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Able to change plan options when electing COBRA


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An employee expects to be laid off in the next couple of months, the employer is closing a local office and the employee does not intend to move to the new location.   Can she change her health plan election when electing COBRA?  
 

She is still employed and they are currently in their open enrollment period.  She is currently in Plan A and would normally continue in this plan.   However Plan B Is less expensive. If she cannot change she may choose Plan B now. If she can change she will stay on A For now and then decide between A and B when the COBRA decision must be made later. 

The info I’ve found seems contradictory, it say generally you cannot make such a change, but then it says there are exceptions that allow the change for HIPAA qualifying events. And losing group coverage eligibility is a qualifying event.  I’m a pension guy, just trying to help out a friend and want to make sure I’m getting it right.  Thanks.  

I carry stuff uphill for others who get all the glory.

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5 minutes ago, leevena said:

Rule of thumb, cobra coverage is the same as when an active employee, with exceptions for; HIPPA qualifying events, plan network, such as HMO, not available in your geography, and Open Enrollment.  Should check with employer to learn more.

Understood.  But upon termination she's no longer eligible for her current group coverage - and this is typically a HIPAA qualifying event.  So does the loss of group coverage trigger the exception that allows her to elect different coverage under COBRA?

I carry stuff uphill for others who get all the glory.

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Seems to be answered by the COBRA regs. This is Treasury Regulation 54.4980B-5, Q&A 4:

Q-4: Can a qualified beneficiary who elects COBRA continuation coverage ever change from the coverage received by that individual immediately before the qualifying event?

A-4: (a) In general, a qualified beneficiary need only be given an opportunity to continue the coverage that she or he was receiving immediately before the qualifying event. This is true regardless of whether the coverage received by the qualified beneficiary before the qualifying event ceases to be of value to the qualified beneficiary, such as in the case of a qualified beneficiary covered under a region-specific health maintenance organization (HMO) who leaves the HMO's service region. The only situations in which a qualified beneficiary must be allowed to change from the coverage received immediately before the qualifying event are as set forth in paragraphs (b) and (c) of this Q&A-4 and in Q&A-1 of this section (regarding changes to or elimination of the coverage provided to similarly situated nonCOBRA beneficiaries).

(b) If a qualified beneficiary participates in a region-specific benefit package (such as an HMO or an on-site clinic) that will not service her or his health needs in the area to which she or he is relocating (regardless of the reason for the relocation), the qualified beneficiary must be given, within a reasonable period after requesting other coverage, an opportunity to elect alternative coverage that the employer or employee organization makes available to active employees. If the employer or employee organization makes group health plan coverage available to similarly situated nonCOBRA beneficiaries that can be extended in the area to which the qualified beneficiary is relocating, then that coverage is the alternative coverage that must be made available to the relocating qualified beneficiary. If the employer or employee organization does not make group health plan coverage available to similarly situated nonCOBRA beneficiaries that can be extended in the area to which the qualified beneficiary is relocating but makes coverage available to other employees that can be extended in that area, then the coverage made available to those other employees must be made available to the relocating qualified beneficiary. The effective date of the alternative coverage must be not later than the date of the qualified beneficiary's relocation, or, if later, the first day of the month following the month in which the qualified beneficiary requests the alternative coverage. However, the employer or employee organization is not required to make any other coverage available to the relocating qualified beneficiary if the only coverage the employer or employee organization makes available to active employees is not available in the area to which the qualified beneficiary relocates (because all such coverage is region-specific and does not service individuals in that area).

(c) If an employer or employee organization makes an open enrollment period available to similarly situated active employees with respect to whom a qualifying event has not occurred, the same open enrollment period rights must be made available to each qualified beneficiary receiving COBRA continuation coverage. An open enrollment period means a period during which an employee covered under a plan can choose to be covered under another group health plan or under another benefit package within the same plan, or to add or eliminate coverage of family members.

(d) The rules of this Q&A-4 are illustrated by the following examples:

Example 1.

(i) E is an employee who works for an employer that maintains several group health plans. Under the terms of the plans, if an employee chooses to cover any family members under a plan, all family members must be covered by the same plan and that plan must be the same as the plan covering the employee. Immediately before E's termination of employment (for reasons other than gross misconduct), E is covered along with E's spouse and children by a plan. The coverage under that plan will end as a result of the termination of employment.

(ii) Upon E's termination of employment, each of the four family members is a qualified beneficiary. Even though the employer maintains various other plans and options, it is not necessary for the qualified beneficiaries to be allowed to switch to a new plan when E terminates employment.

(iii) COBRA continuation coverage is elected for each of the four family members. Three months after E's termination of employment there is an open enrollment period during which similarly situated active employees are offered an opportunity to choose to be covered under a new plan or to add or eliminate family coverage.

(iv) During the open enrollment period, each of the four qualified beneficiaries must be offered the opportunity to switch to another plan (as though each qualified beneficiary were an individual employee). For example, each member of E's family could choose coverage under a separate plan, even though the family members of employed individuals could not choose coverage under separate plans. Of course, if each family member chooses COBRA continuation coverage under a separate plan, the plan can require payment for each family member that is based on the applicable premium for individual coverage under that separate plan. See Q&A-1 of § 54.4980B-8.

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Thank you @EBECatty, this is helpful.  Bottom line it seems that the employer must offer the exact same coverage as existed prior to termination, and does not have to allow any changes.  The termination of employment and loss of group coverage is not a qualifying event that permits an individual to change their coverage. 

I carry stuff uphill for others who get all the glory.

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48 minutes ago, shERPA said:

Thank you @EBECatty, this is helpful.  Bottom line it seems that the employer must offer the exact same coverage as existed prior to termination, and does not have to allow any changes.  The termination of employment and loss of group coverage is not a qualifying event that permits an individual to change their coverage. 

so shERPA, I think EBECatty has probably nailed the legal rules above, but (a) if she is still employed and the option is available and they have a section 125 plan, and the employer has adopted the COVID guidance, she should be able to change before she's terminated, right? If all those assumptions are true, employer may have a fiduciary duty to let her know what her options are. Also, assuming the carrier does not have a problem with the switch, why fight it?

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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On 8/6/2020 at 1:44 PM, shERPA said:

Understood.  But upon termination she's no longer eligible for her current group coverage - and this is typically a HIPAA qualifying event.  So does the loss of group coverage trigger the exception that allows her to elect different coverage under COBRA?

Sorry, saw this after other responses.  Key is that the employee does not actually lose group coverage because COBRA is an extension of coverage.

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22 hours ago, Luke Bailey said:

so shERPA, I think EBECatty has probably nailed the legal rules above, but (a) if she is still employed and the option is available and they have a section 125 plan, and the employer has adopted the COVID guidance, she should be able to change before she's terminated, right? If all those assumptions are true, employer may have a fiduciary duty to let her know what her options are. Also, assuming the carrier does not have a problem with the switch, why fight it?

Yes Luke, she's still employed and since it's open enrollment, she can make a change right now anyway.  She did get back to me that she was able to get in touch with her HR people and they confirmed that what she elects now is what's available to her for COBRA.  Thanks. 

I carry stuff uphill for others who get all the glory.

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30 minutes ago, leevena said:

Sorry, saw this after other responses.  Key is that the employee does not actually lose group coverage because COBRA is an extension of coverage.

OK, got it, thx.  From what I've seen the reg EBECatty posted above is actually a bit clearer than many of the "explanations" I found that seemed to create the confusion, at least for me.  

I carry stuff uphill for others who get all the glory.

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