Employer goes out of business - then what?

[SLuskin]

We were asked today what happens if a company has had a number of involuntary terminations, sends the notices correctly to those affected, and then has to shut down completely? The group plan would then be gone.

I thought that there would be no COBRA at that point. But the person who asked me told me that Ceridian said the carriers would have to continue those plans as if the employer were still in business. I haven't seen anything about that in anything I have read.

I don't think they are talking about conversion, but I welcome any comments you have. Thank you.

[GMK]

My understanding is that the COBRA subsidy rules do not alter the COBRA eligibility rules. The subsidy, when applicable, simply helps pay the premiums. Only COBRA eligible individuals may receive the subsidy.

COBRA coverage ends when the employer ceases to maintain any group health plan, i.e., does not offer health coverage to any employees.

I'd ask the Ceridian representative to document their claim.

[Guest samc6782]

GMK's right. I got that answer from someone at the DoL in Sacramento (although who knows if that makes it so). It seems logical, though. COBRA exists to ensure that employees still have access to the plan they were in before they were terminated for something less than gross misconduct; no more company means no more health plan which in turn means no more COBRA.

If what Ceridian said were true, COBRA (and state COBRA) employees would bump premiums up even more than they already do.

Please let us know what Ceridian says when you ask them to document that!

[Guest Sieve]

I agree: cancellation of the underlying policy means that COBRA obligations cease. But, aren't there some continuing COBRA obligations in bankruptcy and in certain M&A situations for the surviving entity (or am I still smoking something)?

[SLuskin]

Thank you, everyone. That is exactly what my research told me.

[401 Chaos]

The only thing I would add is that the COBRA obligations are generally applied on a controlled group basis so if the company that goes out of business is part of a larger controlled group (e.g., an indirect subsidiary of some larger parent company) and some other entity in that controlled group sponsors a group health plan, it is possible that the COBRA obligations of the entity going out of business might shift over to the other group health plan that is part of the controlled group. That, of course, can create real administrative and network challenges, etc. and often comes as a surprise to the other health plan but I think can happen under the COBRA rules. On the other hand, if the entity going out of business is not part of a group and it terminates the plan and all other group coverage for active employees (because it no longer has employees), I think the COBRA obligation ceases as well.

[Miner88]

The only thing I would add is that the COBRA obligations are generally applied on a controlled group basis so if the company that goes out of business is part of a larger controlled group (e.g., an indirect subsidiary of some larger parent company) and some other entity in that controlled group sponsors a group health plan, it is possible that the COBRA obligations of the entity going out of business might shift over to the other group health plan that is part of the controlled group. That, of course, can create real administrative and network challenges, etc. and often comes as a surprise to the other health plan but I think can happen under the COBRA rules. On the other hand, if the entity going out of business is not part of a group and it terminates the plan and all other group coverage for active employees (because it no longer has employees), I think the COBRA obligation ceases as well.

I have a situation exactly like what 401_Chaos has mentioned. The subsidiary is going out of business and is terminating its group health plans. The parent, however, continues to maintain its GHPs. Based on the COBRA regs, it appears the parent must provide COBRA through its plans for the terminated subsidiary employees. Does anyone know how this would work administratively? The parent's plans offer completely different options (and many more) than the subsidiary plan offered. Does the parent have to offer ALL of its options to the subsidiary's former employees or just those options that were similar (e.g. if sub had a PPO, parent offers only PPO option). Any thoughts would be appreciated!