COBRA Basics - What is a COBRA Qualifying Event?

COBRA (the Consolidated Omnibus Budget Reconciliation Act) requires covered employers to offer continued health plan coverage to qualified beneficiaries when they experience a COBRA “qualifying event.”

Federal COBRA applies to employers with 20 or more employees in the preceding calendar year, but not to government or church plans. Federal COBRA continuation requirements apply more broadly than just to the major medical plan. Any employer-sponsored plans considered to be group health plans because they provide significant medical care are subject to COBRA. This would include plans such as the following: major medical, prescription drug coverage, health FSA (some special rules may apply depending upon whether the account is overspent or underspent), and HRA.

This issue brief discusses which events are considered “qualifying events.” This brief will also identify events that are commonly misclassified as qualifying events but that do not entitle an individual to continued coverage.

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Two New HRA Options for 2020

The Department of the Treasury, the Department of Labor, and the Department of Health and Human Services (the Departments) have jointly released the final expanded Health Reimbursement Arrangement (HRA) regulations. The new rules will allow HRAs to be used to pay for individual health insurance policies and creates a new type of stand-alone limited benefit HRA.

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Voluntary Benefits - Compliance and Tax Considerations

More and more employers are choosing to include “voluntary benefits” in the benefit package offered to eligible employees. Voluntary benefits may include coverage for a variety of things including, but not limited to, dental, vision, life, disability, specific disease, or accidents. It is common that such benefits will be 100% employee-paid. Are such benefits subject to compliance requirements such as ERISA and COBRA? Are there any tax considerations? Although many employers assume there are no additional compliance obligations for these types of benefits, especially when the employer is not contributing, that is not always the case. In addition, tax rules may affect the ability to pay for premiums on a tax-favored basis, and in some cases affect the taxation of benefits received. These are things the employer should understand when choosing to offer such benefits. Below is a high-level summary of these considerations.

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IRS Clarifies Employer's Ability to Recover Mistaken HSA Contributions

On December 28, 2018, the IRS issued Information Letter Number 2018-0033, which provides clarification about the situations in which an employer may attempt to recoup a mistaken contribution to an employee's Health Savings Account (HSA). Specifically, the letter provides additional examples of HSA contributions, resulting from administrative or process errors, that an employer may try to recoup.

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Texas Judge Issues Controversial ACA Ruling

A Texas district court judge has issued a decision in Texas v. Azar, ruling that the individual mandate of the Affordable Care Act (ACA) is unconstitutional. The judge also argued that the individual mandate is inseverable from the ACA, and consequently, the entire law must be considered invalid. While the opinion is dramatic, and making front page news, it is important to note that the judge did not issue an injunction. Therefore, the current law will stay in full effect while procedural issues are addressed, and the case works its way through the appeals process.

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Spousal Carve-Outs

As health care costs continue to rise there has been an increasing number of employers considering the implementation of a spousal carve-out or spousal surcharge as a strategy to reduce costs.  In its simplest form, an employer will either impose a surcharge for a spouse’s coverage, or make that spouse ineligible for the plan when the spouse is eligible for their own employer-sponsored coverage. 


The impact on costs will vary obviously from employer to employer.  For example, fully-insured plans may see little or no rate reduction from the insurance carrier depending on the size of the group, and how the group’s claims experience is factored into the final rate calculation.  In contrast, self-funded plans tend to experience a more direct benefit since removal of a spouse from the plan means that the employer will no longer be liable for claims incurred by that individual. Before implementing this strategy, employers should carefully consider a number of design and compliance issues.

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IRS-SSA-CMS Data Match Employer Reporting Requirement Suspended

Congress enacted a law (Section 6202 of the Omnibus Budget Reconciliation Act of 1989) to provide CMS with better information about Medicare beneficiaries’ group health plan (GHP) coverage. The law required the Internal Revenue Service (IRS), the Social Security Administration (SSA), and CMS to share information that each agency had about whether Medicare beneficiaries or their spouses were working. The process for sharing this information was called the IRS-SSA-CMS Data Match. The purpose of the Data Match was to identify situations in which another payer might have been primary to Medicare.

Under the program, employers were required to provide CMS with information about health coverage of their Medicare-eligible workers and spouses. CMS would send a questionnaire to employers requiring the employer to provide certain participant data. To respond to the data request, the employer was required to set up an account with CMS. Once the account was activated, the employer was required to provide information about their health plan and to answer questions about relevant employees and participants.

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Independent Contractors – Benefit Compliance Considerations

Employers enter into a variety of different staffing arrangements for things such as handling special projects, meeting varying capacity needs, and filling temporary employment gaps. When entering into such arrangements, it’s important for employers to properly categorize such individuals as independent contractors or employees and then to ensure that benefits are handled accordingly. Determining employee status is critical for several purposes beyond that of handling benefits, but this issue brief focuses specifically on benefit considerations.

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2019 “Affordability” Percentage

Under §4980H, applicable large employers (50 or more full-time equivalents (FTEs)) must offer coverage to full- time employees that is affordable to avoid potential §4980H(b) penalties. In addition, individuals enrolling for coverage through a public Exchange will not qualify for subsidized coverage if they are eligible for employer- sponsored group health coverage that is affordable.

Coverage is generally considered “affordable” if the employee contribution for employee-only (single) coverage does not exceed a set percentage (9.86% in 2019) of household income. Note – Coverage is considered affordable for dependents as well, regardless of the contribution amount, so long as the employee-only (single) coverage is affordable. Coverage is also considered “affordable” for purposes of the employer’s satisfying §4980H(b) requirements so long as the employee contribution satisfies at least one of three available safe harbors (i.e., federal poverty level (FPL), rate of pay, or Form W-2), all of which use the same percentage (9.86% for 2019) in their calculations.

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Disability Claim Regulations Take Effect April 1, 2018

There have been claims and appeals rules for disability plans subject to ERISA for many years. These new regulations are an attempt to increase transparency of the review process; prevent conflicts of interest with respect to claims reviews and denials; and align the disability claims process with the process that already applies to claims for group health benefits.

The effective date of the regulations was originally January 1, 2017, but the applicability date was delayed until January 1, 2018. In November of 2017, in response to President Trump’s Executive Order 13777, the DOL delayed the applicability date until April 1, 2018. In early January of 2018, the DOL issued a statement indicating that the comments provided by stakeholders “did not establish that the regulations impose unnecessary burdens or significantly impair workers’ access to disability benefits.” The statement confirmed that the applicability date would remain April 1, 2018, and that the agency would not further delay nor change the regulations.

The regulations apply only to disability plans subject to ERISA. Most long-term disability (LTD) plans are subject to ERISA (assuming the employer who sponsors the plan is subject to ERISA). Many employers also offer short-term disability programs. Many STD plans satisfy the conditions of the DOL payroll practice exemption (DOL Reg. §2510.3-1(b)(2)). These STD programs would not be an ERISA disability plan and are not subject to the claims and appeals regulations. Note that if an STD plan is insured, it is subject to ERISA and these new regulations.

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Change in 2018 HSA Contribution Limits

On March 6th, 2018, the IRS released Rev. Proc. 2018-18, addressing a variety of changes to tax rates and inflation-adjusted thresholds in accordance with the Tax Cuts and Jobs Act passed late in 2017. Under the new tax legislation, the methodology for determining adjustments to limits for things such as contributions to health flexible spending accounts (FSAs) and health savings accounts (HSAs) is tied to a "chained CPI," probably resulting in slower upward adjustments over time. Although the IRS guidance does not affect health FSA contribution limits for 2018, HSA contribution limits for family coverage were reduced by $50.00 for 2018.

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Spousal and Dependent Carve-Outs and Surcharges

As healthcare costs continue to rise, more and more employers are considering implementing eligibility carve-outs and premium surcharges as a strategy to reduce costs. Some employers may choose to completely exclude spouses or dependents from being eligible for coverage, but others take a less aggressive approach, excluding only certain spouses or dependents (e.g. those who are eligible for or enrolled in other group health coverage). Another option, rather than excluding such individuals from being eligible for benefits, is to impose a surcharge for those who choose to enroll. Although spousal carve-outs and surcharges are generally allowed, carve-outs and surcharges for dependent coverage will often violate requirements under the Affordable Care Act (ACA). For those considering making changes to spousal and/or dependent coverage, the design and administration of those changes should be considered carefully.

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Summary of Tax Cuts and Jobs Act Employee Benefit Provisions

We are very close to final passage of the Tax Cuts and Jobs Act. Many expect the legislation to make it to the President’s desk by the end of this week. As far as employer-provided benefits are concerned, the final version of the Act contains fewer changes than many expected. There will be a number of checklists and detailed summaries in the coming weeks as all details are analyzed. This Update provides some general information on benefits provisions in the final bill and what to expect in 2018.

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IRS Letter 226J

The Affordable Care Act (ACA) contains requirements called the employer shared responsibility rules (often called the employer mandate). Code §4980H requires applicable large employers (ALEs – those with 50 or more full-time equivalents) to offer coverage to full-time employees and their dependent children. Employers who fail to do so face two different potential penalties. The IRS has begun to send letters to employers (Letter 226J) to begin the collection process for employers who have failed to meet the §4980H requirements for benefits offered during 2015. Penalty calculations are based on data provided by employers to the IRS on Forms 1094 and 1095. There are two different penalties that could apply to ALE, but only one would apply for any particular tax year.

We believe that many of the 226J proposed employer assessments will be applied due to mistakes made in employer reporting, rather than to an actual violation of a §4980H requirement.

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President Trump Signs Executive Order Permitting the Creation of “Association” Health Plans

President Trump has signed an executive order instructing regulatory agencies to draft new rules permitting the creation of “association” health plans, expanding Health Reimbursement Accounts (HRAs), and extending the time for which coverage can be offered under short-term health insurance policies. It is important to note that the executive order only instructs the regulatory agencies to develop new rules— it does not immediately change any existing rules or laws. New regulatory rules must also be written in a manner that complies with existing benefits laws such as ERISA, HIPAA, the Affordable Care Act (ACA), and provisions of the Internal Revenue Code.

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Employer Reporting – 2017 FINAL Forms and Instructions

The IRS has released the 2017 final forms and instructions for the ACA employer reporting requirement. Not surprisingly, the final forms are identical to the draft forms and instructions. We described the minor changes from 2016 forms and instructions in a previous alert, which may be found at

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Employer Reporting – 2017 Draft Instructions Released

The IRS released the 2017 draft forms and instructions for the ACA employer reporting requirement. The 2017 draft forms and instructions are very similar to those used for 2016. Given that they have only minor changes throughout along with a few clarifications of existing requirements, the most significant change is the deletion throughout of anything referring to §4980H transition relief, which is expired and no longer applicable.

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Wellness Program Updates

New developments have arisen in the wellness area recently. One recent court case challenges the validity of the final regulations, and another alleges that Macy's failed to comply with the final rules. The final rules establish how a wellness program should be structured to avoid violating nondiscrimination rules under HIPAA, the Americans with Disabilities Act (ADA), and the Genetic Information Nondiscrimination Act (GINA). There are no big changes here—at least not yet. Our general advice is to stay the course with your wellness programs and monitor the developments. None of the recent news requires immediate changes, but the court decisions discussed in more detail below could lead to changes in the future.

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