COBRA Elections

[Guest ehs]

If an employee terminates with family coverage, covering a spouse and two children, and there are a multitude of health insurance plans available through a multitude of carriers through the employer, can the employee and his/her QB's enroll in any plan of their choosing? We recognize that the insurance companies may have an issue with accepting a QB's election due policy, but is there in something in the COBRA law that says something other than you must step back into what you had before the qualifying event occurred?

[jsb]

The QB can continue whatever they had in force at the time of the loss of coverage. You must then treat them like you would any regular employee, so if you would let your employee make a "free will" change mid-year, you should do the same for the QB. Even if you don't offer mid-year free choice elections, if the QB experiences a status change event of the type that would permit a regular employee to change plans mid-year (eg. move out of a plan's service area), you should permit the QB to do the same. And if you have an annual enrollment period allowing unrestricted change, don't forget to include your COBRA participants in all mailing and offerings.

[Guest ehs]

Thanks JSB, we thought we were losing our minds here. One of the "mulititudes" is suggesting that "free will" in choosing any offering due to a qualifying event, including termination, is allowed by regulation. They reference 4980B(f)(5)(B). When I read that alone, I say sure, let QB's buy up, down, anything they want. But it appears to be taken out of context, as that paragraph is preceded by a definition of the "type" of coverage, which suggests that coverage provided must be identical to the available to similarly situation ees. Similarly situated employees only have the option to switch plans at open enrollment or if a qualifying event is experienced, such as termination. Since termination is a qualifying event is it possible to suggest that the QB's could have "free choice"?

[jsb]

Be careful not to confuse "qualifying event" for COBRA, versus "qualified status change event" under a Section 125 cafeteria plan.

COBRA events allow you to continue the coverage you have in force at the time of the loss of coverage due to an "event" (termination, loss of dependent status, etc.).

Section 125 events allow you to make mid-year election changes, eg. plan-to-plan change. Under 125, "loss of (other group) coverage" is a 125 event that lets you make a 125 election change. On the other hand, "termination" is not an event ... it kicks you out of the 125 plan and (generally) triggers your COBRA right, which is the right to continue the plan you had in force under basically the same terms and conditions as when you were active.

[Guest ehs]

So if I am entitled to continue the coverage that I had immediately before the qualifying event, could each person (QB) select that same plan and if there were 4 QB's each could maintain a separate plan (say 4 single contracts)? Then at open enrollment select from the multitude of plan options?

[Mary C]

Yes, each covered participant can elect or decline COBRA coverage on their own.

[GBurns]

Why would "termination" not be an event?

Treas Regs 1.125-4©2)(iii) Employment status, starts off with "Any of the following events that change the employment status of the employee, the employee's spouse, or the employee's dependent: a termination or commencement of employment; .."

[jsb]

GB - granted, a termination of employment is a change of status event under 125. I apologize for my over simplification. Your quote cites a great section, which includes lots of other conditions as well, not all of which apply to every potentially affected person listed in the section.

To make a change under a cafeteria plan, termination of employment would apply to the status of another eligible dependent rather than an employee, and then only if consistency conditions are met. A dependent's termination is not a qualifying event if it does not result in a loss of coverage or one of the other criteria that satisfy the consistency standard.

Relative to an employee, termination of employment ends participation in the cafeteria plan. The person is not electing benefits under the cafeteria plan, they are exercising their COBRA rights which provide for continuation of coverage that was in effect at the time of the event.

If the employer desires, and the carriers agree, I suppose the employee can probably permit anything they want under their continuation program. It will never fall under the cafeteria plan so there are no IRS prohibitions or implications. Don't know why an employer would want to do this, but I suppose they could, again, only if the carriers agreed. (I'd want that in writing.)