Frequently Asked Questions

Frequently Asked Questions about COBRA Continuation Health Coverage

What is COBRA?
COBRA, the Consolidated Omnibus Budget Reconciliation Act, was enacted in 1985. It mandated that most employers (with 20 or more employees) offer continuation group health care coverage to plan participants and certain family members for a specified time period. The act mandated that the continuation coverage be offered at group rates to employees who experience a "Qualifying Event". Qualifying events are defined in the act as voluntary or involuntary separation from employment, a reduction of hours worked, the death of an employee, dependent no longer eligible, or a divorce.

Who is eligible for COBRA continuation of benefits?
If an employee and any of their eligible dependents were enrolled in the health insurance plan at the time they experienced a qualifying event, then each of individual person is eligible for COBRA continuation of benefits. Any child born to or placed for adoption with a covered COBRA continuation of benefits participant is also eligible for coverage. The employee and each eligible dependent have the option to make an independent election for COBRA continuation of benefits.

How long does an employee have to decide whether he/she wants to continue any or all of benefits available under the COBRA continuation of benefits?
Employees and eligible dependents have sixty (60) days from the later of 1) the effective date of the qualifying event (e.g. separation from employment other than for gross misconduct, reduction in hours, layoff, etc.), or 2) the date of the notification, whichever is later, to elect COBRA continuation of benefits. There are no extensions to this deadline.

When does the COBRA continuation of benefits begin?
If an employee chooses to elect COBRA continuation of benefits, then there will be no interruption of coverage, as the continuation of benefits is effective on the same date that eligibility is lost.

How long does COBRA continued benefits last?
COBRA beneficiaries are eligible to elect and retain COBRA continued benefits for a maximum of eighteen (18) months if they become ineligible for benefits because employment ends or there is a reduction in work hours. Under specially defined circumstances, a beneficiary may be permitted to receive a maximum of thirty-six (36) months of coverage. Special rules for disabled individuals may extend the maximum periods of coverage.

What plans are covered under COBRA continuation of benefits?
Medical plans, Dental plans, and Vision plans are all included under the COBRA continuation of benefits guidelines. However, an employee may continue only those plans in which he/she were enrolled on the date they loss of eligibility. If an employee was enrolled in the Flexible Spending Account plan, he/she has options to maximize the use of their account balance to reimburse for qualified expenses.

Frequently Asked Questions about Section 125

What is a Section 125 Plan?
Qualified flexible benefit programs allow employees to pay for certain benefits on a pre-tax basis. This means that contributions are made before income and payroll taxes are calculated (FICA, Medicare, Federal Unemployment or Federal income). The FICA and Medicare savings apply to both the employee and the employer.

What plans qualify under Section 125?
In order for a plan to qualify, employers must follow certain rules. Employees must be given a choice between at least one eligible nontaxable benefit and one eligible taxable one. The employer must provide plan documents and a summary of the plan in writing. The plan may only benefit employees and their dependents (disqualifying sole proprietors, partners and Subchapter S shareholders who are not technically employees of the company). The plan may not discriminate by favoring highly compensated employees. Finally, elections for coverage under the plan must be made in advance of the coverage period, be irrevocable (except for a Change of Status) and may not defer compensation beyond the end of the plan year (also referred to as the "use it or lose it" rule for flexible spending plans).

What is a POP?
A POP or a Premium Only Plan is a plan that allows the employee to have medical/dental insurance taken out of their paychecks on a pre-tax basis.

What is an FSA?
A FSA or Flexible Spending Account is an account that allows an employee to have money taken out of the employee paycheck pre-tax for either unreimbursed medical expenses, dependent or childcare reimbursement or other insurance premiums that pay for insurance that isn't offered through the employer.

Elections are irrevocable except for a Change of Status-what does that mean?
Employees make their choices for the full 12-month plan year. Only under very specific circumstances will the IRS permit an employee to change the election. These changes are known as a Change of Status and include: change of legal marital status; change in the number of dependents; employment status change for employee or spouse; a dependent satisfies or ceases to satisfy the requirements for an unmarried dependent; or if the employee, spouse or dependent becomes entitled to coverage under Medicare or Medicaid Part A or Part B.
However, it is important to note, that even then, the change in election must be consistent with the change of status. For example, if an employee has a child he may add the child to his coverage. If a spouse dies, coverage for the spouse may be terminated. The employee may not select different coverage; just make changes consistent with the Change of Status.

What are reporting requirements?
All employers are required to file IRS Form 5500 each year. Depending on the size of your workforce, you may be required to file Form 5500-C or 5500-R. Different forms are required during different years.

What is Discrimination Testing?
The tax savings that result from having an Internal Revenue Code (IRC) Section 125 Cafeteria Plan are not eligible to Key employees and highly compensated employees unless the benefits are provided on a nondiscriminatory basis. IRC Section 125 and other relevant Code sections prescribe the tests to determine if a Plan is discriminatory.

What is HIPAA?
HIPAA means Health Insurance Portability and Accountability Act of 1996. This Federal legislation resulted from the perceived need for "portable" health coverage. Portable is, when a person changes jobs, he or she ought to be able to either continue current coverage or obtain new coverage without penalties such as waiting periods, or denial of coverage for pre-existing conditions. In order to implement some of the provisions of HIPAA, certain changes need to occur in the way health information is gathered, recorded, and shared. The federal Health and Human Services agency (HHS) wrote The Administrative Simplification Rule to provide specific direction regarding the security and confidentiality of health information. The Administrative Simplification Rule and all the sections of HIPAA are all referred to as HIPAA.

Why are the HIPAA rules necessary?
More than ever, health information is being sent by many different modes of communication. Every employer, hospital, and insurance carrier is sending this information in a different format. It is important for rules and regulations to be established to protect this sensitive information. One way to facilitate the portability of coverage is to provide for a consistent, national standard for how health information is handled. Currently, some states heavily protect medical information. In other states, few or no legal protections are afforded protected health information (PHI). In some of these latter instances it is perfectly legal for an employer to obtain a copy of an applicant's medical history and to use that information in making hiring decisions.

HIPAA, when fully implemented, will provide for a uniform national standard floor for transaction standards and code sets, privacy, and security of health information.

Who is responsible for HIPAA implementation activities?
The regulations state that a Privacy Officer be designated to bring the company into compliance. The Privacy Officer is also responsible for coordinating HIPAA implementation for the company.

How will I know about HIPAA-related changes in the workplace?
The Privacy Officer will keep you informed of HIPAA-related developments as information becomes available.

Who will be affected by HIPAA?
HIPAA affects everyone in our employment.

How will HIPAA impact the employer?
HIPAA will impact how each company stores, protects, and communicates Protected Health Information (PHI). In very simplistic terms, HIPAA compliance means the company must first assess the current practices around handling PHI; Then compare them with what is required by HIPAA, and finally carry out plans for any needed changes, including education and training in new procedures prior to the implementation deadlines.

For more information, please contact The A.I. Group, Inc.