Change in Plan Eligibility: Cobra Event?

[Guest Lyn6688]

Suppose an employer was formerly self insured, then ends that plan and goes out and purchases group health insurance. As a result of the market for group insurance if he wishes to purchase insurance he can only cover 50 of his 67 employees. In order to obtain the insurance he rewrites eligibility by effecting a "mangement carve out" (i.e., he covers 50 salaried employees and excludes from the new,insured plan the 17 non-salaried employees who had been covered under the old self insured plan) Is there a COBRA qualifying event for the 17 who have lost benefits? I think not. Although they did have a loss of coverage, it was not associated with a job loss or reduced hours. Does anyone think this is a COBRA qualifying event?

[mroberts]

Since the class (non-salaried employees) is losing coverage, it would then be a qualifying event. As a rule of thumb, whenever an employee or group is losing coverage, COBRA will most likely need to be offered.

[Jbentz]

I can't find it in anywhere in my COBRA information that it qualifies; however; I would be careful how you handle this and look at the big picture. How many employees will TRY to file a suit, go to the EEOC (to try to find a discrimination problem), find other employment? How many employees will quit before the plan end and then you will have to offer them COBRA?

You might be better off to offer it and see how many employees take you up on the offer. Even if you do not offer them the plan, (and you might want to rethink that offer), you might see if you can't help them find other individual coverage.

Can you offer them, as a separate class, less benefits and have them pay more than the carve out managers?

[mroberts]

I agree that it may not be specifically laid out, however, I have seen it occur a number of times and the employees have been offered COBRA. Additionally, creating contracts for North America's largest insurance carrier, a loss of benefits that targets a specific class was considered a qualifying event.

The spirit of COBRA is to allow employees to continue their health care benefits when they are no longer eligible. To say that an employee that has his or her hours reduced is eligible for COBRA and an employee whose class is losing the benefit because of a change to the contract is not eligible is an extremely fine line.

I agree with your assertion that not offering COBRA could create some major headaches for the employer down the road. I would offer the benefits and let the chips fall as they may. One other factor to consider is the group in question is less than 70 employees. Because of the company size, it should not be experience rated when it comes to their medical plan. Therefore, offering COBRA to 17 employees, of which only a couple will actually take the benefit, should not negatively impact the employer financially. Obviously some additional administrative work will need to be taken on, but it far outweighs the legal costs that could be waiting around the corner.

[Guest Lyn6688]

The problem I see is that the insurer will only extend COBRA coverage if the employer asserts that the change in eligibility is, in fact, a COBRA qualifying event. Since, on its face, the law does not seem to say the change in eligibility is a qualifying event, I have a hard time telling the employer he can tell the insurer these people have experienced a COBRA qualifying event. Isn't the employer at risk vis-a-vis the insurer if, as some suggest, the employer simply tells the insurer there has been a COBRA event?

[Jbentz]

You are correct, you don't want to promise them something you can't offer. Have you asked the new carrier about these employees? Didn't you say the original plan was self-insured? Do you have anyone else who is on COBRA now? Are they exempt or non-exempt? Are you having them move plans, or are you leaving the self-insured plan in place until the COBRA runs out? What does your new plan document say regarding current COBRA participants? Did you declare them?

I think i would first decide with the new carrier, if it is a COBRA event. Let us say it is not. Then you would have some decision making to do regarding your choices. Are you going to say "Sorry, no coverage," or are you going to try to find something short term for them?

There are many different scenerios that could play out here. Do you have anyone who has left in the last 60 days before the effective date? They will be able to elect COBRA after the new plan is in place. This needs to be addressed in your plan.

Are you going to extend the self insured plan? That could get expensive and you would need to look into the reinsurance agreement.

Is it worth all this? can you set them up a class on the new plan with minimum coverage?

I would work very closely with the new insurance carrier and see what can be done and whatever scenerio you decide to go with, have them approve it also and put it in the contract. You also need to check state laws.

[Kirk Maldonado]

A change in the eligibility conditions for coverage (resulting in the loss of coverage) is not an event that triggers COBRA. That point has been litigated several times and the courts are unanimous. Moreover, it is completely clear in the statute and the regulations.

[mroberts]

Kirk:

Do you have a couple of those case names? I would just like to review them for my records.

As indicated, I've seen companies offer COBRA in these situations. Perhaps they did this just to be more generous rather than being required by law.

Thanks!

[Jbentz]

You are correct, you can always go above the law. I would stress that your decisions are agreed to by the company and the carrier and documented. It is then much easier to think outside the box.

[Kirk Maldonado]

DeVoll v. Burdick Painting, Inc., 9th Cir. 1994, 35 F.3d 408.