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COBRA continuation of coverage eligibility


Guest BruceC

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Guest BruceC

Very basic question.

A terminated EE who was covered by the ER's group health plan is eligible for COBRA continuation coverage except when the EE is terminated for "Gross Misconduct".

What constitutes "Gross Misconduct"?

Example: A truck driver delivering a load of furniture to a large retail store puts his tailgate through the stores large plate glass window, is subsequently fired and from a subsequent blood test is found to have a blood alchohol above the legal intoxication limit of .10. Would this be considered "Gross Misconduct"?

How about termination for such offenses as sexual harrassment? Embezellment? Fighting?

Thanks

BruceM

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Gross misconduct has consistently been construed to involve more than negligence or incompetence or unsatisfactory performance.10 The term "gross misconduct" has generally been understood to include misconduct that is "intentional, wanton, willful, deliberate, reckless or in deliberate indifference to an employer's interest." See Bryant v Food Lion, 100 F.Supp.2d 346, 376 (D.S.C. 2000), aff'd, 2001 WL 434566, at *2 (4th Cir.2001);11Mlsna v. Unitel Communications, Inc., 91 F.3d 876, 881 (7th Cir.1996); Lloynd v. Hanover Foods Corp., 72 F.Supp.2d 469, 479 (D. Del., 1999); Burke v. Am. Stores Employee Benefit Plan, 818 F.Supp. 1131, 1135 (N.D.Ill.1993); Collins v. Aggreko, Inc., 884 F.Supp. 450, 454 (D. Utah, 1995); Paris v. F. Korbel & Bros., Inc., 751 F.Supp. 834, 838 (N.D. Cal., 1990).12 "It is misconduct beyond mere minor breaches of employee standards, but conduct that would be considered gross in nature." Id. See e. g. Nakisa v. Continental Airlines, 2001 WL 1250267, 2001 U.S. Dist. LEXIS 8952(S.D.Tex. May 9, 2001) (using a racial epithet and throwing an apple at a fellow employee); Zickafoose v UB Servs., Inc., 23 F.Supp.2d 652 (S.D.W.Va. 1998) (severely beating a fellow employee); Collins, 884 F.Supp. at 454 (driving a company vehicle while intoxicated); Burke v. American Stores Employee Benefit Plan, 818 F.Supp. 1131 (N.D.Ill. 1993) (criminal theft); Conery v. Bath Assoc., 803 F.Supp. 1388 (N.D.Ind. 1992) (embezzling company funds); Adkins v. United Int'l Investigative Servs., Inc., 1992 U.S. Dist. LEXIS 4719 (N.D.Cal. Mar. 27, 1992) (deserting security post and falsifying log to earn extra paycheck).

Boudreaux v. Rice Palace, Inc., 491 F.Supp.2d 625 (W.D. La., 2007)

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Guest BruceC
Gross misconduct has consistently been construed to involve more than negligence or incompetence or unsatisfactory performance.10 The term "gross misconduct" has generally been understood to include misconduct that is "intentional, wanton, willful, deliberate, reckless or in deliberate indifference to an employer's interest." See Bryant v Food Lion, 100 F.Supp.2d 346, 376 (D.S.C. 2000), aff'd, 2001 WL 434566, at *2 (4th Cir.2001);11Mlsna v. Unitel Communications, Inc., 91 F.3d 876, 881 (7th Cir.1996); Lloynd v. Hanover Foods Corp., 72 F.Supp.2d 469, 479 (D. Del., 1999); Burke v. Am. Stores Employee Benefit Plan, 818 F.Supp. 1131, 1135 (N.D.Ill.1993); Collins v. Aggreko, Inc., 884 F.Supp. 450, 454 (D. Utah, 1995); Paris v. F. Korbel & Bros., Inc., 751 F.Supp. 834, 838 (N.D. Cal., 1990).12 "It is misconduct beyond mere minor breaches of employee standards, but conduct that would be considered gross in nature." Id. See e. g. Nakisa v. Continental Airlines, 2001 WL 1250267, 2001 U.S. Dist. LEXIS 8952(S.D.Tex. May 9, 2001) (using a racial epithet and throwing an apple at a fellow employee); Zickafoose v UB Servs., Inc., 23 F.Supp.2d 652 (S.D.W.Va. 1998) (severely beating a fellow employee); Collins, 884 F.Supp. at 454 (driving a company vehicle while intoxicated); Burke v. American Stores Employee Benefit Plan, 818 F.Supp. 1131 (N.D.Ill. 1993) (criminal theft); Conery v. Bath Assoc., 803 F.Supp. 1388 (N.D.Ind. 1992) (embezzling company funds); Adkins v. United Int'l Investigative Servs., Inc., 1992 U.S. Dist. LEXIS 4719 (N.D.Cal. Mar. 27, 1992) (deserting security post and falsifying log to earn extra paycheck).

Boudreaux v. Rice Palace, Inc., 491 F.Supp.2d 625 (W.D. La., 2007)

Wow! I hope it didn't take you long to find each of those cases related to my examples!

Thanks very much for your (typically) thorough answer.

A followup question: why would it matter to the employer whether the terminated EE who was fired for 'gross misconduct', is entitled to COBRA continuation or not, as the terminated EE must pay the full premium + 2%? Are there other costs to the ER?

BruceM

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Usually the person that chooses COBRA continuation has a health condition that would cause other coverage, such as under an individual policy, to cost more than the COBRA continuation coverage. This person yet being in the ER's group insurance policy can cause the group rates to be higher than they would be if this person were not allowed to continue coverage under COBRA. To keep the premium rates under the group policy lower, an ER often would prefer if such a person did not elect COBRA coverage--or if there is 'gross misconduct', this person is not offered COBRA.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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JSimmons: Your point is well taken. On the other hand, isn't the prospect of having an increase in future premiums better than being the de facto insurer of that same individual's medical expenses should a court and up disagreeing with your "gross misconduct" conclusion? For that reason, I lean more towards SLuskin's rule of thumb, although I wouldn't necessarily insist on police action if there were witnesses who would back up the employer's position.

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... isn't the prospect of having an increase in future premiums better than being the de facto insurer of that same individual's medical expenses should a court and up disagreeing with your "gross misconduct" conclusion?

Without a bright line demarcation from the IRS by what is and what is not considered gross misconduct, the employer that denies the former employee the option of COBRA continuation runs the risk of being second guessed by a court (and as you, jpod, point out that risk is being the self-insurer of the former employee's medical costs during what would have been the COBRA continuation period).

Even arrested and charged by the police will not be a 'safe harbor'. There are times the police charge the wrong person with a crime. The best prophylactic in this situation is not deny anyone the COBRA continuation opportunity--given even the worst rascal a COBRA notice and election.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Guest Sieve

John --

As you suggest, John, giving all former employees access to COBRA continuation coverage (even "gross misconduct" terminations) may be an insurance policy worth paying for--especially in these difficult economic times, when even healthy individuals & young people will seriously consider taking COBRA coverage because they fear a catastrophic illness/accident and have little or no prospect for a job (& alternate health care coverage).

What about affirmatively informing people in writing, when they are terminated due to "gross misconduct", that they are not eligible for COBRA continuation coverage, thus commencing the claims process and eliminating litigation from the arsenal of those who do not follow the claims procedures?

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Do an ERISA plan's claims procedures apply to COBRA continuation coverage eligibility?

Putting the issue to the miscreant former employee by informing him as you suggest certainly puts the employer in a better position than simply deciding he does not qualify, not sending him COBRA notices/election form and making no mention of it to him.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Guest Sieve

I thought you'd answer the question of whether claims procedures apply to COBRA continuation coverage for me !!!

Pursuant to ERISA Section 601(a), a qualified beneficiary must be entitled to elect COBRA continuation coverage "under the [group health] plan". By my thinking, that would make COBRA coverage subject to ERISA's claims procedure. (ERISA Section 503.)

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That COBRA coverage is continuation in group coverage ought to distinguish it from individual conversion rights to group life coverage after employment ends, which individual conversion rights some courts have held are not ERISA-governed because their individual conversion rights. (ERISA preemption thread) So the group aspect of COBRA coverage ought to buttress the notion that ERISA claims procedures and exhaustion of remedies should apply to COBRA eligibility determinations.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Guest Sieve

What about ERISA Section 602(5), which requires that "the [group health] plan must . . . provide . . . the option of enrollment under a conversion health plan . . ." following the expiration of COBRA coverage eligibility? Are you saying that this individual conversion coverage, the availability of which is mandated by ERISA and is part of an ERISA group health plan, is not subject to ERISA (e.g., claims procedure) because it is merely an individual policy of health insurance?

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What about ERISA Section 602(5), which requires that "the [group health] plan must . . . provide . . . the option of enrollment under a conversion health plan . . ." following the expiration of COBRA coverage eligibility? Are you saying that this individual conversion coverage, the availability of which is mandated by ERISA and is part of an ERISA group health plan, is not subject to ERISA (e.g., claims procedure) because it is merely an individual policy of health insurance?

No, no. I'm saying the case for ERISA applying is stronger where the coverage at issue is under a group policy than an individual one. Not that ERISA never applies to coverage under individual policies.

Certain types of coverage--health and life insurance included--are ERISA governed if provided under a group policy for employees. Maybe not for individual policies for the same type of coverage. There are cases that hold that an individual conversion right incident to ERISA-governed group life coverage is itself ERISA-governed. There's at least one case that cuts the other way, that ERISA does not apply but state law rules do to that individual conversion right. Since COBRA coverage is provided under a group health plan rather than, say, the purchase and delivery of individual policies, your suggestion that ERISA claims procedures ought to apply to COBRA coverage and more particularly the determination of eligibility for COBRA continuation should not be as easy for a court to dismiss as that one court did regarding the individual conversion right for life coverage.

ERISA § 602(5) provides that if the group health plan otherwise generally gives individual's losing group coverage the option for individual conversion of health coverage, then that plan must also give the conversion option for 180 days at the end of the COBRA continuation coverage. I.e., a group health plan must postpone any individual conversion right under the group health plan to the end of COBRA continuation--and then keep that option open for 180 days.

ERISA makes no mention of individual conversion rights for life coverage. As you pointed out, ERISA does refer to individual conversion rights for health coverage. Thus, the argument that ERISA (and its claims procedures) ought to apply to COBRA continuation coverage and eligibility for it ought to apply to individual conversion is stronger in the health coverage context than the life insurance context.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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As an employer, we give all former employees access to COBRA continuation coverage (even "gross misconduct" terminations) rather than take the chance that we may be second-guessed later. Under that logic, if we offered COBRA to someone involuntarily terminated for gross misconduct after September 1, would that individual be eligible for the subsidy and would the employer be able to recoup the subsidy for that person?

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I think that raises an interesting issue. Seems there has been some speculation or suggestion by the ARRA COBRA gurus that employers might need to pay more attention to the gross misconduct exception where failing to apply it means that individuals are receiving money from the government they arguably should not be.

I think many many employers handle the gross misconduct exception this way--that is just give everybody a chance to elect COBRA--for fear that they may make a mistake or get challenged with respect to their gross misconduct classification.

As a practical matter, I cannot really see the regulators having time to drill down and challenge the gross misconduct exceptions (or lack thereof). Seems if they do then it is only fair that, at a minimum, they should provide a more definitive definition or guidance to employers on that point.

I suppose employers could always adopt a bifurcated approach and adopt a policy of being more generous and permitting COBRA coverage elections for all, even if there arguably was gross misconduct, but then be stricter with respect to classifying indivuals as ineligible for the subsidy piece due to the gross misconduct exception. That would seem to comply with the general terms of ARRA changes and would presumably allow individuals to challenge the employer's decision as part of the new ARRA appeal process. Perhaps that might be the best way to go as it might result in plans getting better guidance overall as to what the regulators consider sufficient for gross misconduct.

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