COBRA and The New Laws

[0b1kanobee]

I have a client coming who has resigned from their employer and has been told they are eligible for COBRA. Their insurance ends the end of January 2014 (this month). I told her to take the COBRA because she couldn't even go into a plan until it is effective which would be March 1st (earliest effective date).

So if they go on COBRA, how long can they stay on it (18 months)? If it turns out that a new plan is less money than COBRA, can they go on a new plan right away or do they have to wait. They are not eligible for a subsidy. If they were eligible for a subsidy, which they are not, could they go on the exchange from COBRA right away or do they have to wait a certain amount of time?

 

[kgmom219]

1. If she is leaving (its not a special circumstance), she can get COBRA for 18 months.
2. Why pay for February upfront? She has a 60 window after notification to activate COBRA. And 45 days after that to make the first payment. I would only pay for it if she needs it. Get prescriptions filled in January. Wait for doc visits until coverage begins March 1. Pre-Ex is no longer an issue.
3. You can stop COBRA anytime. Its month to month
4. COBRA counts for "employer sponsored coverage" , so they wouldn't be subsidy eligible anyway.
5. If you aren't subsidy eligible, why would you use the exchange?
6. Give her the numbers for a March 1 effective date on an off-exchange plan. It may be less expensive than they new employer coverage.

Hope this helps!

 

[HealthGuy]

4. COBRA counts for "employer sponsored coverage" , so they wouldn't be subsidy eligible anyway. REALLY?

 

[kgmom219]

REALLY. You get rejected for a subsidy if you say yes.

How stupid is that??? Almost by definition, if you are on COBRA you are unemployed.

 

[Ann H]

Be careful with COBRA.

Most of what kgmom219 said is correct, but it's more complicated than that.

1. If you do NOT enroll in COBRA, you could be subsidy eligible. It doesn't matter that you are eligible for COBRA. The important point is that you did not enroll in COBRA in the first place. (This differs from regular participants of a group plan that are blocked from subsidies simply by being ELIGIBLE FOR employer-sponsored adequate and affordable group coverage.)

2. If you ENROLL in COBRA, you are not subsidy eligible as long as you are enrolled in it.

3. If you enrolled in COBRA and then you realize you made an mistake, you can disenroll from COBRA and then you could be subsidy eligible again. Just because you disenrolled from COBRA doesn't mean you have an SEP, so make sure you are doing this during Open Enrollment. And even during Open Enrollment, just because you terminated COBRA, applied for a subsidy, and applied for a new ACA plan doesn't mean your new effective date will match your COBRA termination date.

Complications of #3 above about whether or not you are subsidy eligible. This gets tricky. So, you enrolled in COBRA, realized you made a mistake, disenrolled, and now want an ACA plan. Will you get a subsidy? Well, first of all, if the COBRA (technically an employer-sponsored plan) is not adequate (60% minimum value) or affordable (9.5% of household income for self-only premium rule), then yes you could be subsidy eligible. However, if the group plan is adequate and affordable, there is mixed information out there about whether or not it will block you from subsidies. It's incredibly complicated, and I can't tell you that I know the answer. Even on some state exchange websites, some are saying yes and some are saying no. Same thing with the interpretations from very high-level professionals who have written on this subject.

Complications of #3 above about whether or not there is an SEP. Voluntarily dropping COBRA is not a qualifying event. However, becoming NEWLY eligible or ineligible for a APTC or CSR subsidy is a qualifying event. Is just losing your job (and suddenly having no income) a trigger for being newly eligible for a subsidy? No. What if you earned big bucks during the first 8 months of the year, then lost your job in September, for instance. When you average out 8 months of high income with 4 months of zero income, your 2014 annual household MAGI might not be less than 400% of FPL.

So, moral of the story. Don't enroll in COBRA in the first place. Unless you just love complications.

 

[kgmom219]

I totally agree that post 1/1/14, COBRA rarely (if ever) makes since. BUT if you are COBRA eligible (within the 60 days of notification or currently utilizing COBRA and want to move to a marketplace plan) you are not subsidy eligible.

And I only know this because even though the Q&A at healthcare.gov is ambiguous on this topic, I had to actually call them to determine why a family of 4 with 60K income (well below 400% of FPL) wasn't getting a subsidy. And the reason I was given is that they were currently on COBRA and they consider that "employer sponsored coverage". Then I was really annoyed and called the IRS and they confirmed it. You can't come off COBRA to get a subsidy in the middle of the 18 months (or 29/36) to get a subsidy, regardless of income level.

Stupid.

Thanks Ann for the clarification!

 

[Ann H]

I totally agree that post 1/1/14, COBRA rarely (if ever) makes since. BUT if you are COBRA eligible (within the 60 days of notification or currently utilizing COBRA and want to move to a marketplace plan) you are not subsidy eligible.

And I only know this because even though the Q&A at healthcare.gov is ambiguous on this topic, I had to actually call them to determine why a family of 4 with 60K income (well below 400% of FPL) wasn't getting a subsidy. And the reason I was given is that they were currently on COBRA and they consider that "employer sponsored coverage". Then I was really annoyed and called the IRS and they confirmed it. You can't come off COBRA to get a subsidy in the middle of the 18 months (or 29/36) to get a subsidy, regardless of income level.

Stupid.

Thanks Ann for the clarification!

Just to clarify for readers of this board, I want to single out three issues in your post above. I will then post quotes from the IRS TD9590 to verify.

1. "BUT if you are COBRA eligible (within the 60 days of notification or currently utilizing COBRA and want to move to a marketplace plan) you are not subsidy eligible." Actually, being ELIGIBLE FOR the COBRA is not the issue. Being ENROLLED IN it is.

2. "And the reason I was given is that they were currently on COBRA and they consider that "employer sponsored coverage" Yes. They were ENROLLED IN it currently.

3. "You can't come off COBRA to get a subsidy in the middle of the 18 months (or 29/36) to get a subsidy, regardless of income level" Wrong. You can. It is complicated to do it, as mentioned in my previous post, but you can terminate the COBRA mid-term, and then you are not ENROLLED IN it. At that point you may be subsidy eligible if you meet the other qualifications. Terminating COBRA doesn't trigger an SEP, though.

Here is text from the IRS TD9590 (the final rule about subsidies). In this document they use the words "continuation coverage" to mean COBRA or any state continuation law.

Section 36B(c)(2)(C)(iii) and the proposed regulations provide that an individual who enrolls in an eligible employer-sponsored plan is not eligible for the premium tax credit even if the plan is unaffordable or fails to offer minimum value. Commentators asked whether an individual who enrolls in an eligible employer-sponsored plan and then terminates coverage during the plan year is treated as eligible for minimum essential coverage under the plan for the entire plan year under this rule, even though the coverage is unaffordable or does not provide minimum value. Commentators similarly asked if individuals who enroll in continuation coverage and then disenroll from it later during the year are treated as eligible for minimum essential coverage for the entire year. In response to these comments, the final regulations clarify that an individual is treated as eligible for minimum essential coverage under an eligible employer-sponsored plan by reason of enrolling in the plan or in continuation coverage only for months the individual is enrolled in the coverage.

Continuation coverage. An individual who may enroll in continuation coverage required under Federal law or a State law that provides comparable continuation coverage is eligible for minimum essential coverage only for months that the individual is enrolled in the coverage​

The issue here is ENROLLING IN employer-sponsored minimum essential coverage. Let's back up a minute, and look at the fundamental rule. It's a rule that applies to COBRA, but also to regular employees. Let's say that the regular employee ENROLLS IN the employer-sponsored coverage that is at least MEC (minimum essential coverage). And let's say it does NOT meet the affordability rules. As long as the employee is enrolled in it, they are not eligible for subsidies. But if the employee realizes they made a mistake, and disenrolls, they can be eligible for subsidies now, because the ER-sponsored coverage is not "affordable".

That basic "enrolled in" issue is the same for COBRA participants. They ENROLLED IN the employer-sponsored coverage. Until they disenroll, they will not be eligible for subsidies. Following is an excerpt from the IRS TD9590 that talks about this. This one is for a regular employee, but the document makes it clear that the "enrolled in" ER-sponsored MEC applies to COBRA participants too.

Example 1. Taxpayer H is employed by Employer X in 2014. H’s required contribution for self-only employer coverage exceeds 9.5 percent of H’s 2014 household income. H enrolls in X’s calendar year plan for 2014. Under paragraph (c)(3)(vii)(A) of this section, H is eligible for minimum essential coverage for 2014 because H is enrolled in an eligible employer-sponsored plan for 2014.

Example 2. The facts are the same as in Example 1, except that H terminates plan coverage on June 30, 2014. Under paragraph (c)(3)(vii)(A) of this section, H is eligible for minimum essential coverage under X’s plan for January through June 2014 but is not eligible for minimum essential coverage under X’s plan for July through December 2014​

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Kgmom219, in your post above, you said, "And the reason I was given is that they were currently on COBRA and they consider that "employer sponsored coverage". Then I was really annoyed and called the IRS and they confirmed it. You can't come off COBRA to get a subsidy in the middle of the 18 months (or 29/36) to get a subsidy, regardless of income level."

Will you confirm what the IRS said? Did they confirm that the person is not eligible for subsidies because they were currently ENROLLED IN the COBRA? Or did the say your last sentence which was that you cannot come off COBRA in the middle of the 18 months (or 29/36) term?

 

[kgmom219]

Ann,

The client was in month 10 of COBRA. They wanted to terminate COBRA and go on to a marketplace plan, utilizing the subsidy.

What I was told (twice) was that because they were "eligible" for COBRA in January, they were not eligible for a subsidy. I asked "what happens if they terminate the coverage 12/31?" They would then be eligible for the subsidy on February 1. This family cannot have a gap, there is about $5K a month in claims right now.

I'm reading what you are posting from the guidelines and I get it. But when healthcare.gov and the IRS give you the same answer, you give up. (Or at least I do!) I've been known to file a DOL complaint on behalf of my clients, but I am not messing with the IRS. I am just passing on my experience.

Thankfully, I was only on the exchange a handful of times. For giggles, I did it on myself and when the question on healthcare.gov is "are you eligible for employer sponsored coverage, INCLUDING COBRA or State Continuation?" If you click yes, you are automatically kicked out of subsidy determination.

I understand what you are saying and the system isn't operating correctly.

 

[Ann H]

Ann,

The client was in month 10 of COBRA. They wanted to terminate COBRA and go on to a marketplace plan, utilizing the subsidy.

What I was told (twice) was that because they were "eligible" for COBRA in January, they were not eligible for a subsidy. I asked "what happens if they terminate the coverage 12/31?" They would then be eligible for the subsidy on February 1. This family cannot have a gap, there is about $5K a month in claims right now.

I'm reading what you are posting from the guidelines and I get it. But when healthcare.gov and the IRS give you the same answer, you give up. (Or at least I do!) I've been known to file a DOL complaint on behalf of my clients, but I am not messing with the IRS. I am just passing on my experience.

Thankfully, I was only on the exchange a handful of times. For giggles, I did it on myself and when the question on healthcare.gov is "are you eligible for employer sponsored coverage, INCLUDING COBRA or State Continuation?" If you click yes, you are automatically kicked out of subsidy determination.

I understand what you are saying and the system isn't operating correctly.

I agree with what hc.gov said. In this case, they would be eligible for a subsidy on 2/1/2014, because they dropped COBRA and they have until 1/15 to apply for coverage effective 2/1. Since they didn't cancel COBRA until 12/31 they had already missed the 12/15 deadline to apply for a subsidy and coverage effective 1/1/2014.

In this particular case, having $5000 a month in claims means they can't go through this gap in coverage. What a bad situation. I do have one suggestion. Ask hc.gov what would happen if early in the month (say March 2nd), they cancel COBRA for an effective date of 3/31/2014. Then, they apply for a subsidy and coverage early in March long before the 3/15 cut-off for an effective date of 4/1/2014. That way there would be no gap in coverage.

Bottomline common sense answer to COBRA situations that we run into in the future is this:
1. Don't take COBRA.
2. If you did, and want to back out and get a subsidy, it's complicated.
3. If it's not your current client, and this isn't your mess, it's probably not worth getting into the middle of it.

 

[kgmom219]

I put them on an off-exchange plan (still saved them $500/month) off of COBRA. But thanks for the advice.