Mandy Pepperidge is HR Manager for DePasto Tool & Die, Inc., a growing 80 employee specialty manufacturing company located in Faber, OH.  Over the years, Mandy has come to rely heavily on her benefits broker, Doug Neidermeyer of Neidermeyer and Wormer Insurance.  Attention to detail and superior service are hallmarks of Neidermeyer and Wormer Insurance and wrapping up their client’s annual benefits review and renewals well in advance of the new plan year is key to this reputation. 

Due to a couple of illnesses at both DePasto and Doug’s office, this year’s renewal slated for June 1st was not communicated to their COBRA administrator until July 31st.  On August 1st, DePasto’s COBRA administrator keyed in the new rates effective June 1st and notified all QBs of the rate change.

To complicate matters, DePasto had three enrolled QBs each having paid as billed for June’s coverage.  All three enrolled QBs were quite surprised to learn of DePasto’s change in premiums occurring two months in the past.  Since the COBRA administrator inputted rates effective June 1st on August 3rd, all three COBRA participants were terminated.  The COBRA administrator’s software accepted the retroactive change, determined the grace period for June and terminated each since the June’s grace period expired on July 1st.  Finally, the insurance carrier was notified of each QBs’ termination of COBRA rights.

The next call DePasto received was from the DOL’s Employee Benefit Security Administration office stating an investigation and audit of DePasto’s COBRA procedures is underway.  The EBSA faxed to Mandy copies of rate change letters from the COBRA Administrator dated August 1st indicating a change in rates effective June 1st.

Is Mandy and her COBRA administrator following COBRA regulations as they pertain to informing Qualified Beneficiaries of premium rate changes?

COBRA regulations require that Qualified Beneficiaries receive at least a 30 day advance notice of any rate changes.  To have properly complied with the advance notice requirements under COBRA, Mandy and her COBRA administrator should have communicate to her QBs the change in premiums on or before May 1st.  Since this was not possible, what should DePasto have done differently?

This is a very common problem and one COBRA administrators and employers must understand to manage properly.    First, DePasto’s COBRA administrator should have accepted the June premium rates, input these rates into their COBRA software system effective June 1st in order to preserve DePasto’s premium rate determination period, but not billed them to the pending and enrolled QBs on record till September 1st.  Second, all new QBs input into the COBRA administrator’s system after August 1st, but with qualifying event dates before August 1st, should have the new rates communicated on their COBRA election notices.  The EBSA would have not been contacted since all pending and enrolled QBs on record as of the date of the new rates input into the COBRA system would have been afforded a full 30 days advance notice. 

Furthermore, since DePasto did not properly follow the advance notice of premium change requirement, they may be looking at the prospect of self-insuring these three QBs medical claims till the end of their COBRA continuation period.  The carrier is under no obligation to reinstate coverage due to the error created by DePasto and their COBRA administrator.   Remember, COBRA is an employer law, not an insurance law.