Are We At Risk of a COBRA Avalanche? COVID-19 COBRA Compliance and Other Concerns for Benefits Administrators

COBRA avalanche

Since the COVID-19 outbreak began in the United States, more than 60 million Americans have filed for unemployment. A recent report by the U.S. Department of Labor (DOL) suggests that companies are still cutting a high number of jobs and in recent weeks, a large wave of new layoffs have been announced. The airline industry is furloughing an additional 32,000 employees; Disney will be cutting 28,000 jobs in California and Florida; and Shell Oil is shedding up to 9,000 more jobs.  

While Congress has passed a variety of economic stimulus legislation, most notably the CARES Act in March 2020, to help lessen the impact of COVID, the huge numbers of furloughs and layoffs threaten to result in an avalanche of COBRA claims. What does this mean for employers and third party benefit administrators?

COVID-19 COBRA Final Notice

On April 29, the IRS, DOL, and other federal agencies published a final notice rule recognizing that participants and beneficiaries under an employer’s group health plan and other ERISA benefit plans may have difficulty using their continuing coverage rights and face delays in filing claims. 

Under the notice, group health plans and other employee welfare benefit plans subject to ERISA or the Internal Revenue Code cannot include the period from March 1, 2020 until 60 days after the announced end of the National Emergency (otherwise known as the “Outbreak Period”) in determining the following:

  • 30-day period (or 60-day, if applicable) for special enrollment under ERISA
  • 60-day election period for COBRA continuation coverage
  • Due date for making COBRA premium payments
  • Date for people to notify the plan of a qualifying event
  • Date a group health plan sponsor or administrator has to provide a COBRA election notice

As of Monday, October 5, the “Outbreak Period” is still ongoing.

According to KFF, COBRA enrollees tend to be older than employees enrolled in job-based plans; on average 33% of COBRA enrollees are aged 55 or older, compared to only 21% of active employees. In addition, COBRA enrollees are more likely to have multiple chronic conditions (38% vs 24%), and more than twice as likely to report poor health status.

Although considered prohibitively expensive to be a long term solution for most people, the current layoff situation and legislative action to extend periods and deadlines associated with COBRA could cause serious problems for employers, administrators, and insurance carriers. People who may not have considered electing COBRA prior to COVID-19 may choose to do so now and in record numbers.

The Impact on COBRA Administrators

The possible COBRA avalanche is likely to result in unprecedented burdens for COBRA administrators. Situations having potentially the greatest impact on the administrative process include:

Deferred Election Notices

Under normal circumstances, plan administrators have to send a continuing coverage notice to participants and beneficiaries no later than 14 days of getting notification of the qualifying event. Because of COVID, employers now have an extended period to provide COBRA election notices – up to 60 days after the Outbreak Period ends – which means that employees and beneficiaries may find themselves feeling in limbo due to not learning about their continuing coverage health options until later on.

However, employers should make a good faith effort to inform COBRA beneficiaries of their election rights as soon as possible.

The Undecided

With the extension, participants and beneficiaries have a longer time to make their COBRA elections. People want to know their options and may not make a choice right away; this could leave TPAs to have a potentially large number of lives pending in their system, awaiting decisions.

Also, during the traditional 60-day election window, people could first refuse to elect COBRA and then later reverse their decision and choose the coverage as long as still within the 60-day time frame. With the now much-longer election window, the gap between a qualified beneficiary first declining coverage and then coming back later during the window to elect coverage after all could be dramatically longer than 60 days. For third party administrators, this can wreak havoc on recordkeeping and billing.

Deferred Payments

The ability to defer payments is perhaps the most controversial provision among the extensions. People can elect COBRA and then not make their first premium payment until up to 60 days after the Outbreak Period is over (for those already on COBRA, the extension is 30 days). Some people will pay as they go; others may choose to defer even if they can afford to pay their premiums on a regular basis from the beginning.

Potential Subsidy

There has been speculation that Congress would pass some form of assistance similar to the American Recovery and Reinvestment Act of 2009 (ARRA) to help with COBRA premiums. As of early October, however, this has yet to come to fruition. The closest to date was the passage by the U.S. House in May 2020 of the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act). The original HEROES Act proposed covering 100 percent of COBRA premiums from March 1, 2020 through January 31, 2021, for those who had lost their job-based coverage through layoff or furlough during that period. (The original HEROES Act died in the Senate; an updated version, known as HEROES Act 2.0, was passed by the House in early October and is now under consideration in the Senate.)

Ultimately, qualified beneficiaries who defer will likely have a massive premium bill after all has been said and done. What happens if they cannot pay? To whom will the insurance carriers look to settle the unpaid premiums? Employers should prepare for this potential pitfall by consulting with their brokers, carriers, plan providers, and legal counsel to develop strategies and action plans.

COBRA Compliance

Perhaps the most complicated and frightening aspect is the potential penalties resulting from failure to meet COBRA compliance requirements. Currently, employers face fines of up to $110/day, and excise tax penalties of up to $200/day, for failure to comply.

What can administrators do to head off the possible consequences of a COBRA avalanche?

COBRA administrators can prepare by considering the following actions:

Update your COBRA notices

Consult your legal counsel about your COBRA notices. Verify that your notices cover the necessary information for employees, qualified beneficiaries, obligations, information on when and how to elect COBRA, and how to make payments. Another consideration is sending a separate communication that alerts COBRA notice recipients about the extended deadlines.

Talk with their legal counsel, plan provider, and employer clients

Making sure everyone is on the same page and addressing compliance concerns can ease a lot of worries. Another talking point with employer clients is your services agreement and fee structure, as the COBRA workload could significantly increase.

Review your COBRA administration solution

How does your solution handle extended deadlines? How easy is it to process a COBRA declination, then add a beneficiary back beyond the traditional 60-day window? Will the solution provider work with your needs – particularly if you have a large quantity of unresolved lives in the system?

Reflect on your internal business practices

Finally, do you have the staff or support services to handle the COBRA avalanche? How do you send out notices now – does your staff handle that or do you use fulfillment mailing services? Who answers the phone calls and responds to emails from participants and beneficiaries? During these stressful and uncertain times, people need reassurance that they have the information and understand their options to make their healthcare decisions.  

With the COVID-19 period far from over and layoffs continuing to make waves in the labor force, a COBRA avalanche may be coming. Anticipation and preparation can help keep you from getting buried.


DataPath, Inc. has been creating best-in-class COBRA administration solutions since 2002.

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