Terminated Retiree Medical Plans & COBRA

[Christine Roberts]

Employer elects to terminate two different types of retiree group medical plan:

1) an early retiree medical plan that offered the same coverage as was available to actively employed employees; and

2) a Medigap plan available only to retirees who were enrolled in Medicare Part A & B.

Employer never offered COBRA to employees transitioning to these plans.

Employer is now terminating both plans effective next year and intends to offer COBRA to those former employees (and dependents) who are enrolled in the early retiree plan. (Even though Treas. Reg. Sec. 54-4980B-4, Question 1, Ex. 5 only appears to require COBRA be offered to qual. beneficiaries whose 18 month period of coverage did not expire under the employer's alternate coverage).

But for those in the Medigap plan, isn't COBRA available only to the spouses and dependents of the Medigap plan participants, upon plan termination?

[KIP KRAUS]

Christine:

If we are assuming that the spouses and dependents are not enrolled in Medicare I agree with your conclusion that only they should get COBRA. On the other hand, if a spouse is enrolled in Medicare the spouse shouldn’t get COBRA.

[Christine Roberts]

Kip, thanks for diving in on this one.

Yes, all retirees themselves are enrolled in Medicare - one of the retiree's dependents is not yet eligible for Medicare, however, and presumably COBRA would have to be offered to that individual.

[KIP KRAUS]

I agree

[Guest eafredel]

Is it correct to assume that the employer who is terminating the plans is not involved in bankruptcy? Also, were some or all of the retirees eligible for Medicare before they became eligible for COBRA coverage? The answers to these questions might influence the respones to your questions regarding COBRA coverage for the retirees and Medigap plan.

[Guest eafredel]

I looked at the applicable regulations (Treas. Reg. 54.4980B-4 Q & A-1) and found the following example:

"Example 5. (i) An employer maintains a group health plan for both active employees and retired employees (and their families). The coverage for active employees and retired employees is identical and the employer does not require retirees to pay more for coverage than active employees. The plan does not make COBRA continuation coverage available when the employee retires (and is not required to because the retired employee has not lost coverage under the plan). The employer amends the plan to eliminate coverage for retired employees effective January 1, 2002. On that date, several retired employees (and their spouses and dependent children) have been covered under the plan since their retirement for less than the maximum coverage period that would apply to them in connection with their retirement.

(ii) The elimination of retiree coverage under these circumstances is a deferred loss of coverage for those retirees (and their spouses and dependent children) under paragraph © of Q & A -1 and, thus, the retirement is a qualifying event. The plan must make COBRA continuation coverage available for them for the balance of the maximum coverage period that applies to them in connection with the retirement."

[KIP KRAUS]

Eafredel

Your Q&A example doesn’t address whether or not the retirees have enrolled in Medicare. Does that make a difference in you opinion?

[Guest eafredel]

Kip,

I think the issue of Medicare eligiblity complicates the analysis of COBRA rights. If a qualified beneficary first becomes entitled to Medicare benefits on or before the date on which COBRA coverage is elected, then the qualified beneficiary's rights to Medicare benefits cannot be a basis for terminating the qualified beneficiary's COBRA coverage. If the qualified beneficiary first becomes entitled to Medicare benefits after COBRA coverage is elected, the plan may terminate the COBRA coverage upon the date on which the qualified beneficary becomes entitled to Medicare benefits (i.e., enrolled in Medicare Part A or Part B).

Looking at the facts originally presented, it would seem that no COBRA election needed to be provided upon termination of employment for the retirees who ere covered under the early retiree plan (assuming that they had the same coverage as active employees and did not have to pay more for the coverage). The early retirees who lose coverage as a result of the plan termination should be entitled to elect COBRA for the balance of the maxium coverage period that would have applied to them in connection with their retirement.

If an employee retired and went into the Medigap plan (because he or she was entitled to Medicare Part A or Part B), the employee would have lost coverage upon retirement and should have been given the right to elect COBRA coverage then. If they were already covered by Medicare when they retired, I think I would permit them to elect COBRA for the balance of the maximum coverage period that would have applied to them in connection with their retirement.

Of course, the employer can be more generous and this would not offend COBRA.

I think this is a pretty complicated situation and it deserves to be looked at by counsel.

[Christine Roberts]

I agree Example 5, quoted above, applies to the early retiree plan, but my advice to the client in this situation is to offer COBRA to all participants (retirees and dependents) in the early retiree and the Medigap plan.

Participation in the Medigap plan commenced upon an employee's retirement at age 65 (Medicare eligibility) and Medicare entitlement (enrolling in Part A or B) followed. All retiree participants are enrolled in Medicare thus must be offered COBRA if the plan terminates, per my understanding. In addition, the retiree coverage (Early retiree and Medigap) cost more than active employee coverage an my understanding is that this is a loss of coverage under the 2001 final regulations.