COBRA and Dependent Audits

[Christine Oliver]

Hello -

My understanding is that if an employer finds ineligible dependents enrolled in health insurance plans as a result of an audit, the employer is not obligated to offer COBRA to those that are removed from coverage. Can the employer choose to extend COBRA to these folks or is that not permissible or creates other compliance issues.

 

[Peter Gulia]

If the health plan is “self-funded”, an employer that offers more than the plan (including applicable law) provides does so at the employer’s financial risk.

A stop-loss insurance contract typically responds only to claims that not only are beyond the attachment point but also are within the plan’s coverage, typically limiting continuation coverage to no more than applicable law commands.

This is not advice to anyone.

[Bruce Grant]

Even on fully insured, in the event of a large claim that gets audited by the carrier, the carrier will probably retroactively deny the claim due to it being on an ineleigible dependent, and the employer may get sued by the non-eligible dependent for "giving them the illusion of coverage".

[HRagain]

Even if you could, I would not suggest it. If you want to allow these ineligibles on the plan, then work with their broker/insurance contract to actually allow that.  

But they were never really eligible for the plan and not qualified beneficiaries for COBRA purposes.  

I can't see why the employer after doing an ineligible audit would override this by choosing to extend something they still aren't eligible for! The whole point is to get ineligibles OFF the plan immediately

[Brian Gilmore]

I agree the loss of coverage caused by ineligible status is not one of the COBRA triggering events, and therefore not a qualifying event.  In other words, no COBRA rights apply.

The second piece is basically if you want to offer "COBRA-like" coverage in this situation to mirror the continuation rights available through COBRA for those removed in the eligibility audit.  I think that's fine with two important caveats:

1. It's approved by stop-loss (self-insured) or the carrier (fully insured).
2. It's handled consistently for ERISA plan precedent purposes.

As noted by multiple folks above, that first condition could be a significant barrier here.  You never want to be in a position where a carrier or stop-loss can deny payment for an unapproved individual.