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COBRA and Bankruptcy


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Employer is selling its assets to a buyer in connection with a bankruptcy.  Pursuant to bankruptcy order, the buyer is not assuming any COBRA obligations as part of transaction.

Assume closing is on June 20, at which time most employees' employment will be terminated.  Health coverage (fully insured) for these employees will end on June 30 (end of month).  A few employees will be kept on post-closing to perform wind-down activities until, say, July 15, and employer wants to continue to provide health coverage for them during that roughly two-week period.  After the period is up, employer intends to terminate the health plan.

If the employer were to terminate its health plan on July 30, it would not have any COBRA obligation but my reading of the rules indicates that it does need to offer COBRA for the wind-down period because it is continuing to maintain a group health plan for that period.

My question is how should the employer handle the COBRA premiums for that partial month period?  If the monthly premium for coverage is $1,000, can/should the employer provide in the election notice that an electing employee can pay a pro-rated amount for the coverage (i.e., $500) for that short period?

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Chaz, do you have the correct dates in your example?  Your question asks if the employer terminates the health plan on July 30 th will they need to continue for post-closing employees, but those were to stay on till only July 15th.

For the June 20th employees you should consult the plan documents to determine when their active coverage ends, some are written as on the day of termination, some as of end of that month (June 30th).  The post-closing employees would stay covered as active employees until their termination.  Once the health plan is terminated, all lose coverage.  But as above, you should consult the plan documents and the carrier as to what the administrative policy is for this situation.  

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Thanks for your response.

The plan document/SPD/insurance policy all say that coverage ends as of the date of termination.

The reference to July 30 in the second paragraph should be July 15.  

Any thoughts on how the COBRA premiums should be handled?

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So if the employee terms on the 15th, cobra eligibility will be the 16th.  Employer should check with the carrier, but they should receive a refund for the prepaid monthly premium for this employee.  COBRA will be a 7/15-8/14 going forward.

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