COBRA

Many companies have questions about how to handle employee benefits, especially health care coverage while employees are on furlough due to the novel coronavirus (COVID-19) pandemic. Here’s an example of a common question some employers are asking.

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods under certain circumstances. These include voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified individuals may be required to pay the entire premium for coverage up to 102% of the cost to the plan.

— The U.S. Department of Labor

Q. Our company is closing one of its divisions for one month and placing all employees in that division on temporary unpaid leave in a mandatory furlough in response to COVID-19. Do we have to offer COBRA to employees who lose coverage under our group health plan because they aren’t working that month?

A. Assuming your plan is subject to COBRA, all covered employees experiencing a reduction of hours and loss of coverage due to the furlough are entitled to a COBRA election (as are their covered spouses and dependent children). This is true even though they’ll presumably elect and continue COBRA coverage for only one month. Your company should timely provide COBRA election notices and follow its standard procedures.

A reduction of hours in a covered employee’s employment is a COBRA triggering event that commonly occurs when an employee goes from full-time to part-time, is temporarily laid off, takes a leave of absence, or has hours reduced due to a strike or lockout. If eligibility for the plan depends on the number of hours worked, and the employee fails to work the required hours, then the employee has experienced a reduction of hours for COBRA purposes.

Keep in mind that if the reduction in hours doesn’t cause a loss of health plan coverage, no COBRA obligation arises. For instance, an employee on COVID-19-related paid sick or family leave who hasn’t experienced a loss of coverage wouldn’t trigger COBRA.

As a practical matter, given the time-frames involved with offering COBRA — including at least 60 days in which to elect COBRA and 45 days in which to make the first premium payment — qualified beneficiaries can adopt a wait-and-see approach and elect coverage only if medical care is required before the election is due. In your situation, they can wait to see if they incur any medical expenses during the one-month furlough period and then decide whether to elect COBRA.

Contact us for additional information or to discuss your specific situation.

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