1. COBRA “Something Old & Something New” October 12, 2006 Presented by: Paul J. Routh Weprin Folkerth & Routh LLC Attorneys at Law 3931 South Dixie Drive Dayton, Ohio 45439 (937) 296-0650

2. Source of Law and Other Guidance Enacted in 1985 but effective 1986 COBRA – Statutes  Internal Revenue Code § 4980B  ERISA §§ 601-608  Public Health Safety Act §§ 2201-2208  Statutes have been amended nine times!

3. Source of Law and Other Guidance Regulations  Internal Revenue Service Reg. § 54.4980B  Department of Labor § 2590.606 Other  Court Cases  IRS Revenue Rulings, Procedures, Announcements and Private Letter Rulings  Department of Labor Advisory Opinions, Information Letters and Fact Sheets 

4. What Employers are Subject to COBRA  All employers EXCEPT (1) "small employers" and (2) churches  Small employer - Employer with less than 20 employees during previous calendar year - Note calendar year not plan year  Rules are applied on a "controlled groups basis." Related employers are treated as one employer and workforces are combined when counting employees. SEPARATE FEDERAL IDENTIFICATION NUMBERS ARE IRRELEVANT!!  Count employees not plan participants

5. What Employers are Subject to COBRA (cont.)  Can fractionalize employees  Look to previous calendar year to see if 20 or more employees on "at least 50% of its typical business days." Use payroll records, etc. for count  Note the determination is prior to the current calendar year and subject (or not subject) to COBRA for that entire calendar year. So look to 2004 to determine if subject to COBRA for all of the 2005 calendar year. People on COBRA do not lose their COBRA coverage if employer changes status to a "small employer."

6. What Plans are Subject to COBRA  Health Plans - Subject to COBRA  Medical Plans  Insured Plans  Self Funded Plans  HMOs  Dental Plans  Insured Plans  Self Funded Plans  Vision Plans  Health FSAs - Special Rules Apply  HRAs  EAP - Could if provides medical care

7. What Plans are Subject to COBRA (cont.) PROGRAMS NOT SUBJECT TO COBRA  Long Term Care Plans  Group Term Life Insurance and AD&D  Long and Short Term Disability Plans  Hospital Indemnity Plans - e.g. $ 100 Per Day While in Hospital Regardless of Reason  HSAs

8. Qualifying Events – Dictates Who Gets COBRA and For How Long QUALIFYING EVENT - TWO STEP PROCESS  Five Enumerated Events  Change in Employment Status  Voluntary or Involuntary Termination of Employment Except Gross Misconduct  Gross Misconduct Is Rare  Reduction in Employment - Most Overlooked!  Employee's Divorce or Legal Separation  State Law Governs  Domestic Partners Do Not Count  Employee's Death  Child's Loss of Dependency Status Under Plan  Terms of Plan Control  Employee Becomes Entitled to Medicare  See IRS Rev. Rul. 2004-22

9. Qualifying Events – Dictates Who Gets COBRA and For How Long  Loss of Coverage  Any Change in Terms or Condition of Coverage  Not All Losses of Coverage Due to Specified Event  Plan Amendment or Termination  Employee Drops Spouse During Open Enrollment  Special Rules - Loss In Anticipation of Qualify Event  Termination of Coverage Prior to Termination of Employment  Drop Spouse Prior to Divorce

10. Who Gets COBRA and for How Long Who Gets COBRA - Qualified Beneficiaries  Change in Employment Status  Employee and Family Members  All Other Events Except Loss of Dependency Status  Spouse and Children  Loss of Dependency Status  Child Qualified Beneficiary - Must Be on Plan Day Before Qualifying Event Unless (1) Loss is in Anticipation of Qualifying Event or (2) Newborn Child

11. Duration of COBRA  Duration of COBRA Coverage  Change in Employment Status - 18 Months  Disabled at Time - 29 Months -Tag Alone Rule  Multiple Qualifying Event - 36 Months Total  All Other Qualifying Events - 36 Months

12. Duration of COBRA (cont.) COBRA Coverage Can Be Terminated Early  Failure to Pay COBRA Premiums on Time  Employer Terminates All Group Health Plans  Subsequent Coverage Under Other Group Health Plan  No Pre-Existing Conditions  Subsequent Coverage Under Medicare  Termination of Disability if in 29 Month Extension  NEW NOTICE REQUIREMENTS -EARLY TERMINATION! WHAT ABOUT EXTENDING COBRA COVERAGE - CAN NOT!

13. People on COBRA – Not Qualified Beneficiaries  Each Qualified Beneficiary is Like Active Employee  Add New Spouse  HIPAA Special Enrollment Periods  Add Person During Open Enrollment Periods  Lose Coverage When Qualified Beneficiary Loses Coverage  Domestic Partners - Not Entitled to COBRA Coverage  Newborn Child IS Qualified Beneficiary  Newborn Grandchild IS NOT Qualified Beneficiary

14. COBRA Coverage COBRA COVERAGE  General Rule - Same Coverage as Before  Qualified Beneficiary Can Select Different Coverage if Under Region Specific Plan Like HMO  Plan Changes for Active Employees (e.g. Switch Carriers)  Plan Terminated But Other Plan Available

15. COBRA Coverage (cont.) COBRA COVERAGE  Special Rules for FSAs  No Longer Can Spend Down Account  Maximum Benefit 2 times salary deferrals  Employer Sponsors Other Health Plan  If Yes - Then COBRA to Those Who Underspent Account - i.e. Have Money in Their Account  Then Offer COBRA Till End of Current Plan Year  Rather Than Keep Track - Just Offer COBRA to All FSA Participants Till End of Current Plan Year  Special COBRA Rules in Mergers and Acquisitions – Note They are Simply Fall Back Position – Should be Addressed in Buy – Sell Agreement!!!!!!!

16. COBRA Notices – The New!!! DOL - Responsible for Notice Provisions - Regs Issued on May 26, 2004 - Effective Plan Years Beginning On or After November 26, 2004  General Notice - Used to be Initial Notice  Most Important Notice!  DOL Has Sample Notice - Must Be Customized  Biggest Change - Have 90 Days to Provide Notice  This Means Can be in SPD  One Notice to Employee & Spouse if (1) Enter Plan at Same Time and (2) At Same Address - Should be Addressed to “Employee and Spouse”

17. COBRA Notices – The New!!! (cont.)  By First Class Mail or Second or Third Class Mail if Return/Forwarding Postage is Guaranteed and Address Correction is Requested - Can be Electronic But Special Rules Apply - Certified Mail - Not Required and Not Good - Will Not Sign  Permissible (But Not Recommended) Hand Delivery - But What About Spouse  Notice Must be Customized - (1) That Plan Will Charge for COBRA Coverage (2) Name, Address and Telephone # of Plan Administrator (3) Plan’s Procedure for Notifying Plan  Failure to Identify Plan Procedures for Notification Means Oral Notice is Sufficient - This is a Loser for the Plan  Can Require Them to Use Form if (1) Form is Free and (2) Easy to Get

18. Employer Notice Obligations If Qualifying Event is –  Employee’s Change in Employment Status  Employee’s Death  Employee’s Entitlement to Medicare Then 30 Days to Notify Plan Administrator

19. Employee Notice Obligations  Employee and/or Qualified Beneficiary Notice Obligation If Qualifying Event is -  Divorce of Legal Separation  Loss of Dependency Status  Then Employee and/or Qualified Beneficiary Has 60 Days Notify Plan Administrator  It is Critical That General Notice Be Provided (1) To Tell People of Their Notification Obligations and (2) To List How They Must Comply With Notice Obligations

20. Employee Notice Obligations (cont.)  If General Notice is Given and Employee and/or Qualified Beneficiary Fail to Timely Notify Plan Administrator of Event Within 60 Days Then They Lose COBRA Rights!  On Other Hand, No General Notice, Then Employee and/or Qualified Beneficiary Not Required to Give Notice to Plan Administrator and They are Entitled to COBRA – Employer Will Get Stuck – Could Bankrupt the Company!!!!!

21. Plan Administrator Notice Obligations  Election Notice - 14 Days After Notice of Qualifying Event - If Plan Administrator and Employer Are Same Then Have 44 Days to Supply Election Notice of Certain Qualifying Events  New Notice - Notice of Unavailability of COBRA - Due Within 14 Days of Request for COBRA - Tells Person Not Entitled to Elect COBRA

22. Election Notice – DOL has Sample Notice  Notice Has to Be Customized  One Notice to All Qualified Beneficiaries at Same Address  The Notice Must Either List Each Person by Name or By Status (i.e. Employee, Spouse and/or Dependent Child)  By First Class Mail or Second or Third Class Mail if Return/Forwarding Postage is Guaranteed and Address Correction is Requested - Can be Electronic But Special Rules Apply - Certified Mail - Not Required and Not Good - Will Not Sign - May Want to Use Proof of Mailing

23. Election Notice – DOL has Sample Notice (cont.)  Each Person has Independent Right to Elect COBRA  Have Sixty Days to Elect COBRA Coverage  Failure to Identify Plan Procedures for Notification Means Oral Notice is Sufficient - This is Loser for Plan  Can Require Them to Use Form if (1) Form is Free and (2) Easy to Get

24. Waivers & Alternative Coverage  Can Have Waivers - But Bad Idea  Must Have Right to Revoke  Alterative Coverage But Must Be Structured Properly  Must Make Sure No New COBRA Rights at End of Alternative Coverage  Also HIPAA - Special Enrollment Concerns

25. Qualified Beneficiary’s COBRA Election  Employee Can Elect for Family  Spouse Can Elect for Children  Each Qualified Beneficiary has Independent Right to Elect COBRA  One Spouse CAN NOT Decline Coverage for Other Spouse  60 Day Election Period - Date Sent vs Date Received  Do Not Want to Take Hard Line Approach BUT Be Careful About Carrier Issues

26. Qualified Beneficiary’s COBRA Election (cont.)  No Required Format of Notice BUT Can (and Should) Require Notice be Given in Writing  Coverage During Election Period - Two Options  Cancel Coverage and Retroactive Reinstatement (Better Option)  Have Coverage and Retroactive Termination  Employer Has to Accurately Respond to Provider Questions During This Period

27. Other Notices  Conversion Notice - If Plan has Conversion Option Must Tell Qualified Beneficiary Six Months Prior to COBRA Projected Termination Date  Early Termination Notice - NEW Notice Requirement! If COBRA Terminates Early for Any Reason Plan Administrator Must Provide Written Notice  Notice Must Explain Reason for Early Termination, Date Coverage Terminated and Any Conversion Options Available

28. COBRA Premiums  Can Charge 102% of "Applicable Premiums"  Can Charge 150% of "Applicable Premiums" for 11 Month Disability Extension  Can Require Family Rate vs Two Single Rates  Anyone Can Pay COBRA Premiums (New Employer, Family Member)  Applicable Premiums  Insured Plan - Premiums  Self Funded - Two Options  Actuarial Estimates  Last Year's Costs to Plan + Inflationary Factor

29. COBRA Premiums (cont.)  Premiums Stay Fixed for Twelve Months - Few Exceptions  Increase to 150% Due to Disability  Qualified Beneficiary Elects Different Coverage  Carrier Mid-Year Increase IS NOT Reason to Change "Applicable Premiums  Change Carrier Mid-Year NOT CLEAR But Probably Could  Big Issue if Wrong "Applicable Premiums" - Lawsuit is Those Who Declined Coverage

30. Payment Deadlines  45 Days to Pay for Initial COBRA Period  Payments Due Monthly With Grace Period  Longer of 30 Days or Employer's Grace Period  Shortfalls  Insignificant = Lesser of $ 50 or 10%  Two Options - (1) Ignore Shortfall or (2) Notify Person and Give 30 Days to Make it Up

31. Other Payment Issues  Bounced Check - Is Non-Payment  Big Issues Taking Late Payments  No Need to Send Out Reminders of Coupons  Maximum “LIMBO” Period = 30 Days Employer Notify Plan Administrator + 14 For Plan Administrator to Send COBRA Election + 60 Days to Elect + 45 Days to Pay Total 149 DAYS!

32. COBRA Penalties  Never Happy Time  Up To $ 110 Per Day Penalty for Failing to Provide General Notice & Election Notice  Sue to Have Claims Paid - Amounts Can Be Huge  Qualified Beneficiary Sues  Providers Sue on Behalf of Qualified Beneficiary  Have Your Worked in Last 18 Months?  Lawsuit for Breach of Fiduciary Duty  Can Offset Premiums Owed - Small Consolation

33. Take Care of This by January 1, 2005!  Review and Update COBRA Forms and Procedures  If You Use a TPA for COBRA Administration, Review Agreement with TPA  Review SPD  For DOL Sample Forms (Note: Forms Have to be Customized)  http://www.dol.gov/ebsa/modelelectionnotice.doc http://www.dol.gov/ebsa/modelelectionnotice.doc  http://www.dol.gov/ebsa/modelgeneralnotice.doc http://www.dol.gov/ebsa/modelgeneralnotice.doc

34. COBRA Thank You!