COVID-19 and Employer Health Plans: How to handle COBRA
COVID-19 and Employer Health Plans: How to Handle COBRA
As we continue to deal with our new COVID-19 reality, employers need to consider how employee lay-offs and terminations affect health plan eligibility.
We previously addressed what employers needed to do immediately. This article addresses the other important question for employers: How do COVID-19-related lay-offs or terminations implicate COBRA continuation coverage?
The first consideration is when coverage ends under your health plan. For most plans, the plan provides eligibility to participate for employees who work full-time, though some cover part-time employees as well. Regardless of the plan's eligibility hours threshold, the default position is that active coverage will terminate for employees not working sufficient hours to meet the plan's requirement.
For employers who employ 20 or more employees, COBRA continuation coverage must be considered. Unless an exception applies, all losses of health plan coverage caused by termination of employment or reduction of hours are COBRA qualifying events.
A termination of employment will always be a qualifying event. A reduction in hours may be as well, unless one of these exceptions applies:
a) Leave is a protected leave under FMLA (or similar state law);
b) An "applicable large employer" ("ALE") subject to the ACA employer mandate is using the look-back measurement method to determine full-time status;
c) The employer has a leave policy that continues active coverage; or
d) The employee receives lay-off pay or leave of absence pay that employers count as hours of service for ALEs.
Employers may also avoid a COBRA qualifying event if it offers to continue eligibility under the plan for a period of time after the event that otherwise would cause a loss of coverage. Employers with fully-insured plans may discriminate as between highly compensated employees and non-highly compensated employees as far as offering this continued coverage benefit. The ACA put an end to this practice for fully-insured plans in 2011, but it won't become effective until after the IRS/DOL/HHS issue implementing regulations. Self-insured plans, however, may not discriminate in this way.
The risk for employers that choose to extend plan eligibility is that the beginning of the COBRA continuation coverage period is extended until the employee's post-termination eligibility period ends. Employers can avoid this result by merely offering to pay for all or part of the cost of COBRA continuation coverage for a period of time without delaying the date of the qualifying event.
If an employer has caused any of its employees to lose coverage due to COVID-related lay-offs, furloughs, or terminations (and no exception applies), then it must take timely steps to provide any affected employees with COBRA election notices. Failure to do so will extend the COBRA election period indefinitely, which can lead to catastrophic medical expense liability for the employer.
Even if the employer has a fully-insured plan, the insurer is not likely to cover medical expenses that could have been avoided with a timely COBRA notice. If there is any question about whether or when a COBRA qualifying event has occurred, it is imperative that the employer confirm with its insurer (or reinsurer in the event of a self-funded plan), when coverage ends under the circumstances.
Douglas Dormire Powers
* Partner in the law firm of Beckman Lawson, LLP, in Fort Wayne, Indiana
* 30+ years of private practice experience following three successive federal judicial clerkships. Since 1995, he has focused his practice on employee benefits compliance and litigation
* Counsels clients on a variety of benefits compliance issues, including fee-for-service plan design consulting, Affordable Care Act compliance, EPCRS applications, Voluntary Fiduciary Compliance Program applications, HIPAA Privacy Rule compliance, COBRA compliance, and QDRO compliance
* Prosecutes and defends a wide range of benefits-related cases in state and federal court, including breach of fiduciary duty claims, claims for benefits, collectively bargained benefits, and reinsurance coverage issues for self-funded health plans
* Past president of the Great Lakes Employee Plans/Exempt Organizations Council, one of five regional councils that regularly consult with the IRS and DOL on regulatory issues and developments
* Frequent speaker and author on a wide range of benefits issues
Douglas Dormire Powers
Beckman Lawson, LLP
201 West Wayne Street
Fort Wayne, IN 46802