New Coronavirus Relief for Plan Enrollees Means Extra Work for Plan Sponsors, Insurers and Plan Service Providers
The new regulations issued on April 28, 2020 by the Internal Revenue Service (“IRS”) and Department of Labor (“DOL”) require immediate attention from plan sponsors of retirement, health and welfare plans; health insurance issuers; third party administrators (“TPAs”); pharmacy benefit managers (“PBMs”); and other plan service providers. The regulations provide additional time for many actions that plan enrollees must do, such as electing COBRA; paying for COBRA; electing special enrollment under HIPAA; and filing claims. The additional time required will be very beneficial to plan enrollees. But we anticipate that it will cause additional administrative work, and potentially risk of loss, for plan sponsors and insurers.
In addition, as noted below, the IRS and DOL also released separate relief for plan sponsors with regard to certain other compliance obligations.
Relief for Plan Enrollees
Various federal laws allow the DOL and IRS to protect participants and beneficiaries in the event of a federally-declared national emergency. The new regulations are an example of the IRS and DOL using that authority. The U.S. Department of Health and Human Services (“HHS”) also has the same type of authority. According to the new IRS and DOL regulations, HHS will adopt a “similar” policy to protect enrollees in insurance policies and in self-funded, non-ERISA-covered plans. These laws generally allow the IRS, DOL and HHS to provide relief to plan enrollees for up to one year.
It is unknown whether the full one year will be taken in this situation. Given the severity of the novel Coronavirus outbreak, it seems possible that the relief noted below could be extended so that it applies for many months or perhaps even a full year.
When Must Plan Enrollees Act?
Under ERISA and the Internal Revenue Service Code (the “Code”), plan enrollees sometimes must take particular actions in particular time periods. For example, COBRA generally must be elected by a qualified beneficiary within 60 days after health plan coverage is lost. HIPAA special enrollment opportunities usually must be elected within 30 days of the special enrollment event. And, claims and appeals under retirement, health and welfare plans must be filed by enrollees in certain time periods (e.g., 180 days to file an appeal of a denied health plan claim). The new regulations extend these time periods. Importantly, it appears that the extension is provided on a retroactive basis, backwards to March 1, 2020 (more on this issue below). Specifically, relief is provided for:
- The 30-day (or 60-day) period to request special enrollment under HIPAA;
- The 60-day election period for COBRA continuation coverage;
- The typically 45-day period to make COBRA premium payments;
- The date for an individual to notify a plan of a qualifying event or determination of disability under ERISA Section 606(a)(3) and Code Section 4980B(f)(6)(C);
- The date within which individuals may file a benefit claim under the plan’s claims procedures under ERISA (29 CFR 2560.503-1);
- The date within which claimants may file an appeal of an adverse benefit determination under the plan’s claims procedure pursuant to ERISA (29 CFR 2560.503-1(h));
- The date within which claimants may file a request for an external review; and
- The date within which a claimant may file information to perfect a request for external review.
The relief will last past the date of the Presidentially-declared national emergency plus 60 additional days. The exact end date depends on the typical time period for the actions noted above. For example, the relief to elect special enrollment under HIPAA will typically last until the end of the national emergency; plus 60 additional days, which applies regardless of which event in (1) – (8) exists; plus 30 additional days. The 30 additional days is the typical time period to request special enrollment. A COBRA election period will last until the end of the national emergency; plus 60 additional days; plus an additional 60 days. The latter 60-day time period represents the time period to make an election under COBRA. The regulations call this extended time period the “Outbreak Period.” Since the end of the national emergency is not known, compliance with Outbreak Period relief will be an ongoing issue that must be regularly monitored by plan sponsors, insurers, TPAs and others because the “end date” of the Outbreak Period is also not yet known.
Examples Illustrate Broad Nature of Relief
The regulations provide several examples of how the relief will work. Let’s consider a COBRA-related example. Suppose Sally is an employee of ABC, Inc. Sally participates in the ABC, Inc. health plan. Sally’s hours are reduced due to the national emergency. Sally therefore loses her eligibility on the plan. This is a COBRA qualifying event.
ABC, Inc. provides Sally with a COBRA election notice on April 1, 2020. Normally Sally would have 60 days to elect COBRA. However, that 60-day deadline does not apply for Sally. Instead, the “Outbreak Period” is disregarded. What exactly is the “Outbreak Period” here?
As of today, it is not known. If the national emergency had ended on April 30, 2020, the Outbreak Period for making a COBRA election would have ended on June 29, 2020. This is the 60th day after the end of the national emergency. Then, Sally would receive another 60 days (i.e., the typical time period to elect COBRA) from that day. Thus, Sally would have until August 28, 2020 (60 days after June 29, 2020) to elect COBRA. Presumably Sally would then have another 45 days from August 28, 2020 in which to make the COBRA premium payments for those months.
Many Open Questions Exist
This Outbreak Period-related extension raises various questions for plan sponsors, insurers, TPAs, PBMs and others (such as COBRA administrators), including:
(1) Can plan sponsors, insurers and TPAs “pend” claims while they wait to determine if COBRA is actually elected and paid for? Pending claims may be a typical practice in the COBRA setting. However, the above relief is much longer than the typical COBRA election and payment periods. Pending claims for too long could raise concerns under ERISA’s claims rules (and similar state insurance prompt payment laws), which might require more-prompt consideration of the claims. However, there is some authority under the federal COBRA regulations which seems to allow claims to be “pended” for an extended time period. Pending claims for many months (or even a year or longer) could also violate contractual requirements in place with in-network health care providers and state insurance laws requiring prompt payment of clean claims. Violating those contractual and statutory requirements could, at least in some situations, lead to breach of contract claims, penalties for untimely payment of clean claims, or losing the in-network discount that the provider would normally provide.
(2) Must enrollees be told of this new relief? In the above example, Sally was provided with a COBRA election notice on April 1, 2020. That notice would not have reflected the new relief, which was released on April 28, 2020. Must ABC, Inc. send a separate notice to Sally to tell Sally that she now has several months (or even longer) to elect COBRA? The regulations do not address this point. In general, ERISA plan fiduciaries have a duty to communicate truthfully with plan enrollees. But it’s not completely clear whether that duty would require an update to enrollees here. Further guidance from the federal government would be helpful.
(3) Must our forms be updated? Many plan sponsors, insurers and TPAs use model forms for various enrollee communications. Those can include forms for electing special enrollment, electing COBRA, filing claims and other activities. Must those model forms be updated to reflect this new relief? Presumably so. Failing to update the forms could lead to accusations of providing knowingly-false information.
Note, though, that updating those forms may not be simple. No one yet knows when the national emergency will end. Thus, no one yet knows when the Outbreak Period will end. So the revised forms, at least for now, will not be able to provide enrollees with a definitive date for when the enrollee must take the actions noted above (e.g., the exact deadline to elect COBRA, to pay for COBRA, to elect special enrollment, etc.). This raises the question of whether regular updates will be needed to those forms, and whether those regular updates will need to be periodically sent to individuals whose decisions or actions are “pended” during the Outbreak Period.
Perhaps coincidentally, the IRS and DOL released new model COBRA forms on May 1, 2020. Those new forms should start being used by plan sponsors and insurers. However, interestingly, those forms do not discuss the Outbreak Period relief. Does this suggest that these new COBRA forms do not need to be updated to discuss the Outbreak Period relief? Probably not, but the timing is odd.
(4) Do we have to go back to March 1 and “correct” situations that did not follow the new regulations? The regulations are very clear that they are effective as of March 1, 2020. However, they were not published until April 28, 2020. In the interim, many decisions may have been made which were entirely proper at the time, but which now could violate the regulations. For example, suppose that an enrollee under a fully-insured plan needed to pay a COBRA premium by March 31, 2020. The enrollee did not do so. So the enrollee lost coverage under the policy as of March 31, 2020. That action, at the time, was unremarkable and entirely lawful.
Now, however, that termination may have violated COBRA and the Outbreak Period relief found in the regulations. If so, must the insurer now retroactively enroll the individual back into the policy as of March 31, 2020? Frustratingly, none of the examples in the new regulations address this presumably-common scenario. Nor does the regulation text specifically address the issue, although the logic of the regulation seems to imply that coverage must be retroactively offered in this situation. This question is probably the most important unanswered question in the new regulations, because if coverage must be retroactively reinstated, presumably insurers, plan sponsors, TPAs and PBMs will quickly need to communicate this to affected enrollees and reinstate the enrollees’ coverage. (As a further complication, some enrollees may not want to be re-enrolled, as they may have already obtained other health plan coverage. That would raise other questions, such as whether an enrollee can be “forced” to re-enroll in the “old” health plan.)
Is it possible that arguments could be made that the regulations are invalid, to the extent they apply retroactively? Perhaps. Certainly it is very unusual to have the federal government unexpectedly impose new legal mandates on a retroactive basis. Perhaps this is why the IRS and DOL did not specifically address this in the regulations.
(5) The agencies make it clear that the national emergency may vary in different parts of the country. For example, it is possible that the national emergency will remain in place in Coronavirus-related “hot spots” where a number of cases exist – say, the New York City region. However, the national emergency may be lifted in other areas where few cases exist – say, Wyoming. If there are different Outbreak Period end dates for different parts of the country, the IRS and DOL “will issue additional guidance regarding the application of the relief”.
In other words, it is possible that the Outbreak Periods will vary on an enrollee-by-enrollee basis under the plan. For example, supposed DEF Inc. maintains a self-funded health plan. It has employees in New York City and Cheyenne, Wyoming. Suppose that New York City’s national emergency lasts one year, while Cheyenne, Wyoming’s only lasts six months. Although not clear, it seems that New York City-based employees may receive Outbreak Period relief lasting for about that full year, while Wyoming-based employees may receive Outbreak Period relief lasting only for about that six-month period. This would seem to create significant additional administrative complexity for plan sponsors and insurers. In particular, ERISA-covered plans are not accustomed to complying with region-by-region mandates and applying them on an employee-by-employee basis.
(6) Will the Outbreak Period relief create cash flow difficulties for plan sponsors and insurers? Many employees of many employers have recently been laid off or furloughed. This will no doubt lead to a large number of COBRA qualifying events. Normally there is some risk to a plan sponsor or an insurer in a COBRA situation. Unless claims can be, and actually are, “pended”, there is a cash flow risk to the plan sponsor or insurer because claims may be paid but premiums lag behind those claims payments. However, this risk is usually modest because only a small number of individuals, at any given time, are electing COBRA.
In today’s environment, however, this risk may be substantial. Many more people than usual will be on COBRA. So, many more claims than usual might need to be paid before COBRA qualified beneficiaries make their premium payments. This could last for many months, or even a year or more. If plan sponsors and insurers pay claims, but COBRA premiums ultimately are not paid by the COBRA qualified beneficiaries, will this create a risk of loss? Or perhaps significant cash flow issues, if premiums are paid by qualified beneficiaries, but not for many months? Plan sponsors and insurers should examine this situation carefully.
From a health care provider perspective, if many claims are “pended” by many plan sponsors and insurers, it could create significant difficulties for health care providers. Providers may experience a significant delay in receiving payment from insurers, TPAs and PBMs.
Note that there have been proposals for the federal government to subsidize the cost of COBRA coverage. For example, some have suggested that the federal government should pay 90% or even 100% of the cost of COBRA coverage for individuals on COBRA. These discussions are continuing. It is possible such relief will be provided in a future federal law. Presumably many entities – insurers, TPAs, plan sponsors and health care providers – would welcome such relief and the certainty it would bring. For example, full payment of the COBRA premiums would allow insurers and TPAs to process many “pended” claims and pay those claims, which health care providers would welcome. But there have been disagreements between Republican and Democratic negotiators on whether and how to proceed with this COBRA subsidy proposal.
(7) Must our plans and insurance policies be amended to discuss the Outbreak Period relief? Again, the regulations are silent on this question. Plans and policies may have “catch-all” provisions which provide that they will follow all applicable law. If so, perhaps no amendment is needed. If not, an amendment might be needed. Further guidance from the IRS, DOL and HHS would be helpful.
(8) How will stop-loss insurance be affected? Stop-loss insurance typically is not considered a “group health plan” and is not subject to these types of federal regulations. The new regulations do not discuss stop-loss coverage. So it appears that stop-loss carriers will not need to offer the same Outbreak Period relief that plan sponsors are subject to, unless and until state regulators impose the same type of requirements upon stop-loss carriers.
This could create significant issues. Under the Outbreak Period relief, plan enrollees will have much longer to submit claims and appeals. But a plan sponsor’s contract with a stop-loss carrier may require that all claims be processed by a particular time period (e.g., three months after the end of the plan year). It seems possible that some high-dollar claims will not be timely processed due to the Outbreak Period relief. This risk may be lessened, however, because many health care providers will submit claims, regardless of whether a delay is possible.
The main risk for plan sponsors of self-funded health plans is that: (a) there is a delay in claims being submitted; (b) once the claims are submitted, they are properly payable and must be paid; (c) but the payment occurs after the time period allowed by the stop-loss contract. In that situation, the plan sponsor may be unable to recover amounts it would have typically expected to recover from the stop-loss carrier. This could leave the plan sponsor with an unexpected liability. Plan sponsors should review their stop-loss contracts and, if needed, consider modifications to them to address this risk.
(9) Some additional relief assists plan sponsors and insurers. In addition to the final regulations noted above, the IRS, DOL and HHS issued some relief for plan sponsors, fiduciaries and others. In EBSA Disaster Relief Notice 2020-01, the agencies offered these entities additional time to comply with certain obligations, such as issuing COBRA notices; following verification procedures for retirement plan loans or distributions; amending a retirement plan to implement the new CARES Act plan loan and distribution provisions (with such amendment generally needing to be accomplished by the last day of the first plan year beginning on or after January 1, 2022); an extension of time to forward participant contributions to a retirement plan; the provision of certain blackout notices; and some relief with respect to ERISA’s fiduciary duty obligations.
Note, however, that these relief provisions generally come with some “strings” attached. For example, delays in forwarding participant contributions must be due “solely” to the COVID-19 outbreak. Any delay must be “temporary.” And employers and service providers must act “reasonably, prudently, and in the interest of employees to comply as soon as administratively practicable under the circumstances.” The relief will certainly be helpful to some entities which are severely impacted by the Coronavirus. But the relief is not sufficiently broad enough to ignore all the typical legal obligations that plan sponsors and service providers currently comply with.
Quarles & Brady will continue to monitor and provide insights into how the April 28, 2020 coronavirus relief is further illuminated for plan sponsors of retirement, health and welfare plans; health insurance issuers; TPAs; PBMs; and other plan service providers and plan administrators.
For questions or more information on how your plan, procedures, and forms may need to be modified for this new coronavirus relief, please contact your local Quarles & Brady attorney, or:
Employee Benefits Contacts:
- Carolyn McAllister: (414) 277-5101 /firstname.lastname@example.org
- Dave Olson: (414) 277-5671 /email@example.com
- Mike Wieber: (414) 277-5109 /firstname.lastname@example.org
Insurance Regulation Contact:
- Bill Toman: (608) 283-2434 /email@example.com
Health Law Contact:
- John Hintz at (414) 277-5620 / firstname.lastname@example.org