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COBRA Triggered by Employer's Loss of Service Contract


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I think I know the answer to this but wanted to ask to be sure I'm not missing anything.

Company A is a large property manager.  They have a contract to manage a particular facility among others.  The owners of the facility are selling the facility and the new owners intend to engage a different property manager, Company B.  Company A must fire most of the employees that worked at the facility.  Company B is new to this particular area and plans to immediately re-hire most but not all of the terminated employees who will continue doing their same jobs as in the past.  Those employees will have a clear termination of employment with Company A and so should be afforded COBRA rights.  (Company B has a relatively weaker and expensive health plan than Company A's plan such that COBRA coverage may be found worth the cost to some of the former employees, at least for some period of time.)

I don't think there is any exception to Company A's obligation to offer COBRA coverage to all terminated employees under this scenario, including those that are immediately hired and offered coverage by Company B.  That presumably would be different if there were a sale of Company A (or Company A's assets) and Company B was a legal successor (or deemed to be a successor employer for those immediately hired).  However, in this case, Company A was simply hired to manage the property and is losing that contract.  It's not being sold or selling or transferring any assets to Company B so I don't see any COBRA M&A exceptions here although it has some similarities. 

Anything I'm missing that might reduce Company A's obligations here?  Thanks.

 

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I think you are correct.  To the extent that Company A (or an entity within Company A's control group) continues to maintain a health plan, it must offer continuation coverage to the terminating employees.

If Company A (and entities within its control group) cease offering a health plan to its/their employees, there will be no COBRA obligation.

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Thanks, Chaz.  We'd talked a bit about Company A ceasing it's current plan as a way of avoiding COBRA liability here.   In this case, however, Company A has contracts for managing a few other facilities and employees tied specifically to those locations so while the loss of this facility will result in a large drop in number of Company A employees, they still need to maintain the group health plan going forward.

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