TravisResearch Report - New IRS Regulations Change COBRA Eligibility for "Medicare Dependents"

The Internal Revenue Service issued Revenue Ruling 2004-22 last week, and changed the way employers and COBRA administrators have to think about the treatment of dependents that are already covered by COBRA continuation when a former employee becomes eligible for Medicare. In short, secondary (or multiple) events extending COBRA coverage past the original 18-month period for family members when the PQB becomes entitled to Medicare are no longer required. It's generally good news for employers, but with a twist!

This TravisResearch Report discusses the Ruling briefly, but as we try to do with our Research reports, it discusses what Travis is doing to the TravisCobra system in the near term to help system users meet the new requirements of the Ruling.

The Revenue Ruling serves to remind the benefit community that in order for there to have been a COBRA qualifying event, there must be (1) an event stipulated in the COBRA law, as amended, and (2) a loss of coverage. Based in part on the Medicare Secondary Payer (MSP) provisions of the Social Security Act, which require that group health plans cannot generally use Medicare entitlement for active employees to cause them to lose coverage, the Ruling holds that:

"The Medicare entitlement of a covered employee is not a second qualifying event for a qualified beneficiary unless the Medicare entitlement would have resulted (if COBRA continuation coverage, including COBRA continuation coverage due to the first qualifying event, is disregarded) in a loss of coverage for the qualifying beneficiary under the group health plan that is providing the COBRA continuation coverage."

No loss of coverage - no Secondary Event! The Ruling covers situations when an older employee terminates and the former employee as well as the spouse opts for COBRA. At some point during the 18-month continuation coverage period the employee becomes eligible for Medicare. In the past, a good-faith interpretation of COBRA would have caused the spouse to be offered a total of 36 months because a "second qualifying event" had occurred (the former employee becoming eligible/entitled to Medicare). And that's how TravisCobra has been programmed for the past 17 years.

However, the new IRS Ruling says that the spouse has no right to an additional 18 months of COBRA, bringing his/her total to 36 months, because of the former employee's Medicare entitlement. There was no second qualifying event because there was no loss of spousal coverage due to the former employee's becoming eligible/entitled to Medicare.

What Travis is Doing:
As you may remember from previous emails, TravisCobra Release 7.1 (the Release that includes, among other things, the ability to take any of the system reports to an Excel spreadsheet) is scheduled to be released to all system users subscribing to the Support and Update Plan in March, 2004. That release, which is in final test now, will include a modification that will meet these new requirements.

The modification will not cause the release to be delayed. We still plan to have the new release available to users during March. The system will continue to include the "Termination/Retirement/Medicare" qualifying event, because it appears that employers may continue to offer a 36-month period of continuation when that event code is used as a "primary event." However, when the event code is used as a "secondary event" in Release 7.1, the system will only print letters offering the dependent(s) the remaining of the 18-month period originally offered to the PQB and Family Member(s). Also, the programming will include a check to make sure that the second qualifying event is not occurring more than 18 months after the original (primary) event, and will display an error message if it is.

You may be asking, "Why continue to make this particular qualifying event available as a Secondary Event?" The reason for that is (a) we need to move the dependent from Family Member to PQB within the system, and (b) it more accurately reflects what actually happened with respect to the COBRA history of that Family Member, and the original PQB.

Things to Consider - The "twist" involved with this Ruling:
One of the problems with this Ruling, other than it has to be followed immediately, is that it contravenes a COBRA interpretation and administration method that has been generally accepted since 1986. Fortunately, the number of dependents who may have already been offered a total of 36 months of continuation because of secondary Medicare entitlement by a former employee is generally very small. However, if those dependents have, in fact, been offered the coverage, then a decision may need to be made by employers and administrators, on a case-by-case basis, about whether to continue the coverage until the end of the previously-offered period.

TravisCobra can be used successfully to model whatever decision administrators make about this situation. As an example, the current Event Code "9" ("Loss of Coverage") can be used to offer continuation coverage for any user-defined period, and may be the appropriate code to use if a change in coverage expiration date needs to be made for a PQB.

You are welcome to contact any member of Travis' Customer Support Group if you would like additional information about the way to employ Event Code 9 to help in the transition of current PQBs to a different continuation period, or for any other help you may need with the system.

COBRA keeps changing, seemingly at a faster pace than ever. If it's not the IRS publishing regulations, it's the Congress amending the law, the various States passing their own continuation laws, or the Courts issuing rulings that change the way COBRA administrators must act. Just this week, for example, the United States Supreme Court decided not to review a portion of the 1998 Geissel decision that introduced the concept of QBs being able to enroll in COBRA if they had previously become entitled to Medicare. But other challenges can be expected, and we will keep you informed of them and modify TravisCobra accordingly.

This may not be the last we hear about the issue of "Medicare Dependents" in COBRA, and we will keep you informed if there are further developments with respect to this subject area and/or further modifications that need to be made to the system.