COBRA for Reduction in Hours - Separate Plan for Part time employees i

[Christine Roberts]

Employer sponsors two group health plans: one for part time employees, and one for full time employees. Assume part time plan is not identical in terms of benefits, to full time plan.

When employee drops from full time to part time status, is COBRA triggered even though the employee would be eligible under the part time plan? And if the employer normally subsidizes individual premiums for part time employees, must it subidize COBRA premiums for the employees who switch to part time?

[KIP KRAUS]

Christine:

Don’t know of any sites for my opinion, but here it is.

Since COBRA essentially says the QB is entitled to the same coverage as he/she had at the QE I would say that in your scenario a case could be made for allowing the QB to elect to continue the same plan at the actual COBRA rates charged for that plan.

Unless the benefits for part-timers are considerably less than those provided to full-timers I would think most QBs would elect the part-time benefits over COBRA simply from the premium cost perspective. Thus, I am also suggesting that the employer would not be obligated to subsidize the COBRA premiums, because the subsidy provided under the part-time plan is part of that separate ERISA plan.

I don’t know if this makes sense to anyone else out there, but I like it.

[Christine Roberts]

Kip, I agree w/you re: no obligation to subsidize COBRA. What I am wondering now is whether the part time coverage constitutes "alternative coverage" for the employees switching from full time, such that there is NO further COBRA obligation to the employee if the employee rejects COBRA and takes the alternative coverage. As I understand it the dependents get a COBRA election if the employee dies or is divorced, even after the 18 month period, but when the alternative coverage ends for reasons other than the employee's death/divorce, there is no COBRA obligation. In the case I am dealing with there is a lot of switching back and forth between FT and PT and I can't think the employees doing so would expect to forfeit COBRA coverage simply by accepting the alternative plan. Do you have any thoughts in that regard?

[KIP KRAUS]

Well Christine, I’m just thinking out loud on this one, but here goes. If the employee rejects COBRA and takes the part-time coverage I definitely feel that the original COBRA QE is done and over with after the 60-day election period. From that point on I wouldn’t be concerned about the definition of alternate coverage. If another QE occurs while the employee is covered under the part-time benefit plan then the COBRA election, in my opinion would be for the part-time coverage. Having said, however, I would be concerned if the part-time benefits were so much less in terms of what is covered, not so much deductibles and co-pays, but what hospital/medical & surgical benefits are covered. Even then, I wouldn’t be overly concerned, because if the employee needed the higher coverage at the original QE, he/she should have selected it. If your employment status changes, you get what you get.

[Christine Roberts]

Kip, your point is well taken about the types of differences in coverage making a difference. Ideally, the employer should probably present employees with a chart comparing coverages, copays, exclusions, lifetime limits, and the like, before the employee makes a final decision about COBRA versus the less comprehensive plan.

Here is the thing that confuses me - if the employee is "upgrading" from part time to full time, is there any qualifying event?? Should COBRA be offered nonetheless because of the premium increase required under the full-time plan?

Finally, according to the Paul Hamburger COBRA book, if alternative coverage is selected in lieu of COBRA, no further COBRA need be offered to the employee upon termination of the alternative coverage, but only to dependents of the employee upon his or her death or disability. I dont think this rule should apply in the PT-FT situation, but it appears to be the technically correct answer for alternative coverage in general.

[KIP KRAUS]

Christine:

You see what these legislators do to make our lives miserable. In the absence of specific guidance, I would assume that going from PT to FT does result in a QE. Don’t forget it is a change in employment status that effects the plan that the employee is eligible for even though the new plan is a better plan.

I would take the same position that you do regarding the alternative coverage interpretation in your COBRA book that it does not apply in the case of this particular situation. I would argue that it only applies in the situation where there is a QE related to termination of employment of the employee. I would also argue that the intent of the COBRA is not to penalize an employee and that if you applied the alternative coverage rule to these employees who keep switching from FT to PT and PT to Ft you in effect would be penalizing them at no fault of their own.

[Linda]

I agree that switching from FT to PT would be a QE but I do not think switching from PT to FT is a QE. COBRA is available for a loss of coverage in connection with a termination of employment or a REDUCTION in hours. A switch from PT to FT is an increase in hours.

[KIP KRAUS]

Linda:

I agree with you on the reduction in hours point. However, I believe that a QE may be argued to occur under sect. 54-4980B-4 Q&A 1( c ) in this case that Christine is talking about,because there would be a loss of coverage under the terms of the PT plan. Just my guess.

[Linda]

You have a QE only if there is both (1) a loss of coverage under 54.4980B-4 Q&A-1©; and (2) an event described in 54.4980B-4 Q&A-1(B) (i.e., termination of employment, reduction in hours, divorce etc.). So, when an employee transfers from PT to FT, he has a loss of coverage but does not have an event described in 54.4980B-4 Q&A-1(B). Since the employee does not have both (the loss of coverage AND the event), he does not have a QE.