COBRA on COBRA?

[Guest lakimies]

I am working with a union that is establishing a plan to pay COBRA premiums for continuation coverage under the employer's health plan on behalf members that are laid off. We are running into issues regarding whether the union plan is subject to the COBRA continuation coverage requirements. The definition of "group health plan" is broad enough to cover the union plan and the definition of "covered employee" under the Code is broad enough to cover union members. This would indicate that the union plan is a group health plan subject to COBRA. The two primary "qualifying events" that could occur are death and divorce. We are considering two different design options to deal with the COBRA issue:

(1) Provide that there will be no loss of coverage under the union plan as a result of a qualifying event and thus no COBRA "trigger." As long as the dependent or spouse continues COBRA coverage under the employer health plan, the union plan will pay the premium. We are leaning toward this option.

(2) Comply with the general COBRA requirements, require the dependent or spouse to pay for the coverage and hope they will not elect to pay the premium. There will be issues if a qualified beneficiary did elect coverage, however, because they would be eligible for 36 months of coverage, but the union plan is only designed to offer coverage for the COBRA period under the employer health plan, which will be less than 36 months. We are not sure what to do about the period when the dependent or spouse would not meet the plan's eligibility requirements (because he or she had exhausted COBRA coverage under the employer plan), but had not exhausted the COBRA continuation period under the union plan. I did not find anything in the regulations allowing the COBRA continuation coverage to terminate based on a participant's failure to meet other eligibility requirements in the plan unrelated to the qualifying event.

I am no expert in dealing with COBRA, so I would like to know what we might be missing.