Extended COBRA For Highly Compensated

[CaliBen]

Can an employer offer longer COBRA duration, for example 30 months instead of 18 for a class of employees - executives, or salaried but not hourly? Assume that the employer does not subsidize the premium.

 

[leevena]

If group is insured, the carrier will more than likely say no.  If self-Funded, they could but need to be cognizant of Section 105 discrimination.  Not worth their time or effort.

[Peter Gulia]

A further point to consider if the plan is self-funded.  A stop-loss insurance contract might not provide anything for a continuation that is not compelled under the public law (rather than the written plan's provisions) that applies to the employer and its plan.

Lacking stop-loss insurance could leave an employer exposed to claims on what might be (through adverse selection, and perhaps other factors) a higher-risk population.

[leevena]

2 hours ago, Fiduciary Guidance Counsel said:

A further point to consider if the plan is self-funded.  A stop-loss insurance contract might not provide anything for a continuation that is not compelled under the public law (rather than the written plan's provisions) that applies to the employer and its plan.

Lacking stop-loss insurance could leave an employer exposed to claims on what might be (through adverse selection, and perhaps other factors) a higher-risk population.

True, good point.

[Luke Bailey]

Talk to the insurer, for sure, whether fully insured or stop loss. You have to make sure the additional period is covered by your policy. But if the insurer is OK with it (and they might be, since the group likely has good health risk), you can do it, but it's not COBRA, it's just extended group coverage under your plan. If self-insured so 105(h) is an issue, you have to make the benefit post-tax rather than pre-tax. Make sure that the rest of the plan isn't subsidizing the premium for these folks, otherwise you have fiduciary/prohibited transaction issues if there are any employee contributions.

[loserson]

Would it be simpler to just offer severance to your execs?  Then they can go to the marketplace for coverage.

You can give better benefits to execs without any discrimination issues and without imposing uncertain coverage costs on the group health plan.

You might also have a practice of keeping terminated execs on the payroll for a period of time after they are locked out of the system and no longer coming in to work.  You still need to pay them a minimum wage, but you can keep them employees for GHP eligibility.  There are certain industries where this is commonly extended as a courtesy to terminated employees, who remain "employees" while they search for a new job.  But you need to be vigilant about periodically clearing them off this status, or you could accumulate lots of zombie employees.

[jpod]

In what industries is such potential insurance fraud commonly found?

[loserson]

Yeesh, melodramatic?  It's hardly fraud.

You have an employee.  You tell the employee "find another job within 3 months because we are going to let you go."  You continue paying salary and self-insuring their subsidized group health plan coverage.  You stop expecting the employee to do regular job duties and excuse their absences so there is time for job interviews.

[jpod]

loserson:  You're the one who put "employees" in quotes.  To me that meant they were not employees any longer.  I guess I misunderstood your premise.

[Luke Bailey]

My view is that if the individual's status is not clearly within the 4 corners of the policy (fully insured group or stop loss, which will wrap the SPD), you have a potential for claims to be denied if they are large, and for employer to be stuck in the middle, having promised something to the "employee" that an insurer won't pay for. Usually I tell client that they need to disclose in a letter to the insurer how they are interpreting "employee" to include this person.

[EBECatty]

8 hours ago, loserson said:

Yeesh, melodramatic?  It's hardly fraud.

You have an employee.  You tell the employee "find another job within 3 months because we are going to let you go."  You continue paying salary and self-insuring their subsidized group health plan coverage.  You stop expecting the employee to do regular job duties and excuse their absences so there is time for job interviews.

This may work for self-insured, but in my experience insured policies usually also have an "actively at work" requirement that mandates the employee to be actually working a minimum number of hours per week, and not on paid leave with no duties. 

I see it (and other variations) happen all the time. I've had clients undergo audits and, thankfully for them, the only bad result has been to take the person off the policy at the end of the month. In theory, though, the insurer can and will deny claims if the amount at issue is large enough. 

Usually I see the requests come from situations that are otherwise sympathetic but would trigger large claims (e.g., Bob's wife is undergoing cancer treatment and she they want to stay on for 24 months instead of 18 months because of X...can't we do something?). 

[leevena]

21 hours ago, loserson said:

Yeesh, melodramatic?  It's hardly fraud.

You have an employee.  You tell the employee "find another job within 3 months because we are going to let you go."  You continue paying salary and self-insuring their subsidized group health plan coverage.  You stop expecting the employee to do regular job duties and excuse their absences so there is time for job interviews.

 

Jpod did not misunderstand.  In the post that Jpod is questioning you said terminated employees (There are certain industries where this is commonly extended as a courtesy to terminated employees, who remain "employees" while they search for a new job.), not employees who are in danger of losing their job.

In another post you discuss having terminated employees paid a minimum wage.  

[loserson]

On 8/9/2019 at 7:03 AM, leevena said:

Jpod did not misunderstand.  In the post that Jpod is questioning you said terminated employees (There are certain industries where this is commonly extended as a courtesy to terminated employees, who remain "employees" while they search for a new job.), not employees who are in danger of losing their job.

In another post you discuss having terminated employees paid a minimum wage.  

"Terminated" in the sense that you have selected them for termination, but have decided to keep them on the books as employees for several months to ease their transition into other employment.  Obviously if you're paying wages or salary, they are not yet terminated.

It's not meant for people "in danger" of losing their jobs and on probation.  It's for people who are told "you 100% will lose your job in a few months, go ahead and use work time to find a new job."

It works better in situations where you have many people doing the same thing and can cover their job.  So like professional service firms, where lots of highly paid people do similar work.  It's less well-suited where you need a manager to actively work and keeping deadweight in a single position for 3+ months is a drag.  But you could make it work as long as the condemned executive is willing to keep putting in some time as manager.  Or I have also seen situations where a doomed executive has all their reporting employees taken away but they keep lingering.

[loserson]

On 8/8/2019 at 5:19 PM, EBECatty said:

This may work for self-insured, but in my experience insured policies usually also have an "actively at work" requirement that mandates the employee to be actually working a minimum number of hours per week, and not on paid leave with no duties. 

I see it (and other variations) happen all the time. I've had clients undergo audits and, thankfully for them, the only bad result has been to take the person off the policy at the end of the month. In theory, though, the insurer can and will deny claims if the amount at issue is large enough. 

Usually I see the requests come from situations that are otherwise sympathetic but would trigger large claims (e.g., Bob's wife is undergoing cancer treatment and she they want to stay on for 24 months instead of 18 months because of X...can't we do something?). 

I have less experience advising fully insured employers on their health plans, because they are usually too small to use us regularly and many fully insured plans are trying to avoid administrative costs, but I trust that this is accurate.

Though I imagine you could probably muddle your way through by having somebody come in most days of the week but being flexible about their job search.  Like, instead of knowing a lot of your full-time white-collar employees are mostly checking facebook or amazon, you know this employee is checking linkedin and job boards.  So you couldn't let them blow off their work like if you were self-funded.  But so long as they are still doing a reasonable amount of work and they are mostly showing up every day, I suspect you would be on the kosher side of this requirement, right?

[david rigby]

Luke suggests the "group likely has good health risk".  That might be a reasonable assumption about the "executive group". 

• Beware that the average COBRA enrollee is often less healthy than the average employee.
• Beware of the precedent that might be set when trying to address one person's request.

[leevena]

Loserson, are you in the benefits industry?  Could you provide us with a quick overview of your experience?