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A Service of OnQue Technologies, Inc. |
| Understanding When COBRA Should Not Be
Offered |
April 6, 2005
By Bud Martin, CEO
OnQue Technologies, Inc.
Santa Rosa,
CA |
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Offering
COBRA continuation coverage to people who are not legally entitled to it can be
a very costly mistake. If COBRA is elected, backing out of the problem can be
extremely difficult, particularly when claims for medical services are
involved. And it happens.
For self-funded plans, such administrative errors
often place a very costly burden on the employer—the medical expenses
typically dwarf the premium dollars collected from the erroneously covered
individuals. For fully-insured plans, the employer may be forced to bear the
crippling burden of paying all the medical expenses incurred by people who
accepted the company's generous offer, but were declined by the insurer because
they do not qualify for continuation under COBRA.
Conditions that Trigger an
Offer of COBRA
The requirement to offer COBRA continuation
coverage is triggered by three conditions:
- The individual is eligible for
benefits and is covered on the health plan on the day before the COBRA
qualifying event.
- The qualifying event causes a
loss of coverage. A loss of coverage means the individual ceases to be covered
under the same terms and conditions as in effect immediately before the
qualifying event.
- The qualifying event is one of
the following:
- the death of the covered
employee;
- the termination, other than by
reason of gross misconduct, of a covered employee's
employment;
- a reduction of hours, including
employees on non-FMLA leave of absence who are still employees, but are not
actively working;
- the divorce of a covered
employee;
- the legal separation of a
covered employee (often not a qualifying event);
- a covered employee's entitlement
to Medicare benefits under Title XVIII of the Social Security Act (rarely a
qualifying event);
- a dependent child's ceasing to
be a dependent child of a covered employee according to the plan's eligibility
rules; or,
- a proceeding in bankruptcy under
Title 11 (affects covered retirees).
Examples of Why COBRA Cannot (or Should Not) be
Offered
Employer Changes Provider
Contracts
When an employer changes its insurance carrier or
HMO provider, and plan beneficiaries lose coverage as a result, a COBRA
qualifying event has not occurred. However, it is important to be aware that
when a change to a new insurer results in a loss of coverage to qualified
beneficiaries who are currently covered under COBRA, the employer is
responsible for continuing coverage for those individuals, regardless of the
carrier's refusal to offer coverage. Great care should be taken to ensure that
no COBRA beneficiaries will lose coverage when changing
carriers.
Employer Terminates Coverage for a Division or
Class of Employees
If the employer terminates coverage for a division
or class of employees, yet still maintains a plan for other employees, a
qualifying event has not occurred and COBRA should not be
offered.
Employer Terminates Plan or a Contract is
Terminated by Insurer
When an employer terminates a health plan or an
insurance carrier terminates a group contract for non-payment, a qualifying
event has not occurred.
Employee Voluntarily Elects to Drop
Coverage
A qualifying event does not occur when an employee
voluntarily drops coverage for himself or his dependents. However, if coverage
is dropped in anticipation of a qualifying event, such as divorce, and the
employer is notified within 60 days of the event date, then COBRA must be
offered to the spouse and dependent children.
Change in Employment Class
Results in Loss of Coverage
When a change in class of
employment, job title, or location results in a loss of eligibility for
benefits, COBRA will usually not be available to the employee. However, if a
class change also results in a reduction in hours and loss of coverage, COBRA
must be offered.
Employee Fails to Meet Performance
Goals
Some plans require employees to meet certain
performance goals in order to be eligible for health benefits. (This
eligibility requirement is most common in sales organizations.) A loss of
coverage due to an employee's failure to meet such goals is not a qualifying
event.
Administrator Not Notified Within 60 days of a
Qualifying Event
When an employee or dependent
fails to notify the plan administrator of a qualifying event, such as a
divorce, within the 60-day notification period, the employer need not offer
COBRA continuation coverage.
Legal Separation Not Included in Plan
Eligibility Rules
Legal separation is only considered a qualifying
event when the plan explicitly states that it causes a loss of coverage. While
most plans include divorce in the list of events that trigger ineligibility,
few include legal separation. If legal separation does not result in a loss of
coverage under the plan's rules, then it cannot be a qualifying
event.
Dependent or Employee Becomes Entitled to
Medicare
A dependent's Medicare entitlement is not a
qualifying event. According to the regulations, an employee's Medicare
entitlement is a COBRA qualifying event for the covered spouse and dependent
children. However, because of Medicare's Secondary Payer Rules, which generally
prohibit an employer's group health plan from taking Medicare entitlement into
account or terminating coverage because of Medicare, this situation will rarely
result in a qualifying event.
Employee Terminated for Gross
Misconduct
When an employee is terminated for gross
misconduct, the employee, covered spouse and dependent children are not
entitled to COBRA benefits. However, administrators must exercise extreme
caution when contemplating the denial of continuation coverage under such
circumstances. The COBRA statute does not define the term, and the federal
courts have not agreed on when it is proper to apply this exception to the
termination of employment rule. Plan administrators should seek the advice of
legal counsel before denying continuation coverage because of gross
misconduct.
Conclusion
Understanding when not to
offer COBRA continuation coverage is just as important as knowing when it must
be offered. Unfortunately, many employers think it is safer to offer COBRA to
everyone, which is just as dangerous—and expensive—as failing to
offer it to legitimate qualified beneficiaries.
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| Related COBRA Tips |
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The Gross Misconduct
Exception to the Termination Rule |
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This information is provided by
OnQue Technologies, Inc. for educational purposes only and does not constitute
legal advice. If legal advice or other professional assistance is required, the
services of a competent professional should be sought.
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| As seen in
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Copyright © 2005
OnQue Technologies, Inc. All Rights Reserved. |
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