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Tricky Situations with COBRA Compliance

Tuesday March 4th 2014

Part three of three part series  

In parts 1 and 2 of our series, we learned what a qualifying event is, coverage time frames, who is a qualified beneficiary and who should report COBRA events.  In our final article, we learn about three situations that require extra thought. 

Loss of coverage in anticipation of a qualifying event
If coverage is reduced or eliminated in anticipation of a COBRA qualifying event, the reduction or elimination is disregarded for COBRA purposes.  Once the employer receives notice of the event, the plan is required to make COBRA available.  COBRA coverage would begin the date of the qualifying event.

  • Loss of coverage date is date of removal from plan
  • COBRA begins on event date (e.g., date of divorce)
  • Premium due from event date
  • Coverage not required during gap

COBRA states that a loss of coverage can occur in anticipation of a qualifying event.  The span of time between the loss of coverage and qualifying event does not matter. The employer is not required to provide coverage between the loss of coverage and the qualifying event.  The qualified beneficiary is generally entitled to the same coverage in effect before being removed from the group health plan.  However, if coverage was modified for similarly situated non-COBRA beneficiaries between the loss of coverage and qualifying event dates, the modified coverage is offered.

Gross misconduct
Gross misconduct is a tricky area in COBRA and employers should exercise extreme caution. This applies only to involuntary terminations. There is no clear definition and the IRS has stated it does not plan to provide a clear definition. These cases are decided in court on a case-by-case basis. Gross misconduct is not necessarily equivalent to cause. If a termination is decided to be for gross misconduct, there is no qualifying event for the covered employee, any covered spouse or any dependent children.

FMLA
The legislative history and the COBRA regulations make it clear that FMLA leave is not a COBRA qualifying event. The qualifying event takes place on the last day of the FMLA leave if the covered employee does not return to work (or the later loss of coverage date if the employer uses the OBRA ’89 option).

FMLA law allows employers to terminate employee coverage if the employee’s contribution is more than 30 days late. FMLA law requires a 15-day notice to be given. Depending on the employer’s written FMLA policy regarding unpaid leave, the coverage may be retroactively terminated. Any gap of coverage caused by unpaid premiums during FMLA would not count towards a 63-day break in coverage. Therefore, if an individual experienced a 63-day break or more in coverage during FMLA, they would be entitled to reinstatement on the health plan (after FMLA or during COBRA continuation) without any consideration being given to a pre-existing condition.

  • FMLA leave is not a COBRA qualifying event
  • Group health plan coverage continues as if an employee was not on FMLA leave
  • Group health plan coverage may be terminated for failure to pay (at least 30-day grace period)

Returning employees are entitled to job reinstatement and group health plan reinstatement (regardless if coverage was maintained during FMLA leave).   If an employee does not return, the COBRA qualifying event is last day of FMLA leave.  Qualified beneficiaries are entitled to COBRA coverage (regardless if coverage was maintained during FMLA leave).

Have you had other tough COBRA qualifying event circumstances?  What is your biggest COBRA compliance challenge?  Please share your comments.

The other articles in the series are as follows:
Part 1: What’s a COBRA Qualifying Event?
Part 2: Who’s a Qualified Beneficiary and Who’s Responsible for COBRA Event Reporting?

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