Review of plan options

Provide open enrollment materials to each COBRA-qualified beneficiary and include the following information:

• The open enrollment period (including the deadline to submit requested changes)
• Plan information (medical, dental, and vision, as applicable)
• Rates for the upcoming plan year
• Steps the qualified beneficiary will need to take to renew/change coverage (such as completing and returning an attached open enrollment form)
• Contact information

Option to change plans

During an open enrollment, you must give qualified beneficiaries the same option to switch from one medical plan to another as you would a similarly situated active employee. In addition, COBRA-qualified beneficiaries must also have the option to elect plans of different types if similarly situated active employees are allowed. For example, if you offer medical and dental coverage under two separate health plans and a COBRA-qualified beneficiary initially elected medical only for COBRA coverage, that person must be given the opportunity to add dental coverage during the plan’s open enrollment.

Option to add dependents

During an open enrollment, you must also give COBRA-qualified beneficiaries the option to add dependents to their plan(s). If, for example, a COBRA-qualified beneficiary elected and paid for individual-only COBRA coverage at the time of the qualifying event, the person must be allowed to add family members to the COBRA coverage under the plan during any open enrollment period, to the extent that a similarly situated active employee can do so.

Don't forget about coupons!

Once the open enrollment period has ended and all updates have been made, it’s important to send new premium payment coupons with the new monthly rates to your COBRA participants. If you are using UPMC Benefit Management Services as your COBRA administrator, this is a standard step of our open enrollment service.

We hope these tips help as you approach your open enrollment period. We know that open enrollment is a busy time of year. Processing is time-consuming and requires a lot of effort and diligence, considering all that needs to be done: updating rates, creating and mailing materials, receiving and tracking open enrollment forms, and answering questions. We’re happy to help alleviate some of this burden for you by handling your COBRA open enrollment process for you. If you have any questions, you can contact your dedicated COBRA analyst at any time.

HSA Investments

Did you know that UPMC Consumer Advantage health savings accounts (HSAs) gain interest?

Cash account balances are initially invested in an FDIC-insured interest-bearing account with HealthcareBank, a division of Bell Bank, as custodian for members’ health savings accounts.

Once a member’s cash balance reaches $1,000, they can define a threshold for their balance to be swept into an investment account to invest their HSA funds.

Members can invest their HSA on the UPMC Consumer Advantage member website. First, the member clicks Manage Investments, then Setup Investment Transfers. A message will populate where the member can define a sweep amount. The sweep amount is the maximum amount that will be kept in the available cash account. Any funds that exceed the sweep amount are swept into the investment account in two business days.

Once the funds have moved to the investment account, the member can access the investment portal by clicking Manage Investments and choosing investment options.

When a member’s cash balance is below their threshold, investments are proportionally sold to be swept back to replenish the cash account back to the threshold.

Mutual funds are not FDIC insured, have no bank guarantee, and may lose value.

The above information is for informational purposes only and is not legal or tax advice. UPMC Health Plan and UPMC Benefit Management Services do not provide legal or tax advice. For legal or tax advice, please contact your attorney or tax adviser.

What are some common COBRA mistakes made by employers?

According to the IRS some of the most common COBRA administration mistakes are failing to:

• Give a general notice to new employees.
• Recognize a qualifying event.
• Give an election notice to qualifying beneficiaries.
• Word COBRA notices in accordance with DOL regulations.
• Offer open enrollment.
• Document when notices were sent.

What are the penalties?

A violation is anything that can cause a company to fall out of compliance with COBRA regulations. According to the government regulations, plans that violate COBRA's provisions may be subject to the following penalties:

• IRS Penalty: a non-deductible excise tax of $100 per day, per violation ($200 if more than one family member is affected), for each day of non-compliance.
• ERISA Penalty: a statutory penalty of up to $110 per day, per violation, for each day of non-compliance.
• Payment of claims incurred during non-compliance period.
• Word COBRA notices in accordance with DOL regulations.
• Civil lawsuits.
• Attorney fees.

COBRA mistakes are costly. Penalties and legal fees can be significant. With proper COBRA administration practices in place, these types of mistakes can be avoided. UPMC Benefit Management Services may help alleviate these issues by providing you with worry-free, cost-effective COBRA administration.

For more information regarding COBRA regulations and non-compliance, read here.

The above information is for informational purposes only and is not legal or tax advice. UPMC Health Plan and UPMC Benefit Management Services do not provide legal or tax advice. For legal or tax advice, please contact your attorney or tax adviser.

Multiple Spending Accounts and Debit Cards

One of the benefits of UPMC Consumer Advantage is the ability to have access to multiple accounts on one debit card. When the debit card is used, funds are withdrawn from the appropriate account depending on the type of expense that was incurred.

For example, a member can have both a healthcare flexible spending account and a commuter parking account with UPMC Consumer Advantage. If the member uses the debit card at a doctor’s office, the card will automatically withdraw funds from the member’s healthcare flexible spending account to pay the doctor. If the member used the same card at a parking garage they use for work, the card would withdraw funds from their commuter parking account.

When enrolling with UPMC Consumer Advantage, at the employer’s request, the following accounts can be linked with the UPMC Consumer Advantage debit card: healthcare flexible spending, health savings, health reimbursement, health incentive, dependent care, commuter parking, and transit accounts.

Employers can also decide on the funding order of the accounts when debit card transactions occur. When considering the funding order for healthcare expenses, usually employee funded healthcare flexible spending accounts apply first and employer funded health reimbursement and health incentive accounts follow.

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A commuter highway vehicle is any highway vehicle that seats at least six adults (not including the driver). In addition, you must reasonably expect that at least 80 percent of the vehicle mileage will be for transporting employees between their homes and workplace, with employees occupying at least half the vehicle's seats (not including the driver's).

A transit pass is any pass, token, farecard, voucher, or similar item entitling a person to ride, free of charge or at a reduced rate, on mass transit or in a vehicle that seats at least six adults (not including the driver) if a person in the business of transporting persons for pay or hire operates it.

Qualified parking is parking you provide to your employees on or near your business premises. It includes parking on or near the location from which your employees commute to work using mass transit, commuter highway vehicles, or carpools. It doesn't include parking at or near your employee's home.

How does this benefit my employees?

You can generally exclude the value of transportation benefits that you provide to an employee during 2017 from the employee's wages up to the following limits:

• Transit Accounts: $255 per month for combined commuter highway vehicle transportation and transit passes.
• Parking Accounts: $255 per month for qualified parking.

If you are interested in more information about enrolling in a qualified transportation account, your account manager or broker are available to assist.

COBRA Notice, Election, and Premium Payment Timelines

A critical part of COBRA administration is adhering to the federally regulated timelines. From the issuing of the required notices to the collection of premium payments, there are several federally regulated timelines that must be met to maintain COBRA compliance. These notice, election, and premium payment timelines, detailed in the U.S. Department of Labor’s Employer’s Guide to Health Benefits under COBRA, have been summarized below for your convenience:

Notice timelines

1. COBRA general notice
   COBRA requires employers to provide each employee and each spouse who becomes covered under the group plan a general notice describing COBRA rights. This notice explains COBRA and the steps necessary for notifying the plan administrator of a qualifying event. The general notice must be provided within the first 90 days of coverage.
2. COBRA qualifying event notices
   Before continuation coverage can be offered, a qualifying event must occur, and notification of the event must be provided within the COBRA-regulated time frame.
   
   You, as the employer, are responsible for providing notification of all qualifying events to UPMC Benefit Management Services (as your acting COBRA administrator) within 30 days of the event. These events include:
   • Termination or reduction in hours of employment of the covered employee.
   • Death of the covered employee.
   • A covered employee becoming entitled to Medicare.
   • Bankruptcy of a private-sector employer.
   • Military leave.
   • Divorce/Legal separation.^*
   • A child’s loss of dependent status under the plan.^*
   *For qualifying events of divorce/legal separation and loss of dependent child status, it is the employee’s responsibility to provide notice to the employer of the event within 60 days, counted from the later of (1) the date on which the qualifying event occurs or (2) the date in which the employee loses coverage under the plan as a result of the qualifying event.
3. COBRA election notice
   Once we receive your notice of a qualifying event, we are then responsible for providing the COBRA Election Notice to the qualified beneficiaries. This letter explains COBRA, presents the plan(s) being offered, and indicates the associated monthly premium(s) and the election/enrollment procedures. We are required to provide this notice to the qualified beneficiaries within 14 days after receiving your notice of a qualifying event.
4. COBRA Notice of Unavailability of Continuation Coverage
   On occasion, you the employer may have the right to deny a request for continuation coverage. For example, if a spouse contacts you 90 days after his or her divorce with a request to continue coverage, you have the right to deny this request, because the person did not meet the 60-day deadline established by COBRA regulations for providing notification. In such a case, the Department of Labor (DOL) requires the plan administrator to provide a notice stating that the request for continuation coverage was denied and the reason for the denial. This notice must be provided within 14 days after the request is received by the employer.
5. COBRA Notice of Early Termination of Continuation Coverage
   Continuation coverage must generally be made available for a maximum period (18, 29, or 36 months); however, the group health plan may terminate continuation coverage earlier for any of the following reasons:
   • Premiums are not paid in full on a timely basis.
   • The employer ceases to maintain any group health plan.
   • A qualified beneficiary begins coverage under another group health plan after electing continuation coverage.
   • A qualified beneficiary becomes entitled to Medicare after electing continuation coverage.
   • A qualified beneficiary engages in conduct that would justify the plan in terminating coverage of a similarly situated participant or beneficiary not receiving continuation coverage (such as fraud).
   If coverage continuation is terminated early, a notice of early termination must be provided to the qualified beneficiary as soon as practical after the decision to terminate is made. This notice must describe the date coverage will terminate, the reason for termination, and any rights the qualified beneficiary may have under the plan or applicable law to elect alternative coverage.

Election Timelines

When a qualified beneficiary is offered COBRA, he must be given an election period of at least 60 days to choose whether to elect continuation coverage. This 60-day period starts from the later of (1) the date the qualified beneficiary (QB) is issued the election notice or (2) the date that the QB would lose coverage. If the QB waives continuation coverage during the election period, he must be permitted to revoke his waiver of coverage and to elect continuation coverage as long as the QB does so within the initial 60-day election period.

Premium Payment Timelines

When a qualified beneficiary elects continuation coverage, he or she cannot be required to send in any payment with his or her election form. He or she can, however, be required to make an initial premium payment within 45 days after the date of the COBRA election (which is the date the election form was mailed or elections were submitted electronically via the online member portal).

For successive periods of coverage, the premium due date is the first of the month of coverage (for example, October premium will have a due date of October 1). However, COBRA requires the plan give QBs a 30-day grace period for payment of any premium.

If the amount of a payment made is incorrect but is not significantly less than the amount due, the plan is required to notify the QB of the deficiency and grant a reasonable period (30 days) to pay the difference.

Failure to make payment in full before the end of a grace period can cause a QB to lose all COBRA rights.

Every aspect of our COBRA administration is designed with compliance in mind. Our materials, systems, and staff work diligently to make sure you and your customers are compliant with every provision of COBRA law. You may contact your dedicated analyst at any time with any questions.

The above information is for informational purposes only and is not legal or tax advice. UPMC Health Plan and UPMC Benefit Management Services do not provide legal or tax advice. For legal or tax advice, please contact your attorney or tax adviser.

1. Past cost method

The past cost method looks at the total cost of the HRA based on past utilization rates. For example, let’s say that employees have a $1,200 HRA plan ($100 employer contribution per month), but over the plan’s lifetime only 50 percent of the total benefits have been claimed and paid. You calculate the annual COBRA rate as follows:

$1,200 x 50% = $600
(Annual HRA Amount X Utilization Rate = Annual Rate)

In this example, the monthly premium for the HRA benefit would be $50 ($600/12). You (or your third-party administrator [TPA]) may also add 2 percent to the premium for COBRA administration fees, in which case the monthly rate would be $51.

2. Actuarial determination method

If you don’t have past utilization of an HRA, you can’t use the past cost method. So for a new HRA you use the actuarial determination method. For it you can engage a licensed actuary to use their data and resources to make a reasonable estimate of the cost of providing HRA coverage and then use a formula to figure the monthly premium. For example, let’s say you estimate that, on average, employees who participate in the HRA will spend 50 percent of the available HRA dollars. You provide an annual $1,000 HRA contribution. Here’s how you calculate your premium:

Final Tips:

• You must calculate the HRA COBRA premiums each year, before the 12-month determination period (usually at the beginning of the plan year for the HRA or when rates change for the underlying insured plan).
• You cannot charge different HRA COBRA premiums to different beneficiaries. The premium must be the same for everyone, except for differences in reimbursement maximums (e.g., single vs. family coverage)
• Which method you choose to calculate COBRA rates for an HRA is up to you; your COBRA administrator cannot establish this rate for you.

Flexible Spending Accounts – Why Substantiate

Here’s a common scenario we hear with flexible spending accounts:

“Why do I need to provide receipts to show what I paid for? I used my debit card at a UPMC facility. Why do I need to prove that I am using my flexible spending account funds for eligible items?”

While it may seem cumbersome to substantiate transactions, the real benefit is helping members comply with IRS regulations.

The IRS defines qualified medical care expenses within IRS Section 213(d) as amounts paid for the diagnosis, cure, mitigation, or treatment of a disease, and for treatments affecting any part or function of the body. That’s why expenses require substantiation of the services rendered or the products purchased.

UPMC Benefit Management Services, as an administrator, works to maintain records to prevent discrepancies if a member were to be audited. If the member is also a UPMC Health Plan member, UPMC Benefit Management Services’ system attempts to automatically substantiate claims up to 90 days before an audit. Our team can also locate expenses that match a member’s medical claim if the claim does not automatically substantiate.

If our systems cannot locate an expense, we send a receipt request to the member. As always, if a member needs assistance with acquiring requested documentation, our Member Services team is available to help via the phone number located on the back of the member’s debit card.

The above information is for informational purposes only and is not legal or tax advice. UPMC Health Plan and UPMC Benefit Management Services do not provide legal or tax advice. For legal or tax advice, please contact your attorney or tax adviser.

Health care FSA qualifies for COBRA

A health care FSA is considered a group health plan; therefore, it is subject to COBRA. Employers that are subject to COBRA are required to offer COBRA continuation rights to qualified beneficiaries who lose their health care FSA coverage because of a qualifying event. All general COBRA rules apply to a health care FSA in the same way they apply to coverage under other group health plans.

Important exception

Employers are required to offer COBRA only if the health care FSA has a positive balance. In other words, the qualified beneficiary has contributed more than he or she has received in reimbursements. If the FSA is overspent as of the date of the qualifying event, then COBRA does not need to be offered.

Determining if COBRA must be offered:

To determine COBRA eligibility, the FSA plan administrator looks at the following:

1. The qualified beneficiary’s elected health care FSA annual amount
2. The qualified beneficiary’s rollover amount
3. The qualified beneficiary’s year-to-date (YTD) contributions
4. The total amount of reimbursable claims submitted as of the date of the qualifying event

Using this information, the plan administrator must determine two things:

1. Remaining maximum benefit: What is the maximum health care FSA benefit that the beneficiary is entitled to receive for the remainder of the plan year?
   • This is the remaining balance in the qualified beneficiary’s account as of the day before the qualifying COBRA event, including rollover amounts.
   • (Annual Election + Rollover Amount) – Total Reimbursements
2. COBRA premium cost: What is the cost of the premium needed to pay for COBRA continuation?
   • The maximum amount required to be paid for COBRA does not include the unused amount rolled over from prior years. This rollover amount is not part of the qualified beneficiary’s salary reduction for the current year. The applicable COBRA premium is based solely on the sum of the beneficiary’s salary reduction election for the current year, plus the allowed 2 percent administration fee.
   • [(Annual Election – YTD Contributions)/remaining months in plan year] X 1.02

If the remaining maximum benefit is less than the total COBRA premium that can be charged for the rest of the year, then the account is overspent, and the employer is not obligated to offer COBRA coverage for that FSA.

Let’s look at an example:

• Employee elects $2,500 for the current plan year and has $500 rolled over from the previous plan year.
• Employee has been reimbursed $1,000 and contributed $1,250 as of the day prior to her termination of employment on July 1.
  • The remaining maximum benefit that she is entitled to is $2,000 [($2,500 + $500) - $1,000]
  • The COBRA premium cost is $212.50 per month for the remaining six months of the plan year {[($2,500-$1,250)/6] X 1.02}. This equates to a total cost of $1,275 ($212.50 X 6).

COBRA continuation into the new plan year

Employers are not required to allow COBRA qualified beneficiaries to elect additional amounts for their health care FSA at the beginning of a new plan year or to access to any employer contributions following the plan year of COBRA eligibility. However, any funds remaining in an active COBRA beneficiary’s FSA at the end of the current plan year (up to $500) are rolled over to the new plan year. The applicable premium for rollover funds for the new plan year is zero. The rollover is also limited to the applicable COBRA continuation period (generally 18 months).

Let’s look at another example:

During the health care FSA plan year, an employee experiences a qualifying event as of June 1, 2017. He elects health care FSA COBRA continuation and pays the required premiums for the remainder of the current plan year. At the end of the plan year, $500 of unused benefits remain.

The beneficiary can continue to submit expenses under the same terms as similarly situated non-COBRA beneficiaries in the next plan year, up to $500. The premium for the rollover during the new plan year is zero; however, the available coverage period is 18 months and terminates at the end of November 2018. COBRA coverage ends, and the health care FSA need not reimburse any expenses incurred after that date.

This summarizes our review of how COBRA applies to health care FSAs. We hope you find this month’s article helpful and you and your employees continue to find our UPMC COBRA administration services to be beneficial and easy to use. As always, please feel free to contact our department with any questions or concerns.

Dependent care flexible spending accounts

With the summer upon us, our staff believes it important to review some of the basics of dependent care flexible spending account (DCFSA) administration as well as some of the frequently asked questions we receive from members regarding their DCFSA accounts:

What is a DCFSA?

A DCFSA is a pretax benefit account used to pay for dependent care services, such as preschool, summer day camp, before or after school programs, and child or elder care.

How does a DCFSA work?

Deductions are taken from members’ paychecks and put into their DCFSA accounts, which are administered by UPMC Benefit Management Services. Members pay for their dependent care expenses out of pocket, then submit a claim for reimbursement.

Why enroll in a DCFSA?

A DCFSA allows members to pay for qualified out-of-pocket dependent care expenses on a pretax basis. The money that members contribute to their DCFSA is not subject to payroll taxes, so members end up paying less in taxes and taking home more of their paycheck.