Can ER pay COBRA premiums

[Nathan]

The following question was posed to our firm, but we do not work with COBA plans very often.

I have a question for you about providing health insurance for my employees. We have been following the letter/intent of the law in providing health insurance for those employees who wish to be on our companies plan. Within the last few years I have hired an employee whom has maintained her COBRA plan but is considering joining our health plan. According to the employee, she is eligible to stay with her COBRA plan. She is also a likely candidate for knee replacement surgery in the near future. This, of course, would cause a significant increase in our premiums.

Is it possible for our firm to pay her COBRA health insurance premiums and keep her off our group plan? She is eager to do this as she does not want to provide a burden to our group plan. If we can do this, what is the best legal way to accomplish it?

Any input would be great on this topic as we normally do not deal with COBRA issues. Can an ER pay COBRA premiums on behalf of an employee? If an employee is eligible for an ER's group plan are they then ineligible for COBRA?

Thank you,

Nathan

[401 Chaos]

Nathan,

I'll take a crack at this although I have very limited experience with COBRA and these issues in particular.

1. I believe COBRA does typically end if the individual becomes eligible for other group coverage that does not impose exclusions for certain pre-existing conditions the individual has. Accordingly, one may have to review the coverage available to the individual under the new plan to determine whether COBRA coverage is cut short. Seems like here there is probably a good chance the individual's COBRA coverage would terminate and they should probably check their old plan re provisions about early termination.

2. Assuming the individual's COBRA coverage can be continued and eligiblity for the new plan does not terminate COBRA (or in situations where an individual has COBRA and is not eligible for a new plan), my understanding is that pretty much anybody can pay the COBRA premium on behalf of the individual. For example, hospitals might be inclined to pay some COBRA premiums on behalf of eligible individuals if failure to pay means the individual is uninsured--i.e., much better financially for the hospital to eat some COBRA premiums and be able to seek reimbursement from the plan. Also, there are situations where a COBRA eligible individual may take a job with another employer that does not offer group health. In some of those cases, the new employers may be talked into paying COBRA premiums for the new employee--cheaper than establishing whole new health plan. I think the big question in those cases then becomes whether the employer's payment of COBRA premiums on behalf of the employee is taxable. I have not researched but I believe a good argument could be made under code sections 105 and 106 that an employer's payment of COBRA premiums on behalf of an employee are not generally taxable--i.e., that they are akin to employers picking up the cost of regular group health plan premiums on behalf of employees. Some thought must also be given to whether an arrangement in which the employer picks up the COBRA premium costs in itself essentially creates a group health plan subject to ERISA, etc.

[Nathan]

Nathan,

I'll take a crack at this although I have very limited experience with COBRA and these issues in particular.

1. I believe COBRA does typically end if the individual becomes eligible for other group coverage that does not impose exclusions for certain pre-existing conditions the individual has. Accordingly, one may have to review the coverage available to the individual under the new plan to determine whether COBRA coverage is cut short. Seems like here there is probably a good chance the individual's COBRA coverage would terminate and they should probably check their old plan re provisions about early termination.

2. Assuming the individual's COBRA coverage can be continued and eligiblity for the new plan does not terminate COBRA (or in situations where an individual has COBRA and is not eligible for a new plan), my understanding is that pretty much anybody can pay the COBRA premium on behalf of the individual. For example, hospitals might be inclined to pay some COBRA premiums on behalf of eligible individuals if failure to pay means the individual is uninsured--i.e., much better financially for the hospital to eat some COBRA premiums and be able to seek reimbursement from the plan. Also, there are situations where a COBRA eligible individual may take a job with another employer that does not offer group health. In some of those cases, the new employers may be talked into paying COBRA premiums for the new employee--cheaper than establishing whole new health plan. I think the big question in those cases then becomes whether the employer's payment of COBRA premiums on behalf of the employee is taxable. I have not researched but I believe a good argument could be made under code sections 105 and 106 that an employer's payment of COBRA premiums on behalf of an employee are not generally taxable--i.e., that they are akin to employers picking up the cost of regular group health plan premiums on behalf of employees. Some thought must also be given to whether an arrangement in which the employer picks up the COBRA premium costs in itself essentially creates a group health plan subject to ERISA, etc.

Chaos - thanks for your input on this issue. I will advise the client to review their current plan to see if it would cut short or stop the COBRA policy. Good point on the taxation issue, I will do some further reserch on this as well.

Any other comments from anyone are always welcome.

Nathan

[Guest Sieve]

FWIW, it is coverage under another group health plan (after election of COBRA coverage), not eligibility, that permits the former employer to terminate COBRA coverage (if, as mentioned by Nathan, the new plan meets certain conditions)--although mere eligibility causes the ARRA subsidy to be unavailable.

[Nathan]

FWIW, it is coverage under another group health plan (after election of COBRA coverage), not eligibility, that permits the former employer to terminate COBRA coverage (if, as mentioned by Nathan, the new plan meets certain conditions)--although mere eligibility causes the ARRA subsidy to be unavailable.

Sieve, is it your understanding too that anyone (in this case the employer) can pay the COBRA premium for the one employee that has not elected to join the companies group health plan? Do you know if the EE can pay these premiums with pre-tax dollars through a premium conversion plan that allows individule policies? Thanks, again.