COBRA Qualifying Event for self-employed, sole proprietor, etc?

[Guest asbks]

Under COBRA's definition of a qualifying event, what constitutes a "termination" for a plan participant who is self-employed, a sole proprietor, or simply an owner or employer who also participates in a plan as an individual?

In other words, I'm trying to determine how and when an owner or individual employer "terminates" themselves such that it constitutes a qualifying event. I realize it's something of an absurd situation -- i.e. an owner-operator could then have to issue him or herself a COBRA notice. But it occur, for instance, in a situation in which a small employer who is incorporated has to lay off all his or her employees, including themselves.

Thanks

[Guest Sieve]

I assume the contract defines who is eligible to be covered in terms of hours of service (e.g., 30+ hrs/wk.). So, I would think it would be easier for a self-employed individual to show that hours were reduced and health coverage was lost as a result. A 100% shareholder would be terminated, I would suggest, when there no longer is a paycheck. But, again, I woudl think that reduction in hours is an easier threshhold reach than termination of employment for an onwer.

[jpod]

I am not able to imagine how this could ever be a real issue. In the first place, is the employee population large enought to cause the plan to be subject to Federal COBRA? Assuming it is, and the owner wants health insurance, why is COBRA even an issue here? In other words, why, factually, are you assuming that there is even a qualifying event in the first place? Reducing his salary to something minimal or even zero temporarily does not mean he has terminated employment. He still may be working 30+ hours per week (or whatever the policy establishes as the minimum threshold for coverage) to save his business.

If you can be very specific on the facts maybe we can be of more assistance.

[Guest asbks]

This is/was a very unusual situation - the employer is large enough to be under federal COBRA, and is insured by a multiemployer Taft-Hartley Fund -- it just so happens that the owner of the company is also a participant in the plan. The employer is in the construction industry, which has major ebbs & flows in the work available, so determining when an employee has been "terminated" can sometimes be tricky. The employees, including the employer him or herself, may not actually have work during a period of time, but may not have been terminated either.

In a nutshell, it is the multiemployer plan, not the employer, in this instance that would presumably be issuing the COBRA notice. It is somewhat absurd to issue a COBRA notice to an employer who may have technically terminated "themselves," but the requirement to do so remains. So we're trying to figure out how the plan determines when that owner/employer has experienced such a qualifying event.

I appreciate your responses.

[401 Chaos]

I don't know how it works in a multiemployer situation but the difficult thing to grasp to me is how a regular plan could continue if the owner really is not working at all. (If the plan itself is terminated, so to does the COBRA obligation generally.)

I suppose if the owner basically became a passive "investor" or shareholder in the company but the company / employees truly continued working then it would be possible for the owner to terminate but the plan to continue.

I'm with Sieve--seems like they have pretty broad ability to define a termination here and could say hours were reduced to zero or whatever. Could I suppose have company provide him an official termination notice of some sort--afterall, if the company is continuing somebody somewhere would need to be able to provide that. Would there be likely pushback on this from anywhere? Seems unlikely anybody would challenge eligiblity for COBRA here where the alternative would be to continue them on regular coverage--i.e., seems like the usual thing you worry about would be the reverse of this where an owner really isn't working sufficient hours to qualify for regular coverage but tries to keep on regular rather than COBRA status.

[Guest Sieve]

Remember -- reduction in hours sufficient to lose health care coverage is a qualifying event for COBRA. Termination of employment is not required. So, why worry about demonstrating termination of the owner--just indicate to the insurnace company that the owner's hours hve been reduced, and coverage therefore was lost pursunt to the contract.

[jpod]

Can you tell us what does the owner here wish to accomplish? I'll assume he wishes to have health insurance. So, does he wish to stay on as an active participant or does he wish to go on COBRA, or does he not care? What is the purpose for all this analysis? Is there a difference in the amount which needs to be paid to the plan under COBRA vs non-COBRA? If the owner is still working full time but not getting paid, why is COBRA relevant? Please clarify the reasons for your inquiry?

[Guest asbks]

Can you tell us what does the owner here wish to accomplish? I'll assume he wishes to have health insurance. So, does he wish to stay on as an active participant or does he wish to go on COBRA, or does he not care? What is the purpose for all this analysis? Is there a difference in the amount which needs to be paid to the plan under COBRA vs non-COBRA? If the owner is still working full time but not getting paid, why is COBRA relevant? Please clarify the reasons for your inquiry?

It's not the owner who wants to accomplish something here -- rather, it's the multiemployer health & welfare fund. The owner is, like his employees, a participant in the plan. The Plan wants to know when it has to issue a COBRA notice to the employer. It knows when to issue a COBRA notice to the employees when they get laid off, but it doesn't know when (or whether) to issue a COBRA notice to the owner when the business is apparently dormant and possibly out of business. There's been no formal "termination" of the owner by himself, obviously.

[jpod]

OK, asbks, now I understand. I guess the question you pose cannot be answered without first answering a different question: What are the standards for covering someone as an "active" participant"? Once you have the answer to that question, you apply the facts and see where you come out, and that leads me back to my original thought, which is that the owner may still be slaving away full time at his business even though he may not be receiving current compensation or actually engaging in any commerce with 3rd parties. I realize this is a tough issue, but the COBRA issue is rendered moot if the Plan can defend continued coverage of the owner as an active participant.

[Guest asbks]

OK, asbks, now I understand. I guess the question you pose cannot be answered without first answering a different question: What are the standards for covering someone as an "active" participant"? Once you have the answer to that question, you apply the facts and see where you come out, and that leads me back to my original thought, which is that the owner may still be slaving away full time at his business even though he may not be receiving current compensation or actually engaging in any commerce with 3rd parties. I realize this is a tough issue, but the COBRA issue is rendered moot if the Plan can defend continued coverage of the owner as an active participant.

Thanks, jpod. I believe under the plan in question someone is eligible to be an active participant if they work more than a certain number of hours a month (e.g. 30). I guess, then, it gets into the more metaphysical question of when an owner-participant is "working." Clearly an employee is not working if they're not getting paid -- but an owner may do numerous hours of work for which he or she is not getting paid, particularly when the economy sours. Of course, this opens the door to an owner *claiming* to be working without pay when they are not -- it's pretty difficult to verify.