COBRA: Can expenses go up?

[Guest pep]

Control group consists of parent A with health plan A. Subsidiary B in control group spins off and would like to cancel its health plan B. The employees of B will get COBRA notice benefits for plan A (which is comparable to plan b). For those in Sub B already on COBRA before the spin off, may they switch into plan A for the remainder of the COBRA period? If so, may the premiums go up if plan A is more expensive?

[Guest Charlie Stevens]

I am assuming that that spinoff was an asset sale. If it was a stock sale and merely the shareholder(s) of the subsidiary changed, there would be no qualifying event and no COBRA issue because coverage was not lost due to a loss of employment.

Assuming an asset sale where everyone was terminated one day and came back to work at their same desks the next day for a new employer, the old employer is required to offer COBRA and actually provide it to those whose new coverage through the new employer is not immediately effective or whose coverage is limited by virtue of a preexisting condition limitation.

The original employer has some discretion in how such COBRA coverage is offered. If Plan B is entirely discontinued, the original employer can put them under Plan A. Increased COBRA premiums for Plan may eventually be charged, but there is some uncertainty as to whether the premiums can be increased right away. That is, if people on COBRA under Plan B just experienced an increase in COBRA premiums, can you hit them with another less than a year later? One of the new COBRA regulations § 54.4980B-8 (Q-2)provides that employers must have a 12-month determination period and, during this time, premiums cannot be increased (except for 3 limited exceptions). One of the exceptions is if the qulaified beneficiary has voluntarily elected to go with a more expensive schedule of benefits. Because the exception is based on the voluntary election of the qualified beneficiary, it is unlikely that the employer can force the employee to pay a higher COBRA premium if the employee is given no choice. Does anyone have any other thoughts?

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Charlie Stevens

Michael Best & Friedrich LLP

[Guest mls]

We have similar questions regarding premium increases. I have read the three exceptions but still have questions (isn't that the way most COBRA question go!).

We have changed open enrollment from 8/1 to 1/1. I understand that we cannot change the rates for the same plans offered at 1/1 since 12 months have not passed, but what if:

1. we change insurance carriers and the rates are different?

2. we change the plan design of our medical plan and the rates are different?

3. we discontinue a plan altogether and the remaining plans are more expensive?

Can we increase rates in these cases?