On July 1st, ACME Company successfully switched major medical carriers with the help of their new insurance broker. 275 active employees and their families attended open enrollment meetings, completed the health applications and received insurance ID cards and Summary Plan Description booklets. Everybody was happy with the new premiums, coverage and services. That is except Lisa Smith.
Lisa is a currently enrolled qualified beneficiary under COBRA through ACME Company. She left ACME Company after exhausting her FMLA back in November of the prior year. Lisa had been paying her monthly COBRA premiums to ACME’s old carrier. Currently, Lisa is receiving regular dialysis at the hospital and is on the waiting list for a kidney transplant. Lisa is also considered disabled through Social Security Administration and is entitled to up to 29 months of COBRA.
The change in insurance carriers came as a complete surprise to Lisa. She first learned about the change in health carriers when her most recent dialysis treatment was denied by her ‘old’ carrier. Frantically, she called ACME’s HR department to inquire about how their insurance carrier could have denied her claim. This was the very first time anybody at ACME thought about the COBRA participants and how their change in carriers affected these people. After a lengthy conversation with HR, Lisa told ACME she was going to retain an attorney to protect her COBRA rights and will be filing a complaint with the Department of Labor’s EBSA office.
The news of Lisa’s condition came as a complete surprise to ACME’s new insurance carrier as well. Insurance carriers typically require a full census of eligible insured participants (including qualified beneficiaries) before the issuance of final rates. Since the full census failed to include qualified beneficiaries, the insurance carrier and broker are in a tough spot. The carrier can cancel the policy, dramatically increase final rates or deny insuring all Qualified Beneficiaries, including Lisa. Remember, COBRA is an employer law, not an insurance law. Meanwhile, Lisa’s claims are being denied by both carriers since ACME canceled the old policy and never enrolled her on the new policy. The urgency of this situation increases almost by the hour. Lisa needs dialysis to stay alive and remain a viable candidate for a kidney transplant. Continued insurance coverage is paramount to saving her life.
As the above story depicts, there have been several significant errors made by both ACME Company and their new insurance broker. Some of the errors have easy solutions and some cannot be fixed so easily. This whole situation could have been avoided had ACME and their new insurance broker understood the COBRA regulations better.
A central tenet of COBRA is the qualified beneficiary must be treated the same as a similarly situated active employee. This is the most important thing to remember when planning for the annual benefit review and open enrollment meetings. During open enrollment, the employer must extend to each qualified beneficiary the same information and enrollment options as are being communicated to the active plan members. Among other things, each qualified beneficiary can add, remove, or change their enrollment status as well as benefit elections. If the employer is sponsoring a new benefit, each qualified beneficiary must be given the same opportunity to enroll under the new benefit plan. Special limitations exist for certain Section 125 flexible spending accounts.
Finally, if the employer is changing carriers and/or administrators, each qualified beneficiary must receive the required enrollment information to make an informed decision about benefit coverage levels, premiums, and network availability. Notice of premium changes must be communicated at least 30 days before the effective date of the rate change.
Managing the Open Enrollment Process
To ensure a smooth and uneventful open enrollment process, the employer should include every active qualified beneficiary on the census of insured individuals. To help the insurance carrier accurately price their proposal or renewal offer, it would be advisable to include additional information about the qualifying event, time remaining to elect and time remaining under COBRA, if enrolled.
The employer needs to ensure the enrollment process moves forward and that each qualified beneficiary is granted enough time to enroll or de-enroll under benefits. Planning the open enrollment meetings, drafting the enrollment paperwork, and establishing deadlines for responses will help prevent the qualified beneficiary from holding the plan “hostage” and delaying the release of final renewal premiums or rates.
Final Thoughts
Any enrollment and plan information sent to the qualified beneficiary should follow the same mailing procedures as employed for other required letters under COBRA. The May 28, 2003 proposed COBRA regulations also added two new required letters that the employer must send to qualified beneficiaries and at least one may be needed during open enrollment. It may be useful for the employer to review current procedures to ensure compliance with COBRA regulations.