COBRA & Carrier Replacements

On July 1st, ACME Company successfully switched major medical carriers with the help of their new insurance broker. 75 active employees and their families attended open enrollment meetings, completed the insurance health applications and received new insurance ID cards and Summary Plan Description booklets. Everybody was happy with the new premiums, coverage and services. That is except Lisa Smith.

Lisa is a currently enrolled qualified beneficiary under COBRA through ACME Company. She left ACME Company after exhausting her FMLA back in November of the prior year. Lisa had been paying her monthly COBRA premiums to ACME’s old carrier. Currently, Lisa is receiving regular dialysis at the hospital and is on the waiting list for a kidney transplant. Lisa is also considered disabled through Social Security Administration and is entitled to up to 29 months of COBRA.

The news of the change in carriers came as a complete surprise not only to her, but also ACME’s new insurance carrier. Had the underwriter at the new carrier known about Lisa’s condition, the final rates issued would have been much higher. Lisa is currently investigating her legal options and has filed an ERISA claim against ACME.

Open Enrollment Meetings

As the story depicts, there have been several significant errors made by both ACME Company and their new insurance broker. Some of the errors have easy solutions and some cannot be fixed so easily.

A central tenet of COBRA is the qualified beneficiary must be treated the same as a similarly situated active employee. This is important to remember when planning for your client’s annual benefit review and open enrollment meetings.

If the employer is sponsoring a new benefit, each qualified beneficiary must be given the same opportunity to enroll under this benefit. Special limitations exist for certain Section 125 flexible spending accounts.

Finally, if the employer is changing carriers and/or administrators, each qualified beneficiary must receive the required enrollment information to make an informed decision about benefit coverage levels, premiums and network availability.

Managing The Open Enrollment Process

To ensure a smooth and uneventful open enrollment process, the employer should include every qualified beneficiary on the census of insured individuals. To help the insurance carrier accurately price their proposal or renewal offer, it would be advisable to include additional information about the qualifying event, time remaining to elect and time remaining under COBRA, if enrolled.

The employer needs to ensure the enrollment process moves forward and that each qualified beneficiary is granted enough time to enroll or disenroll under benefits. Planning the open enrollment meetings, drafting the enrollment paperwork and establishing deadlines for responses will help prevent the qualified beneficiary from holding the plan “hostage” and delaying the release of final renewal premiums or rates.

Final Thought

Any enrollment and plan information sent to the qualified beneficiary should follow the same mailing procedures as employed for other required letters under COBRA. The May 28, 2003 proposed COBRA regulations also added two new required letters that the employer must send to qualified beneficiaries and at least one may be needed during open enrollment. It may be useful for the employer to review current procedures to ensure compliance with COBRA regulations.