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Buyer "Can't" Offer COBRA to Dependents Losing Coverage?

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Employee (E) of Seller (S), a small company with a group health plan covered by Florida mini-COBRA, has twins age 28 on the coverage, thanks to Florida law that requires allowing certain unmarried dependents to remain covered to age 30.  Buyer (B) acquires all of the S stock in mid-July, 2023, and E continues working for S, with the twins remaining on the coverage, as before.  S terminates its group health plan on July 31, and E, along with other S employees and their dependents, enrolls in B's group health plan effective August 1.  Only the twins are left out in the cold.

B's plan is subject to COBRA.  Though operating in Florida, B's coverage is underwritten in Illinois, where it also does business.  The policy does not extend coverage to dependents beyond age 26, consistent with Illinois law.  B refuses to offer continuation coverage to the twins, who lost coverage when the S plan terminated, insisting that the carrier won't allow it because the twins are older than 26. 

In a phone conversation with the Florida Office of Insurance Regulation, I was informed that a company doing business in Florida but "headquartered" in another state does not have to follow Florida's coverage rules, at least insofar as allowing certain dependents to remain on the coverage to age 30.  My contention is that federal law, in the form of COBRA, supersedes whatever state law may have to say on the subject, and that B became responsible to the twins under COBRA when B acquired S, followed by S's termination of its plan.  The twins "aged off" of coverage at that time, thereby experiencing a COBRA qualifying event when they lost coverage due to B's policy failing to pick them up because of its lower age threshold for terminating dependent coverage.

Sound reasonable?  Even if B is unable to enroll the twins on its coverage, isn't B still under some obligation to them for failing to honor their COBRA rights?  Perhaps B can help offset the cost of the twins obtaining Marketplace coverage, for example.


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Interesting situation and position. 

My thoughts are:

  • State insurance laws generally don't apply outside of the state where policy is sitused, so the FL age 30 mandate and the state mini-COBRA rules won't apply to B's plan.
  • The COBRA M&A rules still require on of the statutorily prescribed triggering events to cause loss of coverage to form a COBRA qualifying event.
  • Those rules specifically state that an employee retained by the buyer doesn't experience a QE upon the transaction even if the employee/dependent lost coverage (because there's no triggering event where no termination of employment).
  • I think one argument could be that they would've have a 36-month QE for the children upon aging out of B's plan if they had been in it upon reaching age 26, but in this case that option doesn't appear to be available.
  • Your argument appears to be that the children effectively had the triggering event the instant the COBRA rules sprang coverage responsibility to B, because at that point they lost dependent status.  But again, since they never were actually in dependent status with B I don't think that works.
  • I think the best analogy would be to assume the transaction never happened and S amended its plan to remove the age 30 dependent provision and bring it to the standard age 26 provision.  Good arguments on both sides as to whether that's a COBRA QE. 
  • Ultimately, if you could get the carrier (or stop-loss) to agree that it's a QE, I would assume it is a QE and proceed accordingly regardless of these technical considerations.  Otherwise, I think you're stuck between a rock and a hard place and will have to direct the dependents to the exchange.


Treas. Reg. §54.4980B-9, Q/A-5:

Q-. 5. In the case of a stock sale, is the sale a qualifying event with respect to a covered employee who is employed by the acquired organization before the sale and who continues to be employed by the acquired organization after the sale, or with respect to the spouse or dependent children of such a covered employee?

A- 5. No. A covered employee who continues to be employed by the acquired organization after the sale does not experience a termination of employment as a result of the sale. Accordingly, the sale is not a qualifying event with respect to the covered employee, or with respect to the covered employee's spouse or dependent children, regardless of whether they are provided with group health coverage after the sale, and neither the covered employee, nor the covered employee's spouse or dependent children, become qualified beneficiaries as a result of the sale.

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Apart from whatever Federal COBRA might or might not provide:

A State’s “mini-COBRA” law regulates an insurer and its insurance contract; it does not regulate an ERISA-governed employee-benefit plan, and does not govern an employer or former employer (except insofar as one has an obligation under a regulated group insurance contract).

That a buyer acquired all the shares of a seller does not by itself mean that the buyer assumed the seller’s obligations under a group insurance contract.

Yet, a “mini-COBRA” continuee might want his or her lawyer’s advice about the insurer’s obligations under its insurance contract and the continuee’s rights regarding the insurer.

That a seller and former employer ended its group health plan might not necessarily extinguish all the insurer’s obligations under its group insurance contract with the former employer.

Rather, just as retirement-plans people say Read The Fabulous Document, the situation the originating post describes might call for Read The Felicitous Contract (including that contract’s governing State insurance law).

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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I don't know that it makes a difference, but I'm not arguing that the twins had a COBRA qualifying event at the time B acquired S or that they lost dependent status at that time.  I concur 100% that there is no qualifying event upon the sale of S to B where the participant continues in employment with S after the transaction.  My contention is that B assumed responsibility for S employees' COBRA rights when it acquired S, and the qualifying event occurred later, when the dependents lost coverage.

The twins lost coverage when they effectively "aged off" the coverage at the time S's plan terminated, and notwithstanding the observation that they "never were actually in dependent status with B," I would argue that they were in dependent status with B for COBRA purposes, since B assumed responsibility for the COBRA rights of S's employees when B acquired S.

The qualifying event is the loss of coverage due to the children aging off the coverage, with coverage broadly construed to include the group health plans of both S and B, consistent with the operation of the M&A COBRA regs, as I understand them.  As such, the analogy of assuming the transaction never happened and S amended its plan to remove the age 30 dependent provision and changed it to age 26 appears apt, and there are "good arguments on both sides as to whether that's a COBRA QE," including in this situation where the transaction did happen.

I don't think I am arguing here that B's purchase of all the S shares means that B assumed S's obligations under S's group insurance contract, so much as that B assumed COBRA responsibility for S's employees by virtue of the application of the M&A COBRA rules.

As for the suggestion that the insurer of S's terminated plan might have an obligation to these dependents pursuant to the insurance contract, "including that contract's governing State insurance law," the carrier is not owning up to any such obligation, but I agree that the situation probably does call for a careful reading of the insurance contract.

Thank you for the thoughtful comments!

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