiences a Qualifying Event and (for most employers) each time they add a new hire/new enrollee.  Traditional COBRA administrators using the “black box” approach require that their employer clients complete paper forms which they fax to the administrator which the administrator then hand-keys into their COBRA system – a process which is fraught with manual error and which is highly inefficient.  Through COBRApoint, our administrator customers provide all of their employer clients 24/7 access to a dedicated secure client portal where the client may elect to enter new hires and new qualified beneficiaries through intuitive wizards with built-in validation or by file using our hierarchical CSV import specifications with detailed success/failure reports.

3.       Reporting Data – Employers need frequent reports on their COBRA population so that they can accurately reconcile their carrier bills.  Traditional COBRA administrators print and mail paper reports to their clients at the end of every month.  Not only is this an inefficient and expensive process, but the reports are out of date the day they are mailed.  Furthermore, in some states the governing state law makes this problematic as certain protected information cannot be included on reports which are sent through the mail.  Through COBRApoint, our administrator customers provide all of their employer clients 24/7 secure web based access to both historical date ranged based and real-time reports ensuring that their clients have access to the data they need when they need it and ensuring secure, encrypted delivery of all data.

4.       Mail Fulfillment – The regulations governing COBRA still require that the official communication regarding COBRA rights to COBRA Qualified Beneficiaries be performed by first class mail (or to be more precise, the regs specifically state that first-class mail is a legitimate communication method).  Given that the timing of sending mail has strict implications on key dates in an individual Qualified Beneficiary’s life under COBRA, this is a significant scale bottleneck for most COBRA administrators.  When mail is fulfilled in-house by a typical COBRA administrator, their ability to scale is severely restricted by their capacity to generate mail in a timely fashion.  Through our Benaissance Mail Services, our administrator customers employ a combination of an enterprise scale COBRA administration system (COBRApoint) and a partnership with a highly secure ISO 9001:2008 and SAS70 Type II reviewed print/mail vendor who generates one million pieces of first class mail a day to ensure that mail fulfillment is never a scale bottleneck for them.  While our administrator customers retain detailed audit capability and the required proof-of-mail reporting, mail fulfillment is an automated, hands-off process guaranteed to generate and mail all notices same day regardless of daily volume.

5.       Payment Processing – Another significant scale bottleneck for most COBRA administrators is their ability to accurately process large payment volumes in a timely fashion.  Most COBRA administrators today still only accept paper payments by mail from Qualified Beneficiaries, and the postmark date on the envelope is the determining factor of whether or not the payment was made on time.  Outsourcing payment processing to a traditional bank lockbox therefore is not an option due to the postmark date capture requirement and the desire that late payments not be cashed. So, most COBRA administrators process payments in-house by hand – a highly inefficient and error prone operation.  The difficulty in scaling this manual operation is exasperated by the fact that the vast majority of these individual personal checks come in during the last and first weeks of every month.  Through Benaissance Payment Services, our administrator customers provide three payment channel options for their Qualified Beneficiaries – paper payments by mail; online real-time electronic payments through the secure COBRApoint Member Portal by credit card, debit card, or one-time ACH; or scheduled/recurring ACH.  For paper payments Benaissance Payment Services employs a highly efficient process which scans every payment with its postmark date, runs it through COBRApoint, and electronically (securely) deposits only the timely payments into the administrator’s custodial cash account each day.  This combination of highly efficient, highly accurate payment options not only provides Qualified Beneficiaries with the most flexible payment options available, but also ensures accuracy, efficiency, and near limitless scale for our customers.

6.       Custodial Cash Management and Remittance – At the end of the day, when we strip away the COBRA specifics, all COBRA administration businesses are essentially single point individual billing, custodial cash management, and remittance businesses.  Note to every other COBRA administration system vendor – if you don’t understand this, and most of you don’t, you have no business being in this business.  Eligibility management & reporting and precise administration of the COBRA regulations are certainly key and core to the operation, but large volumes of custodial cash flow through large COBRA administrators, and it is essential that a COBRA administrator understands and manages this core facet of their business precisely.  The challenge to this is that custodial cash management business are by their very nature fluid.  Payments come in; they are allocated to premiums; remittance reports are run and checks cut;…and then things change.  Payments which were part of the remitted amount come back NSF; employers tell the administrator that they forgot to tell the administrator about a severance package for a Qualified Beneficiary three months ago; employers are late in giving their COBRA administrator their plan rates for the new plan year; Qualified Beneficiaries elect to decrease their coverage or increase it due to a life changing event; etc., etc., etc.  It is absolutely critical that a COBRA administrator employ a COBRA administration platform which provides precise tracking of all custodial cash and which utilizes a core payment allocation and remittance system which is posted and adjusted using the same accounting principles employed in a general ledger system.  Remittances (whether to employer or to carrier) must be formally “posted,” and then if anything changes which impacts a previously posted and remitted premium amount, these changes need to automatically be included as adjustments on the next remittance cycle.  All of this needs to be clearly reported to the client (and/or carrier if remitting to the carrier).  COBRApoint handles all of this seamlessly and with precise accuracy.  Again, even in the midst of all of the COBRA specific eligibility and liability issues, the single worst question a COBRA administrator could ever hear from a client is, “where did the money go?”

7.       COBRA Administration – This seems like a simple one, but one of the fundamental flaws plaguing many COBRA administrators today is the ineptitude of their antiquated COBRA systems.  Many of the commercially available COBRA administration systems on the market today still track first and last day of COBRA and status (i.e. pending, enrolled, terminated) by Qualified Beneficiary.  This is not accurate and makes it impossible for a COBRA administrator to accurately administer COBRA for an employer client who may sponsor more than one plan with different benefit termination types.  It is critical that COBRA be tracked by QB Insurance Type (i.e. Medical, Dental, Vision, etc.).   Furthermore, many COBRA administration systems on the market today still calculate the end of a Qualified Beneficiary’s payment grace period as the last day of a calendar month.  Since this is not accurate (the grace period should be precisely 30 days after the due date), many COBRA administrators intentionally “lie” to their COBRA systems when they receive a payment which they know is postmarked on time, but which they know their COBRA system will not accept.  As soon as an administrator begins lying to their COBRA system, there is no way they could ever accurately defend a law suit if necessary against a plaintiff attorney with any experience.  Finally, we all know that we’re living in a regulatory world today which is marked by legislative change, and there is no reason to expect that this is not going to happen again.  If the COBRA system an administrator is running is based on a “toy” database or on one which is no longer even supported, what are the odds that the system is a modern object oriented system which can be quickly and accurately updated to reflect legislative change.  Every employer should ask their COBRA administrator one simple question, “What database is your COBRA system running on?”  If you’ve never heard of the database you get as an answer, or if you thought it was long since retired, or if you think of it is a light-weight toy, you should be looking for a different COBRA administrator.

8.       Eligibility Management & Reporting – This is perhaps one of the least universal or consistent processes across multiple COBRA administrators, and it is impacted significantly by the insurance carriers.  Many COBRA administrators report eligibility data to carriers (or TPAs) on behalf of their clients, but some do not, and some do it for some clients but not for others.  Some prefer to send daily faxes of eligibility changes.  Some send eligibility change reports by encrypted email on varying frequencies.  Some send full file eligibility files to carriers daily, some do it weekly.  For many, they do all of these depending on the varying requirements of their clients and their clients’ carriers.  Oh, and some are forced to manually log into carrier websites as if they were the client and hand key in eligibility changes.  This is currently a mess, and a huge time suck for the good administrators who try to do it well.  The absolute kicker in all of this is that even when an administrator accurately reports every single eligibility change precisely and timely, sometimes the carrier doesn’t get their system on their end updated.  The only place to catch this is when the employer client sits down every month and reconciles their carrier bill (or their enrollment report from their TPA if they’re self-insured) against the reports they have from their COBRA administrator.  Sadly, this doesn’t happen as often or as frequently or as diligently as one might hope.  The result is that months after the COBRA administrator terminates a QB for non-payment and reports this to the carrier, the employer suddenly realizes they’ve been paying the carrier all along since the carrier didn’t enter the termination on their end, and now the employer wants their money back, but the carrier won’t give it back.  So…the employer thinks the COBRA administrator should pay.  How is this even close to being fair when the only player in the whole system who did their job (the administrator) is expected to pay for the errors of the other two players?   There is not yet a perfect solution to this mess.  Congress tried to help by mandating a universal standard for electronically reporting enrollment and disenrollment to carriers under HIPAA (the 834 file specifications).  The “standard” is maintained and published  by the Washington Publishing Company (http://www.wpc-edi.com/), but just about every carrier publishes their own Companion Guide where they detail how the files they will accept differ from the “standard.”  To top it all off, many carriers will only accept 834 files for certain employers, but not for others.  Again, this is all a great big mess for administrators who are stuck in the middle.  COBRApoint does everything it can to help.  At the administrator’s option, COBRApoint will produce nightly eligibility change reports formatted for faxing or emailing; nightly eligibility reports in normalized database tables for integration with other systems; date range based eligibility change reports in many different file formats which can be retrieved by the administrator and/or their client(s); and last but certainly not least, full file eligibility files in the WPC 834 XML “standard” which administrators can map to carrier specific 834 EDI files using each carrier’s Companion Guide.  Hopefully one day the “standard” will in fact be a “standard.”  In the meantime, employers need to reconcile their carrier bills.

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If the American Recovery and Reinvestment Act wasn’t enough to make employers reexamine their trust relationship with their COBRA administrator, the IRS Form 8928 reporting requirements should certainly do so.  Beginning with the 2010 Plan or taxable year, employers are now required to self-report their failures to comply with COBRA, HIPAA, and other health plan regulations to the IRS on Form 8928 and pay excise taxes and penalties for these compliance failures.  If you’re not familiar with Form 8928, the instructions for the Form can be found on the IRS website here www.irs.gov/pub/irs-pdf/i8928.pdf, and the Form itself can be found here www.irs.gov/pub/irs-pdf/f8928.pdf. While the penalties for failing to comply with COBRA have always been there, now employers can’t cross their fingers and wait for a potential IRS audit or lawsuit to uncover them – they have to self-report them.   Furthermore, interest begins accruing on all excise taxes and penalties the moment they are due if they are not paid on time, so a failure to report failures to comply will start to become very expensive quickly.

What does this mean for employers who outsource their COBRA compliance administration to a professional administrator?  It means employers better have a way to effectively review and audit the work performed on their behalf, and it better be a “real time view.”  The old fashioned “black box” method of providing outsourced COBRA administration where employers report Qualifying Events to their administrator by fax or file and then hope that the administrator does their job is no longer a viable model.  Employers should have real-time access to all QB records including access to the letters their administrator has sent to each QB.  Employers should also have access to real-time reports detailing letters sent to verify that all new hires and new Qualified Beneficiaries reported to the administrator resulted in the appropriate letters being sent and sent in a timely fashion.  Only through this kind of transparent view into their administrator’s world can any employer confidently report on their Form 8928 that they have had no compliance failures.  Waiting for paper reports at the end of the month simply does not provide employers the data they need in the time frame needed to ensure their compliance.  If you are an employer or group health plan sponsor who must comply with COBRA and your COBRA administrator is not providing you real-time, secure (always remember PHI) web-based access to your QB records and the reports you need, it is time (right now) to find a new COBRA administrator who will.

We will keep you posted as we learn more.

President Obama signed HR 4851 into law on April 15 extending the eligibility date for treatment as an AEI under the ARRA to all Qualifying Events occurring on or before May 31, 2010.  The applicable portion of the Act is the following:

SEC. 3. EXTENSION AND IMPROVEMENT OF PREMIUM ASSISTANCE FOR COBRA BENEFITS.

(a) Extension of Eligibility Period- Subsection (a)(3)(A) of section 3001 of division B of the American Recovery and Reinvestment Act of 2009 (Public Law 111-5), as amended by section 3(a) of the Temporary Extension Act of 2010 (Public Law 111-144), is amended by striking `March 31, 2010' and inserting `May 31, 2010'.

(b) Rules Relating to 2010 Extension- Subsection (a) of section 3001 of division B of the American Recovery and Reinvestment Act of 2009 (Public Law 111-5), as amended by section 3(b) of the Temporary Extension Act of 2010 (Public Law 111-144), is amended by adding at the end the following:
`(18) RULES RELATED TO APRIL AND MAY 2010 EXTENSION- In the case of an individual who, with regard to coverage described in paragraph (10)(B), experiences a qualifying event related to a termination of employment on or after April 1, 2010 and prior to the date of the enactment of this paragraph, rules similar to those in paragraphs (4)(A) and (7)(C) shall apply with respect to all continuation coverage, including State continuation coverage programs.'.

(c) Effective Date- The amendments made by this section shall take effect as if included in the provisions of section 3001 of division B of the American Recovery and Reinvestment Act of 2009.

The Senate is expected to vote later today to proceed with H.R. 4851, the “Continuing Extension Act of 2010,” which would extend the end date of eligibility for COBRA premium reduction under the ARRA to April 30, 2010.  The exact language from the Bill is as follows:

SEC. 3. EXTENSION AND IMPROVEMENT OF PREMIUM ASSISTANCE FOR COBRA BENEFITS.
Subsection (a)(3)(A) of section 3001 of division B of the American Recovery and Reinvestment Act of 2009 (Public Law 111-5), as amended by section 3(a) of the Temporary Extension Act of 2010 (Public Law 111-144), is amended by striking `March 31, 2010' and inserting `April 30, 2010'.

If you are an employer who is trying to comply with Federal COBRA regarding your health plan, or if you are a third party administrator or a carrier with questions about the new law, this is your chance to hear from the federal regulators and have the opportunity to ask them questions.

To register go to https://compx11.eventcenterlive.com/cfmx/ec/register/reg.cfm?BID=1&RegID=284EB0ED.

From the Employer’s Council on Flexible Compensation (http://www.ecfc.org) on December 16, 2009:

The House will consider the COBRA subsidy expansion as part of the House Amendment to the Senate Amendment to H.R. 3326 – Department of Defense Appropriations Act, 2010. The text can be found as Section 1010 starting on page 153.  To go there now Click Here

If enacted in its current form, the provision would:

A) Change the end date of eligibility for the ARRA subsidy from December 31, 2009 to February 28, 2010;

B) Expand the ARRA premium subsidy to 15 months (increased from current 9 months);

C) Allow a period for the retroactive payment of premiums for assistance eligible individuals (i.e., individuals who were entitled to the subsidy) whose subsidy period expired on November 30th and who failed to pay their premium for December coverage. The retroactive period is 60 days, commencing with the enactment of the provision or, if later, 30 days after provision of the Notice described in d below. The same refund/credit rules under the original bill apply to any AEI whose subsidy expired in November and who have since paid the full COBRA premium.

D) Require a special Notice to all assistance eligible individuals who are on COBRA on or after November 1st or whose qualifying event is a termination of employment occurring on or after November 1st, describing the new 15 month premium subsidy. Note: Going forward most administrators will incorporate this additional notice in their standard COBRA package; and

E) Address an issue with regard to the original subsidy (i.e., both the qualifying event and the 18 month COBRA period must commence prior to the original sunset date of December 31st) by conditioning eligibility for the COBRA subsidy only on a qualifying event that is the involuntary termination of employment occurring on or before the new February 28, 2010 sunset date, without regard to when the COBRA coverage period begins. Thus, for employers providing subsidized coverage that defers the COBRA start date, the 15 month period (which is applicable only to the COBRA period) may not commence until well into the future.

The US Department of Labor this morning posted an updated FAQ regarding the end of the ARRA COBRA Subsidy.  The updated FAQ clarifies that if a Qualified Beneficiary experiences a COBRA Qualifying Event on or prior to December 31, 2009, but the QB’s First Day of COBRA coverage is on or after January 1, 2010, that the QB is not eligible for treatment as an Assistance Eligible Individual.  The link to the updated FAQ is here http://www.dol.gov/ebsa/faqs/faq-cobra-arra.html.