More COBRA Questions!

[Guest Richard Bellamy]

1. Company A spins off Company B. As part of the spin-off agreement, Company A agrees to keep Company B's employees on their health plan, so now Company A's health plan is covering non-employees. Five years later, Company A stops offering coverage to Company B's employees.

Does Company A have to offer COBRA? The qualifying event (termination of employment with Company A) that led to the loss of coverage happened five years ago, so outside the "maximum coverage period." On the other hand, no one was given COBRA notices five years ago, because there was no loss of coverage.

What say you? Outside of a MEWA, I don't see any guidance when a Company is insuring another Company's employees.

2. Simple question, but one I can't find the answer for.

Company A used to offer dependent coverage for spouses and children. For the new plan year, they drop dependent coverage and only offer insurance to employees. A qualifying event for COBRA is defined as "(5) A dependent child's ceasing to be a dependent child of a covered employee under the generally applicable requirements of the plan;" Is dropping dependent coverage a qualifying event? Under the strict language of this section, it appears that the dependent child is no longer a "dependent child . . . under the requirements of the plan." But I've only seen that section used if the dependent ages out (or stops being a student), not because the definition of "dependent child" changes in the plan. Also, there's no comparable language for a spouse. Do we have to offer coverage to a child who was formerly a "dependent child" under the plan requirements, but is no longer one because of a change in plan language?

Thanks.

[Chaz]

#1 appears to be a mess that a quick message-board answer probably won't do any justice. I can see the logic that COBRA is not required but I would tread carefully.

With respect to #2, I have always taken the position that COBRA is only required in the event that dependents continue to be covered generally under the plan. Otherwise, there are no "similarly situated" employees (i.e., parents) to compare the coverage.

[Guest Richard Bellamy]

#1 appears to be a mess that a quick message-board answer probably won't do any justice. I can see the logic that COBRA is not required but I would tread carefully.

With respect to #2, I have always taken the position that COBRA is only required in the event that dependents continue to be covered generally under the plan. Otherwise, there are no "similarly situated" employees (i.e., parents) to compare the coverage.

Thanks for the insights.

[Chaz]

Let me note that, in the case of #1, the arrangement probably HAS inadvertently created a MEWA. There is no other structure that it can be. I'm not sure whether you were questioning that.

Getting out of that mess is another story.