When and how the federally-facilitated Marketplace Exchange created under the Affordable Care Act ("ACA") at www.healthcare.gov can be an alternative to COBRA continuation coverage is a complicated subject that employers need to understand.  While the Department of Labor has issued new model COBRA notices referring to coverage available from the Exchange (see our May 7, 2014 Comp and Benefits Brief), that is just the beginning of the story. Here are some of the details.

July 1, 2014 Deadline – Special Enrollment Period

Fearing confusion over COBRA forms and enrollment periods for Exchange coverage, CMS issued rules providing a special enrollment period for individuals eligible for COBRA (employees and their qualified beneficiaries) to enroll in coverage through the federal Exchange from May 2, 2014 until July 1, 2014.  Access to this right to enroll is afforded by calling the Exchange at 1-800-318-2596.  Even individuals currently enrolled in COBRA can decide to drop COBRA and elect coverage under a federal Exchange by this deadline.  After that, dropping COBRA coverage gives no right to enroll in Exchange coverage until the next open enrollment period, November 15, 2014 – February 15, 2015.

An important fact – this special enrollment by July 1, 2014 is only for the federal Exchange.  State-based exchanges are encouraged to follow suit, but are not required to do so. Thus, this special enrollment period is dependent on the individual's state and the type of  Exchange used by that state.

A Gap in Coverage is Possible

When an individual is eligible for COBRA coverage, the election period is measured from the later of the date the COBRA election notice is provided or the date regular coverage ends.  If the individual elects COBRA coverage during the election period, the coverage is effective from the date immediately after the regular coverage ended.  There is no gap when the individual is not covered if COBRA coverage is timely elected.

At the same time, there is a special enrollment period for coverage under the Exchange for 60 days from the date of the qualifying event, such as termination of employment.   In contrast to COBRA, coverage elected through the Exchange is effective prospectively only.  Also, the 60-day election periods may not be the same 60 days.  If the individual waits, perhaps taking time to evaluate the different coverages and costs, there can be a gap in coverage if Exchange coverage is elected.  Failing to note deadlines could risk loss of any coverage.

Describing this possible gap is not required in the revised model COBRA notice. 

Closing the Gap is a One-Way Street

Assume a COBRA eligible individual decides that coverage through the federal Exchange is less expensive than COBRA coverage and desires to enroll in Exchange coverage. Such Exchange coverage is effective as of the first of the month following enrollment. In some cases, that could be two months after the COBRA qualifying event. If the individual elects COBRA during the COBRA election period, the COBRA coverage will be effective from the date the original coverage ended. However, note that, with the exception of the special 2014 period described above, the individual cannot drop the elected COBRA coverage after two months and pick up Exchange coverage. Once having elected COBRA, the individual is not eligible to elect Exchange coverage until the next open enrollment period for the Exchange that starts in November (with January 1 coverage date).

To avoid a gap, the individual may want to consider electing COBRA and then dropping the COBRA coverage when Exchange coverage can begin the next following January 1 or later.  To elect Exchange coverage after a qualifying event rather than COBRA coverage most likely will create a gap in coverage and the individual will also lose any eligibility to elect COBRA once Exchange coverage is chosen.

Communication – the Employer Challenge

There are no rules that require employers to explain the possible COBRA/Exchange coverage gap or differences in election periods and deadlines.  Employers are left to decide whether to disseminate this information and, if so, how and when.  While trying to avoid providing advice to employees, there are ways to present information and links that assist employees in accessing the needed information.