Addressing Employee Health Plan Exception Requests: Part X
By Brian Gilmore | Published February 23, 2023
Question: What are the main employer considerations when responding to requests to make a late COBRA election or payment exception?
Short Answer: The main concerns are the insurance carrier or stop-loss provider refusing to cover claims for the COBRA participant and the scope of the ERISA plan precedent created by permitting a late election or payment exception.
Note: This is the final post in our ten-part series addressing employee health plan exception requests.
COBRA Exceptions: Late COBRA Election or Payment Exceptions
There are two main issues for employers to consider upon receiving a request to permit a late COBRA election or premium payment:
The Insurance Carrier Limitations; and
The ERISA Plan Precedent.
General Rule: COBRA Election and Premium Payment Deadlines
Under COBRA, employees and dependents who lose active coverage because of a qualifying event (e.g., termination of employment, reduction of hours) have 60 days to elect continuation coverage from receiving the COBRA election notice.
Qualified beneficiaries have 45 days from the COBRA election to make the first premium payment, and subsequent monthly payments must be made by the end of the 30-day grace period that starts at the beginning of each coverage month.
Qualified beneficiaries who fail to timely elect or pay for COBRA lose their right to continue coverage through COBRA.
For more details: Newfront COBRA for Employers Guide.
_Note: These COBRA deadlines are currently being disregarded for a period of up to a year under the ongoing Outbreak Period extensions related to the Covid-19 pandemic. The Outbreak Period began March 1, 2020 and will continue until July 10, 2023, which is 60 days after the May 11 announced end of the National Emergency. _
For more details: Covid Emergency Periods to End May 11 and Outbreak Period to End July 10.
Issue #1: The Insurance Carrier Limitations
Insurance carriers (and stop-loss providers for self-insured plans) generally will pay claims only for employees and dependents who are eligible and properly enrolled pursuant to the terms of the applicable insurance policy.
COBRA has inherent adverse selection risks for carriers. Those heightened concerns are further exacerbated by extending the election and payment deadlines. Therefore, carriers generally will permit coverage for individuals through COBRA only if the individual meets all of the conditions to receive COBRA coverage. In other words, the qualified beneficiary must timely elect and pay for COBRA coverage.
If an insurance carrier or stop-loss provider were to discover that an employer made an exception to permit an individual to maintain COBRA coverage despite missing the applicable election or payment deadline, the carrier would be within its right to deny paying (or reverse payment for) all claims for that individual. That could ultimately make the employer responsible for self-funding claims incurred by the individual—which is the worst-case scenario of potentially unlimited liability that employers must avoid.
How to address the issue: It is crucial that the insurance carrier (or stop-loss provider) agree to any late COBRA election or payment if the employer wants to make an exception. The carrier is well within its right to deny the exception request, and it generally will do so. Note that even in the rare situations where the insurance carrier approves the exception, the carrier does not have the same concerns as the employer regarding the need to consider the scope of the ERISA plan precedent (issue #2 below) because the carrier is not responsible for that issue. Employers (as the ERISA plan administrator) will often incorrectly assume that the green light from the carrier absolves them of any additional concerns.
Issue #2: The ERISA Plan Precedent
Employers frequently face exception requests from former employees and other potential COBRA qualified beneficiaries to extend the COBRA election or premium payment period to address a myriad of specific circumstances. For example, such individuals commonly raise points related to economic hardship, election/payment logistics, mail failures, communication issues, and misunderstanding of the COBRA system—despite the COBRA initial notice and election notice being clear on these points.
ERISA requires that employers administer and maintain the plan pursuant to its written terms, including its COBRA provisions. Within this framework, employers should not make “exceptions” to act contrary to plan terms because doing so could be a breach of fiduciary duty. Rather, employers may exercise their discretionary authority to interpret plan terms when making a COBRA continuation coverage eligibility determination. Employers that permit COBRA coverage to be made available where an employee misses the applicable election or payment deadline have therefore interpreted the plan’s terms to be flexible enough to accommodate the extended deadline.
A broad interpretation of the plan’s terms beyond their standard denotation to permit the late COBRA election or payment effectively acts in the same manner as a plan amendment because the employer must apply that approach consistently for all similar situated individuals. For example, an employer permitting a former employee to make a premium payment beyond the standard 30-day grace period to address logistical issues alleged by the former employee (as a purported “one-off”) would generally have to accommodate requests from all other qualified beneficiaries making the same types of extended deadline requests.
In other words, COBRA deadline “exceptions” create an ERISA plan precedent requiring the plan to permit the late COBRA election or payment for all qualified beneficiaries in similar circumstances. An individual denied the ability to make a late COBRA election or payment in similar circumstances would have a potential claim for ERISA breach of fiduciary duty or claim for benefits.
Summary: Granting any late COBRA election or payment exception request would expose the employer to potential litigation risk when other situations arise because ERISA requires that employers administer and maintain the plan pursuant to its written terms.
For more details: Newfront ERISA for Employers Guide.
**How to address the issue: **Unfortunately, there is no good way to solve for the unavoidable establishment of an ERISA plan precedent. The only mitigating factor could be an argument as to the scope of the precedent. How broadly or narrowly the precedent applies in practice is a matter of interpretation based on the specific facts and circumstances of the exception. Employers should keep in mind that an aggressive argument as to the narrowness of the precedent’s scope could always be challenged by the DOL or a participant lawsuit if it were unreasonable. _Accordingly, the plan precedent derived from permitting a late COBRA election or payment will always be a thorny concern that is difficult to manage. _
Where an Exception May Be Appropriate: Qualified Beneficiary Incapacity
Although not directly addressed by the COBRA rules, courts have found that the standard COBRA election and premium payment deadlines should be extended (i.e., tolled) by disregarding the period from the date of a qualified beneficiary’s incapacitation until the earliest of the date there is a legal representative in place, the extraordinary circumstances have ended, or the individual no longer is exercising reasonable diligence to make the COBRA election or payment.
For example, courts have excused the failure to elect COBRA or pay premiums in a timely manner when a condition has rendered qualified beneficiaries incapacitated and unaware of their obligation to pay for coverage.
The specific dates of any such extension can often be difficult to pinpoint and heavily dependent on the facts and circumstances of the situation. As a general best practice approach in these uncommon situations, employers should be cautious by accommodating extended COBRA deadlines in a bona fide incapacity scenario—but only with the insurance carrier’s and/or stop-loss provider’s approval.
For more details: COBRA for an Incapacitated or Deceased Qualified Beneficiary.
For the reasons outlined above, employers should avoid making COBRA exceptions to permit late elections or premium payments. The issues associated with making an exception in most cases far outweigh the typical hardship case or other motivation presented by the individual requesting the COBRA deadline exception.
There are situations where an individual is incapacitated and unable to timely make a COBRA election or premium payment. In such extraordinary circumstances, courts have found that it is appropriate to extend the applicable deadline to the point where those circumstances end or there is an appropriate representative in place to make the election/payment. Employers should make an attempt to accommodate such extensions in situations involving incapacity—provided that any exception in these special situations would need to first be approved by the insurance carrier (or stop-loss provider).
_(1) _Every employee benefit plan shall be established and maintained pursuant to a written instrument. Such instrument shall provide for one or more named fiduciaries who jointly or severally shall have authority to control and manage the operation and administration of the plan.
_(1) _Subject to sections 403(c) and (d), 4042, and 4044, a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and—
(D) in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this title and title IV.
Treas. Reg. §54.4980B-6, Q/A-1(a):
Q-. 1.** **What is the election period and how long must it last?
A-1.** **(a) A group health plan can condition the availability of COBRA continuation coverage upon the timely election of such coverage. An election of COBRA continuation coverage is a timely election if it is made during the election period. The election period must begin not later than the date the qualified beneficiary would lose coverage on account of the qualifying event. (See paragraph (c) of Q&A-1 of §54.4980B-4 for the meaning of lose coverage.) The election period must not end before the date that is 60 days after the later of—
(1) The date the qualified beneficiary would lose coverage on account of the qualifying event; or
(2) The date notice is provided to the qualified beneficiary of her or his right to elect COBRA continuation coverage.
Treas. Reg. §54.4980B-7, Q/A-1(a)(2):
**Q-. 1. **How long must COBRA continuation coverage be made available to a qualified beneficiary?
**A-1. **(a) Except for an interruption of coverage in connection with a waiver, as described in Q&A-4 of §54.4980B-6, COBRA continuation coverage that has been elected for a qualified beneficiary must extend for at least the period beginning on the date of the qualifying event and ending not before the earliest of the following dates—
(1) The last day of the maximum coverage period (see Q&A-4 of this section);
(2) The first day for which timely payment is not made to the plan with respect to the qualified beneficiary (see Q&A-5 in §54.4980B-8);
Treas. Reg. §54.4980B-8, Q/A-5:
**Q-. 5. **What is timely payment for COBRA continuation coverage?
**A-5. **(a) Except as provided in this paragraph (a) or in paragraph (b) or (d) of this Q&A-5, timely payment for a period of COBRA continuation coverage under a group health plan means payment that is made to the plan by the date that is 30 days after the first day of that period. Payment that is made to the plan by a later date is also considered timely payment if either—
(1) Under the terms of the plan, covered employees or qualified beneficiaries are allowed until that later date to pay for their coverage for the period; or
(2) Under the terms of an arrangement between the employer or employee organization and an insurance company, health maintenance organization, or other entity that provides plan benefits on the employer's or employee organization's behalf, the employer or employee organization is allowed until that later date to pay for coverage of similarly situated nonCOBRA beneficiaries for the period.
(b) Notwithstanding paragraph (a) of this Q&A-5, a plan cannot require payment for any period of COBRA continuation coverage for a qualified beneficiary earlier than 45 days after the date on which the election of COBRA continuation coverage is made for that qualified beneficiary.
Plaintiff cites two cases in support of its contention that equitable tolling is required under COBRA. In Sirkin v. Phillips Colleges, Inc., 779 F. Supp. 751 (D.N.J. 1991), the court held that "where an insured misses a premium deadline under COBRA due to the insured's incapacity to know of or meet her obligation, the deadline for that premium payment is tolled for a reasonable period of time until the insured or her legally appointed guardian is able to cure the deficiency," id. at 758. Similarly, in Branch v. G. Bernd Co., 955 F.2d 1574 (11th Cir. 1992), the Eleventh Circuit held that the deceased former employee's "60-day election period was tolled from the date of his incapacitation until the date that [his court-appointed estate administrator] was empowered to make the election on [the decedent's] behalf," id. at 1582.
Assuming, without deciding, that equitable tolling of COBRA's 60-day election period is available due to Franklin's incapacity, equitable tolling provides no support for Plaintiff's claims. In the Ninth Circuit, equitable tolling functions as follows: "[T]he . . . clock stops running when extraordinary circumstances first arise, but the clock resumes running once the extraordinary circumstances have ended or when the petitioner ceases to exercise reasonable diligence, whichever occurs earlier." Luna v. Kernan, 784 F.3d 640, 651 (9th Cir. 2015).
But this argument ignores the fact that a beneficiary who is incapacitated during the 60 day period does not receive a minimum of 60 days in which to make an informed decision. Only by tolling the period until the appointment of a representative can we ensure that beneficiaries receive the full 60-day election period that Congress has required.
By reading equitable tolling principles into COBRA, we effectuate Congress' purpose for that Act. We thus hold that Bell's 60-day election period was tolled from the date of his incapacitation until the date that Branch was empowered to make the election on Bell's behalf. Because Bell was incapacitated on the tenth day of his election period, and Branch elected to continue coverage on the day that he was appointed as administrator, Branch's election was timely and effective to continue Bell's coverage without interruption from Bell's qualifying event until the time of his injury. Thus, PALIC is liable for Bell's medical expenses.
Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).
Lead Benefits Counsel, VP, Newfront
Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law.Connect on LinkedIn