Federal Laws: COBRA, TEFRA, DEFRA, FMLA

COBRA/TEFRA/DEFRA/FMLA ELIGIBILITY:

Participation in COBRA, and TEFRA/DEFRA is not voluntary for a small employer. These are Federal laws and the employer must comply.  Upon enrollment, the carrier will determine COBRA and TEFRA/DEFRA eligibility based on the total number of employees that the employer reports.  This census is subsequently updated once a year to determine continued eligibility.  The "New Jersey Small Employer Certification" form is required by State law at the time a group enrolls with a carrier, and is necessary in determining the group's participation ratio, as well as COBRA/TEFRA/DEFRA eligibility.

In recognition of the fact that we operate in a very litigious market, we at X-Ell cannot take full legal responsibility for any information we provide for guidance.  So, for sensitive cases, always have your clients consult with an attorney who is well versed in labor laws.  There are also a number of resources on the Internet that can provide some basic information. 




COBRA (Consolidated Omnibus Budget Reconciliation Act):

An employer must comply with COBRA if it employed 20 or more total employees - including part-time, full-time, eligible contractors, union employees, etc.--for over 50% of the preceding calendar year's working days, regardless of how many employees participated in the health benefits plan.  Typically, only common law employees are counted when determining COBRA eligibility.  Self-employed, independent contractors and non-employee directors are not included in the count unless they were considered eligible upon satisfying the qualifying event.  Part-time employees are counted on a fractional basis of full-time eligibility hours.  EXAMPLE: Since under NJ Reform, employees may be considered full-time if they work 25 or more hours per week, 5 part time employees collectively working a total of 25 hours now equal one for the purposes of determining COBRA eligibility. However, the "full-time" definition can also be formalized in writing by the employer, e.g., to consider full-time employees as those working a minimum of 30 hours per week.

Church and governmental plans are typically exempt from COBRA.  COBRA is not offered to employees who are fired for gross misconduct.

COBRA provides continuation of coverage privileges to employees and their covered dependents upon certain "qualifying events" and cessation of employment for that employee.  If an employee is terminated (for reasons other than for cause), leaves employment, becomes disabled, or has a reduction in work hours, he/she can elect to continue health benefits for a specified period of time.  If the employee dies or divorces his/her spouse, the employee's covered dependents will have the same rights to continue coverage, independently.

Upon satisfying a qualifying event, employees and eligible dependents must be immediately notified of COBRA in writing by the employer within 14 days.  The eligible employee and or eligible dependents  have 60 days from the date of notification to elect COBRA coverage and each may make a separate election.

An eligible employee or dependent who has waived COBRA can revoke the waiver at any time during the election period.  In this instance, coverage may begin on the date of the revocation, and not retroactively to the beginning of the election period or date of the qualifying event.

When the employee or his/her dependents elect COBRA coverage, they must pay the employer for the full cost of the health premium plus an additional 2% administration fee.  COBRA will provide up to 18 months of continuation in most cases. Disabled employees can continue up to 29 months (in months 19-29, the employer can charge up to 150%, plus the 2% administration charge).  If the employee dies or divorces his/her spouse, the dependents can opt to continue the same health coverage for up to 36 months.  Likewise, a child dependent that reaches the contract termination age may elect to continue COBRA separately for up to 36 months.

The COBRA elector has 45 days from the date of electing the continuation coverage to pay all premiums owed for any time prior to the date of the election.  An employer cannot require the elector to pay for any period of continuation coverage after the date of COBRA election until 45 days after the initial election to continue coverage.  The COBRA elector has a 31-day grace period for all subsequent premium payments.

COBRA continuees have 60 days to notify the employer of a divorce, legal separation, or child dependents reaching contract termination age.  The employer must also be notified within 60 days if the participant becomes eligible for Social Security benefits and is seeking to extend the COBRA continuation period to the allowed 29 months.

A qualified beneficiary must be offered the same coverage he/she had prior to the qualifying event.  This includes both core and non-core coverage including: health, vision, and dental.

A qualified beneficiary need not elect COBRA him/her self.  The election may be made by a third party.  If a qualified beneficiary does not elect COBRA continuation, the employer must notify the health care provider (carrier).  Also, if the qualified beneficiary is not covered during the election period, the employer must inform the provider that retroactive coverage will be provided if COBRA is elected timely.

Parties in a business reorganization can allocate COBRA responsibility by contract.  In the sale of a business via stock or assets, the seller retains the obligation to make COBRA available to existing qualified beneficiaries.

The carrier must be notified of the COBRA election and will require the elector(s) to complete a new application citing the reason for enrollment as "COBRA".  This is necessary in order for the carrier to properly list the COBRA continuee on the group bill and also to establish a prospective termination date for the continuee(s).  The date and reason of the qualifying event must be clearly stated, as well as the employee and/or dependent information.  The application must be submitted prior to the end of the election period. 

It is recommended that the employee be terminated from coverage immediately upon the qualifying event, unless the employer is certain that the employee will elect continuation coverage.  If the employee does not elect to continue coverage and the employer has not terminated the enrollment immediately upon the qualifying event, the employer must pay premiums during the election period and then may have difficulty terminating the employee retroactively with the carrier.  Remember, if the employee decides to elect coverage, the coverage will be reinstated retroactively to the termination date.  So, have the termination posted immediately and then, if the employee wants to continue coverage, he/she can re-enroll.

Due to the complexity of the legislation pertinent to the COBRA law, many firms offer specialized COBRA administration and compliance services.  It is highly recommended that employers consider retaining the services of one of these companies in order to avoid the heavy penalties that may result from non-compliance.  If you search on the Internet under "COBRA compliance" and "COBRA administration", you will find a number of companies that can provide these services.

NOTE FROM X-ELL: If you are currently a producer with our office and have additional questions regarding COBRA, or would like to obtain a sample COBRA Notification letter, please e-mail or call (973-227-2435, x103) Mike Byrnes.

COBRA RESOURCES FROM DEPT. OF LABOR:



TEFRA

The federal Tax Equity and Fiscal Responsibility Act (TEFRA) provides Medicare Secondary Payer provisions for a group's 65+-year-old, actively-working, full-time employees.

Employer Eligibility:
An employer who has 20 or more full-time and/or part-time employees, and contractors, for each working day in each of 20 or more calendar weeks in the current or preceding year is required to comply, even if less than 20 employees participate in the employer's health plan.

At age 65, employees become entitled to Medicare - a Federally subsidized medical plan offered in two parts: A and B. Part A pays for services rendered by hospitals and Part B pays for physicians services and major medical expenses (optional Part D can also provide prescription coverage).  Beginning six months prior to attaining age 65, Medicare eligible beneficiaries can elect (through a local Social Security office) to enroll in Part A and Part B. Part A has no premium and enrollment is "automatic." Part B's 2008 monthly premium begins at $96.40, and scales up for higher income earners.

When a group is subject to TEFRA, active employees that turn age 65 maintain their current group benefits as "primary" and Medicare is the secondary payer, and the employee can defer enrolling in Part B until they retire (without penalty).

For group's that are NOT TEFRA eligible, Medicare is the primary payer, the group plan is the secondary payer. In this situation, it is imperative that the 65+ employees elect both Medicare Part A and Part B, since the group carrier will only pay the supplemental payment that subtracts what Medicare would have paid (even if the employee opts not to enroll for Part B).

If a company has less than 20 employees/contractors and grows during a calendar year to 20+ total employees, the group will be TEFRA-eligible immediately upon maintaining 20 or more employees for 20 consecutive or non-consecutive weeks in a given calendar year. The employer would need to provide written notification to both Medicare and the group plan carrier(s).

If a company begins a calendar year TEFRA-eligible and payroll shrinks to less than 20 during the year and the group no longer satisfies the TEFRA eligibility definition, the group would convert to non-TEFRA status effective January 1st of the next calendar year. The employer would need to provide written notification to both Medicare and the group plan carrier(s). As of January 1st, for 65+-year-old actively working employees, Medicare would then become primary, group plan secondary. These employees would need to enroll for Part B, if not already enrolled (no Medicare penalties will apply if enrolled in a timely manner).

For more information, click here: Medicare Secondary Payer


DEFRA

DEFRA (Deficit Reduction Act) is the same as TEFRA, except the law applies to the 65-year-old spouse of the employee. When the spouse turns 65, he/she must elect either the group plan or Medicare A and B. If the group plan is selected, Medicare Part A will be a secondary payer on claim balances not covered under the company's health plan.


FMLA

FMLA (Family Medical Leave Act) This one gets a little ugly, but the basic idea is that eligible employees are entitled to take up to 12 work weeks of unpaid leave for certain family and medical reasons while maintaining health benefits and job restoration upon return to work.

All public and education agencies, and employers who employ 50 or more employees for at least 20 work weeks in the current or preceding calendar year, including joint employers and successors of covered employers, must comply with FMLA.

Since this topic only applies to the 50+ market, we will not discuss this topic in detail.