| COBRA FAQ’s |
| What is COBRA? |
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COBRA is a Federal Law whereby terminated employees, those who lose coverage because of reduced work hours, and / or covered dependents may be able to continue on the group medical and dental benefits for limited periods of time. If entitled to benefits, the health plan must provide a notice of rights and allow the qualified beneficiary 60 days to elect to continue. Once selected, the continuee(s) pays the full premium (100% of the employer plus 100% of the employee contribution) and the employer may impose a 2% surcharge. Persons extending coverage to 29 months due to Medicare disability may be charged 150% of the total premium. |
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Which employers must comply? |
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Generally, employers, including self-insured employers, with 20 or more on payroll (including full time, part time, union and non-union) for 50% of business days in the preceding year must offer COBRA continuation of the group health plan. |
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How long does the employer have to mail the Election Notice when a Qualifying Event has occurred? |
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The Employer has 14 days to mail the notice. If the employer uses a COBRA administrator, an additional 30 days are given to provide the notice. It is recommended that the notice be mailed First Class mail or with a Certificate of Mailing available at any post office. It is not recommended that Certified Mail be used as delivery is delayed until the recipient signs and receives the envelope. |
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| How long does a Qualified Beneficiary have to elect coverage? |
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60 days from loss of coverage or receipt of the election notice. |
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| Are employees that the employer does not consider full time counted to determine the 20 or more employees? |
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Yes, the employer determines what full time hours are (up to 40 hours for Federal COBRA purposes) and those working under full time count as fractions.
Example: A company has 10 full time 40 hour per week employees and 30 working a total number of 400 hours.
40 full time divided into 400 part time hours equals 10. The 10 full time plus 10 equivalent to full time equals 20 on the payroll. If there have been 20 for at least 50% of the typical business days of the preceding year, the group must comply with COBRA. |
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| Which employers are exempt? |
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Plans sponsored by the Federal Government, church related organizations, those that have less than 20 employees or have 20 or more for less than 50% of the preceding year. |
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| Who pays the premium and to whom? |
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Continuees pay the full premium being charged by the carrier, 100% of the employee and employer contribution and the premium is paid to the employer.
The employer may charge a 2% administrative fee.
For those who extend coverage from 18 to 29 months due to Medicare Disability, the employer may charge 150% of the total premium. |
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| What is recommended to an employer who receives a COBRA premium check that bounces or is rejected for insufficient funds? |
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A Qualified Beneficiary must pay the entire COBRA premium on a timely basis to maintain coverage. If the premium is paid timely and the amount is not significantly less than the full COBRA premium, the plan must either: (1) accept the payment as payment in full; or (2) notify the individual that an additional amount is owed and provide an additional reasonable period to pay the amount owed even if allowed after the grace period. If a check bounces the amount is not significantly less but in fact zero and as such additional time need not be allowed. COBRA election forms and notices should clearly indicate that coverage will be terminated due to nonpayment.
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| Can the member(s) remain on COBRA even if they are eligible for other group coverage? |
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Yes. |
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| Who is entitled to benefits? |
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Persons covered the day of the Qualifying Event are called Qualified Beneficiaries and each is entitled to continue independently. |
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| Is a Domestic Partner considered eligible for COBRA continuation as a spouse? |
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Under COBRA, a Qualified Beneficiary is an employee, spouse or dependent child (as defined in the insurance contract).
Under the Federal Defense of Marriage Act of 1996, the word "marriage" only refers to a legal union between one man and one woman, and the word "spouse" only refers to a person of the opposite sex who is a husband or wife. Based on the federal law definition, domestic partners do not qualify as spouses for COBRA purposes.
An employer may choose to provide COBRA-like rights to domestic partners. However, this would involve providing clear eligibility criteria and preparing special plan documents and COBRA-like notices as well as the agreement of the insurance carrier. Therefore, legal assistance should be sought.
Note: Although the NJ Small Group contract defines Domestic Partners as spouses and therefore eligible for COBRA, the federal law differs. |
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| What is a Qualifying Event? |
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For employees: termination of employment for other than gross misconduct or reduction of work hours whereby the person loses eligibility for coverage.
For dependents: death of the employee, divorce or legal separation from the employee, loss of dependent child status under the plan rules e.g no longer eligible due to age, marriage, or loss of full time student status. |
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What are the maximum durations of continuation of coverage? |
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Employees may continue 18 months with or without their dependents.
A member who is deemed Medicare disabled retroactively to a date within the first 60 days of being on COBRA may extend their COBRA to 29 months.
Dependent Qualifying Events allows continuation for 36 months. |
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| Do Reservists have expanded continuation benefits? |
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Yes.
The Veteran's Benefits Improvement Act of 2004 which became effective 12/10/2004 allows Reservists and their families to continue their employer sponsored health care coverage up to 24 months. The 24 month period is measured from the first day the Reservist begins active duty. Employers may charge Reservists whose active duty is over 31 days up to 102% of the full cost of benefits.
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| May a person on COBRA add a dependent? |
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COBRA Continuees that are Qualified Beneficiaries have the same rights as Active at Work employees. If the employer allows dependent coverage, the COBRA continuee may add a spouse or child. |
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Can someone eligible for Medicare elect COBRA? |
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Yes. They must be offered COBRA continuation coverage. |
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| Must a
new plan offering be offered to a COBRA continuee? |
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Yes. Qualified Beneficiaries have the same rights as those who are Active at Work.
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| What if the continuee moves outside the service area of the plan? |
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If the employer already has a plan in place that will accomodate the member, s/he will be able to move to the other plan immediately without waiting until open enrollment.
If there is no other plan in place, the employer is not obligated to create a plan solely for the continuee. |
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| Where can I obtain further information? |
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The Department of Labor website: HYPERLINK "http://www.dol.gov/" www.dol.gov |
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| TEFRA FAQ’s |
| What is TEFRA? |
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The Tax Equity & Fiscal Responsibility Act is Federal. As with all Federal laws applying to insurance, each employee on the payroll counts -- fulltime, part time, union and non union.
Employers with 20 or more employees on the payroll for 20 or more work weeks in the preceding or current calendar year are subject to TEFRA. |
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| Which employers are subject to TEFRA? |
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Employers with 20 or more employees on payroll (each fulltime, part time, union, non-union, and independent contractor count as one) for 20 or more work weeks in the preceding or current calendar year. |
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| How does TEFRA affect Medicare eligible employees? |
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The Tax Equity and Fiscal Responsibility Act permits Active at Work persons who are Medicare eligible due to age to choose if they want the group health plan primary or prefer to have Medicare and a supplemental plan.
Note: Federal law prohibits those who select Medicare from having the group plan as secondary. |
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| What about someone on Medicare due to disability? |
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The cut off in determining who is primary is 100 employees on the payroll.
Those Medicare disabled for other than ESRD (End Stage Renal Disease) in a group with less than 100 on the payroll are always Medicare primary. Again - make sure those who are Medicare primary have Part B.
Those disabled due to ESRD have the group plan primary for the first 30 months of the disability regardless of group size. |
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| What about employers with less than 20 on payroll or who have not had 20 for at least 20 weeks in the preceding or current calendar year (those not subject to TEFRA)? |
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Active at work employees who are Medicare eligible due to age are always Medicare primary - there is no choice for the employee.
Note: be sure the employee has both Medicare Parts A & B as the carrier is not obligated to pay Part B claims. |
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| Do the same rules apply for dependents who become Medicare eligible? |
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Yes, through DEFRA which is the same as TEFRA. |
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| Medicare Part D FAQ’s |
| What is Medicare D? |
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The Medicare Prescription Drug Improvement and Modernization Act of 2003, P.L. 108-173, created a new Medicare D which provides access to prescription drug insurance coverage to individuals who are entitled to (eligible for and enrolled in) Part A or enrolled in Part B.
Participation is voluntary and requires an affirmative election to join. Coverage will begin January 1, 2006. |
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| What are the Medicare D benefits? |
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Enrollees will have a deductible of $250, an estimated premium of $37 a month and 25% coinsurance for drug costs up to $2,250. After that, enrollees pay all drug costs until they have spent $3,600 out of pocket (equal to $5,100 in drug costs for those with no other drug insurance). Between $2,250 and $5,100 of drug costs, there is no Part D coverage (referred to as the "donut hole"). Catastrophic coverage then begins, with 5% coinsurance or copayments of $2 for generics and $5 for brand name drugs.
Once a members cost exceed $5,100, s/he has incurred "true out of pocket expenses" (referred to by CMS as "TrOOP") of $3,600, Part D coverage resumes at 95% of covered costs. |
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| When will coverage for Medicare D be available? |
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An eligible person may first enroll from November 15, 2005 to May 15, 2006.
If the person joins by December 31, 2005, coverage begins January 1, 2006.
If signed up after, coverage will be effective the first day of the month after the month the person joins.
In general, persons can join or change plans once a year between November 15 and December 31. |
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| Is there any penalty for late enrollment in Medicare D? |
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Similar to Part B, eligible individuals who do not enroll in Part D at the first opportunity will face a late enrollment penalty when they do join. They may avoid the penalty if they maintain "creditable" prescription drug coverage outside Medicare (through an employer's retiree plan, for example). If an individual loses creditable coverage, a special enrollment period commences during which the person may join Part D without being subject to the late penalty.
Note: Creditable coverage in this context is different from the HIPAA definition. |
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| What is the definition of "creditable coverage" for Medicare Part D? |
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Beneficiaries who have other sources of drug coverage - through a current or former employer or union- may stay in that plan and choose not to enroll in the Medicare drug plan. If their other coverage is at least as good as the new Medicare drug benefit (and therefore considered "creditable coverage"), then the beneficiary can continue the current plan as well as avoid higher payments (penalty) if they sign up later. |
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| What does Medicare D cost? |
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Costs vary depending on the selected plan. For 2006, the monthly premium is $37 and the yearly deductible is $250. The member must also pay a share of the drug costs. Medicare helps pay up to $2,250 and once the out of pocket reaches $3,600, the member pays 5% of the drug cost for the rest of the year. |
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| What if I can't afford to pay for Medicare D? |
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Persons with an income at or below a set amount and with limited assets (including savings and stock, but not counting a person's home) will qualify for extra help. The exact income amounts will be set later in 2005. The type of help will be based on income.
Persons should look for details in the mail from Medicare and Social Security Administration (SSA). The notice will be sent to those who are automatically eligible to receive extra help paying for a Medicare drug plan. If these individuals do not select a plan by December 31, 2005, Medicare will enroll them in a plan. This is being done so members do not lose a day of drug coverage once their Medicaid drug coverage ends on December 31, 2005.
If persons who get SSI does not choose a plan by May 15, 2006, Medicare will help them enroll in a plan (effective June 1, 2006) so they pay the lowest premium. |
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| What if the individual has prescription drug coverage from an employer or union? |
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Members will get a notice from their employer /union explaining if their plan covers as much or more than the Medicare prescription plan. Members can keep the current plan or join Medicare D. Unless the current coverage is at least as good as standard Medicare prescription drug coverage, it is important to join when first eligible as the premium will be lower than if enrollment is postponed until later. |
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| Is a subsidy available to employers and unions for the purpose of maintaining prescription drug coverage for retirees? |
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Yes.
Employers and unions may receive subsidies for the purpose of maintaining drug coverage. They must attest that the coverage is of equal or greater actuarial value to Part D. In 2006, the subsidy for each eligible individual equals 28% of allowable costs associated with enrollee drug costs between $250 and $5000 (indexed in later years to the growth in Medicare's per capita spending on Part D drugs). The allowable costs exclude admnistrative costs and any discounts or rebates the employer receives. |
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| Do Medicare prescription plans work with all types of Medicare health plans? |
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Yes.
Some plans will add to the Original Medicare Plan and Private Fee-for-Service Plans. These plans will be offered by insurance companies and other private companies. There will also be other plans that are part of Medicare Advantage Plans (like HMOs), in some areas. |
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| What if the member has prescription drug coverage from a Medigap (Supplemental Insurance) Policy? |
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The member will receive a detailed notice from the insurance company advising whether the policy covers as much or more than a Medicare prescripition drug plan. The notice will fully explain rights and choices. |
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| Who may be a Prescription Drug Plan (PDP Sponsor) for Medicare Drug coverage? |
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The PDP must service regional areas.
Similar to "Medicare Advantage", drug plans will submit bids to service eligible individuals in regions. The sponsor must provide information on benefits, cost sharing, service area, actuarial value, assumed administrative expense and expected reinsurance payments. The Secretary may aprove an unlimited number of full-risk plans, but may only approve as many limited risk plans necessary to avoid fallback. PDP's must be licensed as insurers under state law. |
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| Where can I obtain further information? |
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On HYPERLINK www.medicare.gov or 1-800-MEDICARE (1-800-633-4227) |
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| HSA FAQ’s |
| What are Health Savings Accounts (HSAs)? |
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The Medicare Prescription Drug Improvement and Modernization Act of 2003 Title XII establishes HSAs.
HSAs are tax-advantaged savings accounts that can be used to pay for medical expenses incurred by individuals, their spouses and dependents.
HSAs may be offered under a cafeteria plan. |
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| What are the deductible and maximum out of pocket limits? |
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For 2005 the minimum self-only deductible is $1,000 and the family minimum is $2,000.
The maximum out of pocket (including deductibles and co-pays) for self-only is $5,100 and $10,200 for family. |
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| How do they differ from Medical Savings Accounts (MSAs)? |
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MSA eligibility is restricted to employees of small businesses and the self-employed. HSAs are open to everyone with a high deductible health insurance plan. The only limitation is that the annual deductible be at least $1,000 for individual and at least $2,000 for family (NOTE: anything other than single is considered family in this context). Rollover contributions from Archer MSAs into HSAs are permitted. |
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| Typically, is the HSA Bank Account set up for the same effective date as the HDHP (high deductible health plan)? |
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No. Typically there is at least a 30 day lag from the effective date of the health plan and the set up of the HSA account.
Note: The HSA account may only be set up for the first of the month, so for example of the health plan is effective 7-15, the HSA would likely not be set up until 9-1. |
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| Can incurred claims be paid from an HSA acccount that has not been funded? |
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Currently, guidance directly from the IRS does not define the term "established" in the context of HSA accounts.
However, they suggest that by using the basic principles of trust law, a trust is not "established" until it is funded. Until further guidance is distributed, the HSA account should be funded to be considered established.
This would therefore mean that claims incurred between the effective date of the high deductible health plan and the funding of the HSA cannot be paid with HSA funds.
Example: health plan is effective 7-1-2005. The HSA Bank Account is set up 9-1-2005. The HSA account is funded 12-1-2005. Claims incurred 7-1 thru 11-30-2005 cannot be paid with HSA funds. |
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| Who qualifies for an HSA? |
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Someone who has a high deductible plan.
No other health coverage in place except Workers' Compensation, specific disease or illness, accidents, dental care, vision care, long-term care.
Not enrolled in Medicare (can be eligible for Medicare).
Cannot be claimed as a dependent on someone else's 2004 tax return. |
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| What are the contribution limitations? |
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Contributions by the employer are not included in the individual's taxable income. Contributions by an eligible individual are tax deductible. Contributions by family members of an eligible individual are deductible by the eligible individual. In 2005, individuals may take above-the-line tax deductions of up to the total yearly contributions, not to exceed $2,650 for individual coverage and $5,250 for family coverage (anything other than individual coverage is considered family in this context). These amounts will be indexed (inflation adjusted) annually the higher the deductible, the more can be contributed.
You must have the same coverage all year to contribute the full amount.
Example: if a person has a HDHP (high deductible health plan) from July through December (6 months), the maximum contribution is the 12 months amount divided by 6 as the amount is pro rated depending on how long the plan has been in place. |
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| What is a "catch up" contribution and who qualifies for it? |
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Individuals 55 and older in 2004 can increase their contribution by $500. For example, if a person has self-only coverage they can contribute up to the amount of the deductible plus $500, but not more than $3,100. |
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| Is the deductible calculated differently for HSA plans? |
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Yes. It is being called an embedded or aggregate deductible. This means that no one in the family is "into benefits" until the entire family deductible has been satisfied.
Some carriers may establish the minimum family deductible as their individual deductible. |
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| How are Preventive Benefits covered considering the high deductible up front? |
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An item or service or prescription drug that satisfies the criteria for Preventive Care may be covered under an HDHP (High Deductible Health Plan), even if the individual has not satisfied the minimum deductible requirements.
Medications may be deemed preventive when taken to prevent the manifestation of a condition by an individual who has developed risk factors which have not yet manifested or to prevent recurrence of a disease from which the person has recovered. An example of this might be the use of statins to lower cholesterol, but not to treat an existing heart problem. |
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| Who owns the money in the HSA account? |
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Once the money is in the account, regardless of who deposits the money, it belongs to the employee. |
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| What are some key points I should be sure to alert the employer of? |
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Several key points are:
* the employee contribution can be pre-tax as long as the
employer is offering a cafeteria plan
* typically the deductible is "aggregate" meaning that until
the full family deductible is satisfied, no one in the family
is in benefits. However, some carriers may have filed with
the NJ Department of Banking & Insurance for different
calculations.
* incurred claims can only be paid with HSA funds after the
bank account has been set up and funded
* the IRS "inflation adjusts" the deductible every year-end
* preventive care and medication can be covered first dollar |
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| Where can I obtain further information? |
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You may email the U.S. Treasury direct at:
mailto:hsainfo@do.treas.gov
hsainfo@do.treas.gov
or call them at 202-622-4HSA (4472) |
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