Q&A on BMS LLC COBRA Administration

NOTE:  BMS LLC IS FULLY ARRA COMPLIANT!!

What is COBRA?
Congress passed the Consolidated Omnibus Budget Reconciliation Act, COBRA, in 1985, with many revisions and updates over the past 20 years. COBRA legislation was enacted to provide continuation of group health coverage as a result of the concern of individuals losing their group health coverage due to a variety of circumstances, causing the loss of benefits.

Who Is Subject to COBRA?
Almost all group health plans of private and public employers must comply with COBRA unless they have fewer than 20 employees employed on a typical business day, are certain church plans or federal government plans. Employers must count all employees to determine if they are eligible for COBRA, not just those who are covered under the employer’s group health plan.

What Plans are Subject to COBRA?
COBRA applies to group health plans that provide medical care and are maintained by the employer (or it agents or sub-contractors), including health, dental, vision, self-insured plans, Health Flexible Spending Accounts (FSA), Health Reimbursement Arrangements (HRAs), etc.

Explain the COBRA Initial Notice Requirement.
COBRA legislation requires that all plan participants be informed of their COBRA rights and obligations. This initial notice must be sent to the covered employee and spouse when plan coverage first begins. This notice must be sent within 90 days after coverage begins. The Employer must inform the Plan Service Provider as soon as a new employee enrolls in a COBRA eligible benefit. The Plan Service Provider (BMS LLC) generates the required COBRA Initial Notice. This is a very critical part of the COBRA legislation and is overlooked quite often. Penalties of up to $110 a day can be levied against an Employer for not providing proper Initial Notifications.

What is a Qualifying Event under COBRA?
There are seven specific qualifying events:

  • Termination of a covered employee's employment (other than for gross misconduct);
  • A reduction in a covered employee’s hours of employment;
  • The death of a covered employee;
  • A divorce or legal separation from the covered employee;
  • Ceasing to be a dependent child under the terms of the plan;
  • The covered employee becomes eligible for Medicare; and
  •  Employer bankruptcy (relates only to retiree plans.)

Who must be offered COBRA?
Qualified beneficiaries who must be offered COBRA include a covered employee; the spouse of a covered employee or the dependent child of a covered employee and the person must be covered by a group health plan immediately before the qualifying event. The qualified beneficiary must be at risk for loss of plan coverage due to the qualifying event.

What Type of COBRA Coverage must be Offered?
COBRA coverage must be identical to the coverage provided under the plan to other qualified beneficiaries before the qualifying event. However, qualified beneficiaries can make coverage changes during the Open Enrollment period for active employees. If the current plan for active employees changes, the COBRA coverage for qualified beneficiaries will also change.

What are the Lengths of COBRA Benefits? 

  • Termination of employment – 18-month maximum coverage period.
  • Reduction in hours – 18-month maximum coverage period.
  • Death of an Employee - 36 months maximum coverage period for qualified dependents.
  • Divorce or legal separation of employee - 36 months maximum coverage period for qualified dependents.
  • Child loses dependent status - 36 months maximum coverage period for qualified dependents.
  • Employee entitled to Medicare - 36 months maximum coverage period for qualified dependents.
  • The 18-month coverage period can be extended to 36 months under some specific circumstances for qualified dependents.
  • If a qualified COBRA recipient becomes disabled within the first 60 days of the COBRA election period, they may be eligible for 29 months maximum coverage (or 11 month extension). Must be deemed disabled in accordance with the SSI Act II or Act XVI.

What is the COBRA Election Process?
The COBRA election process begins with the occurrence of one of the seven (7) qualifying events noted previously. The Employer completes an Employer Election Notice Form and submits to the Plan Service Provider (BMS LLC) notifying BMS LLC that a qualifying event has occurred. (Technically, this notice can come from either the employer or the qualified beneficiary or covered employee.) The Employer must notify the Plan Service Provider within 30 days after the qualifying event, indicating the beneficiaries currently covered under the qualified plans, and the current address.

The qualified beneficiary or covered employee must notify the Employer and/or the Plan Service Provider within 60 days after the qualifying event date (this would occur in the case of a divorce or if a dependent terms from the plan.) In any event, it is extremely important that notification to the Plan Service Provider take place as soon as possible.

What is the COBRA Notification Process?
Within 14 days of receipt of the qualifying event notice, the Plan Service Provider must notify each qualified beneficiary of his or her rights under COBRA. This is the most critical step in COBRA administration. The Plan Service Provider will forward a Notification Letter to the qualifying beneficiary outlining their rights under COBRA, a COBRA acceptance form, and the premium notification.

What Happens If a Qualified Beneficiary Elects COBRA?
COBRA coverage is not automatic – a qualified beneficiary must elect the continuation coverage within the election period to continue their group health plan coverage. A qualified beneficiary must return a COBRA acceptance form to the Plan Service Provider within 60 days from the later of: the date the group health plan coverage is lost, or the date the Plan Service Provider provides the COBRA election notice. The Plan Service Provider will track the 60 day period in their system.

What Determines the COBRA Premium?
The COBRA premium for a month’s coverage cannot be more than 102% of the applicable premium. This applicable premium is the full monthly contribution required by the insurance coverage and paid to the insurer. Premiums will only change or increase as the renewal of the insurance coverage occurs. The Plan Service Provider will remit 100% of the premium payment to the insurer in question, retaining the 2% for administrative charges. If a COBRA recipient becomes disabled within the first 60 days of eligibility, the premium amount can be up to 15% of the normal premium.

When is COBRA Premiums Due?
Once a qualified beneficiary elects COBRA and notifies the Plan Service Provider of their wish to accept COBRA, premiums are due no more than 45 days after the qualified beneficiary elects COBRA. After that, premiums are generally due the first of each month, subject to a 30 day grace period. The Plan Service Provider will supply payment coupons to be used with premium payments for qualified beneficiaries. Premium payments are deemed made when mailed by the qualified beneficiary.

What are the Responsibilities of the Employer with Regards to COBRA?

  • Employers should provide information to the Plan Service Provider of each employee who is eligible to receive an initial notice of their COBRA rights once they become employed. The Plan Service Provider, in turn, will prepare a separate initial notice to be provided to each employee, and his/her spouse, if any, who are qualified beneficiaries. Initial notices should be sent first class mail.
  • Once a qualifying event occurs for a qualified beneficiary, the employer must complete a COBRA Notification Notice and forward to the Plan Service Provider (BMS LLC) in a timely fashion. BMS LLC recommends that this notification be completed and submitted within 48 hours of the employee’s qualifying event. If a COBRA Notification Notice is not received by BMS LLC in a timely fashion, BMS LLC reserves the right to cancel our administrative services. COBRA is very serious legislation and the Employer is ultimately responsible for following all COBRA rules and regulations.
  • The Plan Service Provider will remit collected COBRA premiums to the Employer each month to submit to the proper insurance carrier in order to secure accurate coverage for COBRA participant
  • The Employer must keep the Plan Service Provider informed of all COBRA benefit plan specifics including renewal dates, plan changes, premium changes and of course, employee additions and terminations. This is critical to the proper flow of the COBRA administrative services. BMS LLC requires a strict adherence to this.

What are the Responsibilities of the Plan Service Provider (BMS LLC)?

  • BMS LLC will issue Initial Notice of COBRA Rights to all eligible employees as provided to us by the Employer. This notice will be sent within the required 90-day period and sent via first class mail to all employees, spouses and dependents covered under the COBRA eligible benefit.
  • Once the COBRA Employer Notification Form is completed and submitted to BMS LLC notifying us that an employee’s employment has terminated, the Plan Service Provider provides a Qualifying Event Notice to the eligible qualifying beneficiary(ies) within the required timeframe. The Plan Service Provider is responsible for mailing the notice along with the COBRA Acceptance Form to the qualified beneficiary.
  • Once the COBRA Acceptance Form is received from the qualified beneficiary, the Plan Service Provider is responsible for handling receipt of all premium payments from the qualified beneficiary, remitting payment of premium to the Employer (who, in turn, will remit same to the insurer), and tracking notifications, payments, duration of coverage, etc.

What are the Consequences of Failing to Comply with COBRA?
Failure to comply with COBRA can lead to significant financial consequences. We strongly encourage you to follow our step-by-step procedures carefully in order to avoid any potential compliance issues. BMS LLC is not liable for your failure to notify us in a timely matter of qualifying events for your employees. We reserve the right to terminate our administrative services at any time due to the employer’s non-compliance with mandated rules and regulations of COBRA law.

COBRA Administration Summary
All COBRA Administrative Clients are provided the following services from BMS LLC:

  •  COBRA Initial General Notices to all eligible beneficiaries (if requested, Initial General Notice will be sent to everyone upon implementation of our services.)
  • Prepare and remit COBRA Qualifying Event Notice to each qualified beneficiary. This is provided for ALL COBRA eligible benefits.
  • Notify employer upon receipt of COBRA election.
  • Collect all premiums from qualified beneficiary (we provided “Coupon Book” for use in paying COBRA premium.)
  • Provide a courtesy termination notice that informs beneficiaries that they are approaching end of COBRA benefits.
  • Provide  courtesy letter to dependent child regarding loss of dependent status.
  • Provide a courtesy letter to qualified beneficiaries attaining age 65 and thus is Medicare eligible.
  • Remit payments to employer, on a monthly basis, of all received COBRA premiums in order to remit to the insurance carrier(s) with their regular insurance premium payment.
  • Online services for all Employer.

Please contact a BMS LLC representative at sales@bmsllc.net or at 502-244-1161 for a proposal of our administrative fees!